Hershey Co. cautioned that earnings will be lower than expected this year caused by rising cost of ingredients and sluggish U.S. and international markets.
Hershey announced on Wednesday an increase of 5.8 percent in sales to $1.96 billion for Q3, but profit went down 4 percent. Shares also dropped 1.5 percent, leaving the stock down 3.3 percent this year.
Hershey, maker of America's top-selling chocolate, Reese's has shown growth amidst the recession the country has faced.
However, this year, higher ingredients cost for cocoa and dairy have forced Hershey to raise its prices, hurting its profit margins.
Hershey's gross profit margins slimmed down to 43.8 percent in the quarter from 46.1 percent the same period in 2013. The company stated that the biggest factor for the slump in sales was higher costs, prompting it to raise its chocolate prices for about 8 percent.
Chief Financial Officer David Tacka also added that the company also failed to adjust its production schedules "as quickly as we probably should have in light of how sales were changing."
The third quarter revealed sluggish sales for Hershey's in grocery stores across the United States, coupled with lagging exports to Brazil and Mexico, according to Chief Executive John P. Bilbrey.
However, Bilbrey stressed that dollar-store and convenience store sales remain strong, and Halloween and holiday sales as of the moment are going well and the company expects to achieve an increase in market share this holiday season.
Hershey has given its attention towards expanding abroad, especially in China where chocolate sales remain persistent. Hershey recently purchased the Chinese candy maker Shanghai Golden Monkey Food Joint Stock Co. and foresee's to grab hold of a large market share in the country as it becomes the second largest market of Hershey by the end of 2014.
Hershey previously forecasted that growth this year near the low end of its long-term targets of 5% to 7% for sales and 9% to 11% for earnings per share. It now expects sales to grow about 4.75% and per-share earnings to increase about 8% this year.
