UPDATE 2-Weak sweetener sales sour Tate & Lyle performance

Thu May 29, 2014 5:32am EDT

* Full-year profit falls 2 pct to 322 mln pounds

* Sees performance for new year "slightly lower"

* Says M&A could accelerate goals, but not needed

* Shares up 4.4 percent; analyst bullish on long-term prospects (Adds background, CEO comment, share move, byline, bullet points)

By Martinne Geller

LONDON, May 29 (Reuters) - Tate & Lyle posted a drop in profit and forecast a further weakening in the new year, as the British food ingredients firm feels the chill from a cold winter in the United States and stiff competition for its sucralose.

The company, which sells a range of sweeteners including sucralose under the Splenda brand, said in February that sucralose prices would be about 15 percent lower in the new fiscal year.

That was due to an influx of cheaper Chinese rivals and a glut of unsold inventory there. Tate & Lyle has had to renegotiate contracts at lower prices in order to maintain market share.

At the same time, the company's corn syrup business has been dented by an unusually long and bitter winter in the United States that hurt sales of its customers' soft drinks.

In the fiscal year ended 31 March, Tate & Lyle said adjusted operating profit before tax was 322 million pounds, down 2 percent from the prior year. Excluding the impact of currency fluctuations, it was flat.

Sales fell 3 percent to 3.15 billion pounds.

Last month the company said it expected flat full-year earnings following a disappointing third quarter that led it to cut its forecast, hitting its share price.

Up until Wednesday's market close, Tate & Lyle's shares had fallen 17 percent so far this year while the Stoxx Europe 600 Food & Beverage sector index rose 2 percent.

That left it with a market capitalization of 3.1 billion pounds ($5.18 billion) and led to market speculation it could be vulnerable to an unsolicited takeover bid from larger rivals including Bunge and Cargill.

The stock recouped a small part of those losses on Thursday, surging 4.4 percent by 0915 GMT as Jefferies analysts said the firm remained fundamentally sound with good long-term prospects.

EPS

Citi analysts noted full-year earnings per share were ahead of some analysts' expectations at 55.7 pence, largely due to a lower-than-expected tax rate.

"Given the various negative year-to-date surprises, and consequent stock performance, we think these results are, overall, encouraging," Citi said in a note.

Tate & Lyle is trying to increase its exposure to higher-margin products like specialty ingredients and higher-growth emerging markets of Latin America and Asia.

It is seen as one of the suitors for German drink and food flavours maker Wild, which is being put up for sale by its owners, the son of its founder and U.S. investment firm KKR , at a time that consumers are showing more interest in products with natural flavours and ingredients.

The company's board approved new capital investment of 100 million over the next two years in specialty food ingredients to expand capacity for existing and pipeline products

Asked about mergers and acquisitions, Chief Executive Javed Ahmed told Reuters that the company can meet its goals organically, but that "the right M&A could supplement and accelerate that".

For the new financial year which started in April Tate & Lyle said group performance should be "slightly lower" than the previous year, before the impact of currency movements.

It said its specialty food ingredient business should deliver volume growth across all major product categories, but that lower profits from sucralose would offset good performance elsewhere. It said the bulk ingredients business would be hurt by a slower start to the selling season in the United States due to the long winter and lower European sugar prices.

Despite the lower outlook, Jefferies analysts applauded the company's innovations and tuck-in acquisitions that bring it closer to increasing its profitability.

"Once the dust settles, investors can re-visit what remains a well-led, well-invested and well-positioned business for the long term. But patience is going to be required," the analysts said in a research note. (Reporting by Martinne Geller in London; Editing by Greg Mahlich and John Stonestreet)

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