As the Hershey Co. goes all out this year to celebrate the 100th anniversary of its famous foil-wrapped Kisses, the candy giant is laboring to recapture its luster on Wall Street.
After Richard Lenny took over as chief executive officer in March 2001, Hershey's shares ballooned from $30 to nearly $67 in May 2005 - interrupted by a hiccup over an aborted merger with Wrigley in 2002.
The sugar high came from Hershey's rapid sales growth and fat profit margins achieved largely through cost-cutting and an unsustainable blizzard of line extensions and limited editions of Kisses, Kit Kats and Reese's candies.
To overcome slowing growth rates, Hershey - which will report fourth-quarter earnings today - has reduced its reliance on limited editions and is extending popular brands into new territories, such as the broader $60 billion snack arena, and expanding premium dark chocolate and mint lines.
With investors waiting to see if the new strategy works, the company's shares sit more than 20 percent below their peak, closing at $52.37 yesterday on the New York Stock Exchange.
Stock analysts are split over the company's near-term prospects.
Citigroup Inc.'s David Driscoll said in a research note last week that it was a good time to buy Hershey's shares because their valuation was in line with those of other branded-food manufacturers for the first time in five years. Hershey usually trades at a premium because of the strength of its brands and because its profit margins are the best in the industry, according to Driscoll.
Others worry that the company's increased advertising expenses could be a drag on the shares.
"I think it's going to take a little while for the advertising spend to really have an impact on their sales," said Mitchell Corwin, an analyst with Morningstar Inc., of Chicago.
Scaling back limited editions of Reese's peanut butter cups and other products reduced Hershey's 2006 sales - expected to be nearly $5 billion - by an estimated $35 million, according to Driscoll, but the impact went beyond that to the loss of the limited editions' halo effect.
"They were good advertisements for the regular products," Corwin said.
Not that limited editions are going away entirely. "Limited editions will continue to be part of our plans," Christopher J. Baldwin, president of Hershey's North American operations, said yesterday. "However, they will be just that: limited."
Reese's, Hershey's largest and most profitable brand, will be the focus of limited-edition activity this year, including the Elvis cup with a layer of banana creme, due out in July, Baldwin said.
The company is calling it a limited edition, but it is not saying how long it will be available.
This year, Hershey sees its best prospects for growth in four areas, or what it refers to as platforms: premium and dark chocolate; "refreshment," which includes gums and mints; snacks, such as cookies and granola bars; and healthier products, including limited-calorie candies.
Baldwin said the refreshment category was the best example of how Hershey could build its so-called platforms. The category was started with the purchase of Ice Breakers mints from Nabisco in 2000. Over the last three years, Hershey has expanded the Ice Breakers line to include Liquid Ice, fruit sours, Ice Cubes gum, and fruit sours gum.
The latest entry in the refreshment group is the York Peppermint Pattie turned into a small chewy mint sold in a tin.
Such transfers of brands from one category to another are a major tool in Hershey's strategy, particularly in snacks, where the company has brought out Hershey's cookies, brownies and nuts.
In transferring brands to new types of products, Hershey runs the risk of diluting them rather than strengthening them, experts said.
"I can't see the incremental value of the Hershey name on cookies," said John Stanton, a professor of food marketing at St. Joseph's University in Philadelphia, although he cautioned that he did not have the same information on the marketplace that Hershey did.
Stanton said Hershey's push into dark chocolate was in line with the overall industry.
While Hershey has had its Special Dark brand since 1971, it started capitalizing on the latest boom in dark chocolate's popularity in 2005 with the introduction of Hershey's Extra Dark and the acquisition of two high-end boutique brands, Scharffen Berger Chocolate Maker Inc. and Joseph Schmidt Confections Inc.
Last fall, Hershey went further into this arena, introducing Cacao Reserve by Hershey's - which includes four chocolate bars made of beans from a single country rather than a blend and which is being marketed with tips for chocolate-tasting parties and a sample sheet for tasting notes - and bought Dagoba Organic Chocolate L.L.C. in October.
Lynn Dornblaser, a new-products analyst at market research firm Mintel International Group Ltd., of Chicago, called Hershey's move into dark chocolate, which is the fastest-growing type of chocolate, a home run.
"Think about all the consumers that would never spend $4.50 on a bar of Scharffen Berger, but they might step up to a more expensive Hershey's bar," especially because it tastes so good, Dornblaser said.