April 25, 2019 / 11:37 AM / a year ago

UPDATE 2-Hershey shares hit record high as profit beats

(Adds share price, analysts comments, gross margin)

April 25 (Reuters) - Hershey Co's quarterly sales and profit topped Wall Street estimates on Thursday, as higher sales of its snacking brands more than offset a drop in demand for candies in the United States, sending its share up as much as 6 percent to a record high.

Consumers' growing preference for sugar-free and low-processed food has been a challenge for traditional confectioners such as Hershey, forcing it to look beyond its chocolate portfolio.

In the last two years, it has acquired snack brands cheese puff maker Pirate Brands and Skinny Pop's owner Amplify Snack Brands. Also recently, it launched low-sugar products such as Reese's Thins, which is 40 percent thinner than the original peanut butter cup.

Hershey posted first-quarter adjusted profit of $1.59 per share, well ahead of the average analyst estimate of $1.47.

Net sales rose 2.3 percent to $2.02 billion during the quarter ended March 31, as the company benefited from a 1.7 percent rise in volumes and a 0.9 percent gain from acquisitions.

Low raw materials costs, particularly cocoa prices, also helped boost Hershey's adjusted gross margin that rose to 45.7 percent, beating estimates of 45.2 percent.

Hershey is hitting the "sweet spot" given a longer Easter season and its gross margin expansion in the first quarter, said Bernstein analyst Alexia Howard in a note.

Sales in North America, Hershey's biggest market, rose 3.2 percent to $1.81 billion, even as retail sales of its candies, mint and gums fell 6 percent during the quarter.

The company, which said last year it would roll out an average 2.5 percent price hike on one-fifth of its products, said it anticipates its benefit to build over the course of the year.

Hershey reaffirmed its full-year sales and profit forecast.

Net income attributable to the Pennsylvania-based company fell to $304.4 million, or $1.45 per share, in the first quarter ended March 31, from $350.2 million, or $1.65 per share, a year earlier.

Shares of the company were up 5 percent at $123.02. Hershey shares have risen 9.2 percent this year underperforming broader S&P Consumer Staples index's 12 percent gain. (Reporting by Soundarya J in Bengaluru; Editing by Shounak Dasgupta and Shinjini Ganguli)

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