Hershey profits for 4Q 1999 down 11% due to SAP implementation problem

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Hershey Profits Sour, But Stock Sweetens By Edward Tobin

NEW YORK (Reuters) - Leading U.S. chocolate company Hershey Foods Corp. (HSY.N), plagued by delivery problems last fall that led to a string of profit warnings, on Monday posted an 11 percent drop in fourth-quarter earnings that beat lowered expectations.

Shares of the maker of Reese's Peanut Butter Cups and Hershey Kisses rose nearly 10 percent -- making it one of the biggest percentage gainers on the New York Stock Exchange.

The Hershey, Pa.-based company posted a quarterly profit of $98 million, or 70 cents per share, compared with a profit of $110 million, or 76 cents per share a year ago. Excluding the gain on the sale of Hershey's pasta business, net income for 1999 was $295 million or $2.09 per share diluted.

Analysts on average lowered their forecast to 68 cents per share for the quarter according to First Call/Thomson Financial estimates -- and yearly projections were cut to $2.02 a share -- after Hershey warned in December that slow sales and delivery problems would push 1999 earnings about 10 cents per share below already-reduced forecasts. The chocolate maker's stock price, which fell more than 41 percent over the last year compared with a 31 percent downturn in the overall food industry during the same period, rebounded in morning activity on the New York Stock Exchange -- climbing 3-3/4 to 41-1/2 after closing at a new 52-week low of 37-1/4 on Friday.

``Part of the bounce-back today is probably some short covering, but the stock has been very weak and while earnings were not great, they were above consensus estimates,'' Nomi Ghez of Goldman Sachs told Reuters.

In a prepared statement, Chairman and Chief Executive Kenneth Wolfe said the lower results stemmed from poor holiday sales along with customer service and order fulfillment problems stemming from the July 1999 start-up of the final phase of new business systems and processes in these areas.

The chairman added that he expects ``to resolve the remaining order fulfillment issues and restore our service levels to our customer's satisfaction'' in the new year.

But food analysts said they would rather err on the side of caution when looking ahead at the chocolate maker's outlook.

``It appears that there is some hope that the problems that beset them for past two years may be behind them. But the jury is still out,'' Ghez warned.

Patrick Schumann of Edward Jones said: ``The big questions still remain at Hershey: when will Hershey get sales back, how much is it going to cost, how long is this distribution problem going to take?''

``Certainly there was weakness in the last couple of months and that spread over into 2000 -- as expected. Now it's just a matter of when they are going to get out of the hole,'' he said, adding he was ``optimistic'' about the second half of 2000.

Prior to Monday's uptick, Hershey's shares had tumbled along with other food stocks since last fall as the sector has struggled to gain any momentum in a competitive environment where retail grocers are gaining strength against big food manufacturers.

The company and the industry are ``under pressure at a time when investors are looking for the higher growth, higher risk stocks for a higher reward...but food stocks aren't high reward stocks,'' Schumann said.

While food stocks slump, the Standard & Poor's index of the nation's top 500 companies -- Hershey is among them -- rose about 7 percent in that period while the Nasdaq composite has climbed 55 percent.

Hershey reported fourth-quarter sales, excluding the pasta unit divested in January 1999, were off nearly 4 percent to $1.105 billion from $1.147 billion. Reut12:56 01-31-00

Comment: Looks like Hershey has turned the corner ontheir Y2K/SAP implementation snafu BUT it willtake until second half of 2000 for complete recovery.

-- Bill P (porterwn@one.net), January 31, 2000


I'm surprised the drop is only 11%. Hmmm...

-- Hokie (Hokie_@hotmail.com), January 31, 2000.

The way things seem to be going right now, a company could declare bankruptcy and their stock would probably go up at least 8% next day.

-- I'm Here, I'm There (I'm Everywhere@so.beware), January 31, 2000.

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