February 1, 2018 / 12:49 PM / a year ago

UPDATE 3-Hershey's surprise profit miss weighs on shares

(Adds analyst comments, context of Amplify acquisition; Updates shares)

By Sangameswaran S

Feb 1 (Reuters) - Hershey Co missed profit estimates for the first time in seven quarters, sending the candy maker's shares down 6 percent in morning trade on Thursday, the latest sign that food companies continue to struggle with lagging sales growth.

North America sales, Hershey's biggest source of revenue, fell nearly 1 percent, while international sales declined 5.4 percent.

Adjusted net income of $1.03 per share came in 4 cents lower than analysts' estimates, according to Thomson Reuters I/B/E/S.

Pennsylvania-based Hershey's sales dipped 1.5 percent to $1.94 billion in the fourth quarter ended Dec. 31, due to the timing of shipments in North America in the last quarter and the launch of the Hershey's Cookie Layer Crunch bar in the prior year that spiked sales in the 2016 quarter.

Analysts on average were expecting sales of $1.95 billion.

Adjusted margins were down 1.8 percent year-over-year as the Hershey's Kisses maker struggled with higher freight, distribution costs and supply chain expenses.

In stark contrast, Mondelez International Inc, the world's No. 2 confectionary company, on Monday beat profit estimates on bigger demand for its core brands.

Hershey has been boosting its portfolio in snacks, which are typically lower-margin products than candy, to cater to consumers' preference for healthier foods.

In December, Hershey acquired Amplify Snack Brands, which makes SkinnyPop popcorn and Paqui tortilla chips.

Amplify Snack products claim to have no artificial ingredients or transfats and come in dairy-free cheese and naturally sweet flavors that are popular among millennials.

"We estimate modest EPS accretion for Hershey in 2018 from this transaction," Stifel analyst Chris Growe wrote in a client note.

Hershey said it expects a 5-point sales benefit from the acquisition.

However, the drop in cocoa prices and cost-cutting measures have enabled the company to improve profits.

For 2018, Hershey expects sales to rise 5-7 percent and margins to remain flat, despite cost-cutting and lower cocoa prices.

"While we continue to expect falling cocoa prices to benefit gross margin, the positive margin impact may not materialize until the second-half of 2018 given the near-term headwinds," Stifel analyst Alexia Howard wrote in a pre-earnings note.

Due to lower tax rate and reinvestment, Hershey said it expects 2018 adjusted earnings per share of $5.33-$5.43, or an increase of 12-14 percent.

Reporting by Sangameswaran S in Bengaluru; and Chris Prentice in New York; Editing by Martina D'Couto

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