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Hershey cuts outlook again on weak US, China sales

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Hershey shares tumbled over 5% as the US chocolate maker trimmed its full-year hopes, citing weak demand in the US and China, after unveiling plummeting earnings.

The news raises fresh concerns about the state of global cocoa demand, which is highly susceptible to tightened consumer budgets.

Hershey cut its forecast for 2015 net-sales growth to 1.5-2.0%, from the 3.0-4.0% previously expected.

The company blamed "international macroeconomic challenges," as well as market place trends.

Hershey's growth forecast does not include potential currency effects, which could shrink dollar-denominated receipts in overseas markets thanks to the recent strength of the greenback.

Adjusted earnings growth hopes have also been cooled, with Hershey expecting it to come in "toward the low end" of the previously forecast to 3-5%.

Falling profits

Hershey reported a slump in profits by 31%, thanks to disappointing demand in North America and China.

Hershey's earnings fell to $154.8m, in the three month to October 4, from $223.7m in the same period last year.

Net sales were cam in flat at $1.96bn.

Golden Monkey purchase

"US net sales were below expectations due to lower than expected candy, mint and gum retail takeaway in the third quarter," said Hershey.

And like-for-like overseas sales were down, thanks to the "underperformance" of Hershey's chocolate business in China.

Currency effects also weighed on overseas receipts.

Second cut to expectations

This marks the second trim to Hershey's 2015 hopes, driven by lower Chinese demand, in successive quarterly reports.

Chocolate demand in China was reported to be sharply weaker, down 14% from last year.

Hershey has gone long on China, acquiring an 80% stake in luxury chocolate maker Shanghai Golden Monkey last year, with a full takeover scheduled for this year.

Hershey shares in New York were down 4.1% at $90.43 in afternoon deals.

Cocoa processing falls

Hershey is a bar-to-bean manufacture, processing cocoa beans in house, and makes up a large segment of US cocoa demand, in addition to its Asian facilities.

This month data from the US National Confectioners Association showed a 10% drop in North America grinding in the three months to the end of September.

Cocoa grinding, which is the processing of beans in butter and powder, is used as a proxy for consumer demands.

Grinding, down to 124,229 tonnes from last year's record high, was at the low end of analyst's expectations.

But the Cocoa Association of Asia reported that grinding was down 1.6% year-on-year in the same quarter.

This was better than the 4-7% decline analysts were expecting.


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