August 10, 2011 / 8:56 AM / 6 years ago

UPDATE 2-CSM sees stable H2 profit after price hikes

4 Min Read

* H1 net sales 1.53 bln euros, vs 1.52 bln eur in poll

* H1 adjusted EBITA 80.2 mln euros, vs 80.8 mln in poll

* Volumes starting to recover after price hikes

* Shares up 7.4 percent, second top mid-cap gainer

(Adds analyst comment, detail, shares)

By Aaron Gray-Block

AMSTERDAM, Aug 10 (Reuters) - Dutch food group CSM CSMNc.AS said recovering volumes will stabilise second-half profit, after first-half operating profit was hit by lower demand after it raised prices for its products.

Europe's food groups are grappling with soaring costs for coffee, milk, grain, edible oils and packaging and are attempting to offset the impact by passing the increase on to consumers through higher prices and by internal cost cuts.

CSM, the world's largest bakery products supplier, said on Wednesday that as the market leader it had pushed through price rises first, which hit its volumes in the first half, especially in the United States, but it has now completed the price hikes.

"We believe we will see the low point of volume growth in the second-half after volumes contracted by 3.1 percent in the second quarter. This should mean a recovery in 2012 is fully on the cards," said ING analyst Marco Gulpers, upgrading the stock to "buy" from "hold".

CSM reported on Wednesday first-half earnings before interest, tax and amortisation (EBITA) and one-off costs of 80.2 million euros, down from the 102.5 million it reported last year, on a 7.7 percent rise in net sales to 1.53 billion euros.

Although it expects the bakery supplies markets to remain volatile, CSM said it is seeing encouraging signs of recovering volumes as the market absorbs its higher prices and guided for second-half EBITA to equal last year's 112.7 million euros.

Shares in CSM, which were down 27 percent since its profit warning on July 5, jumped at the opening and were up 7.4 percent at 17.17 euros at 0852 GMT, to be the second top gainer in the Amsterdam midcap index , which was up 2.9 percent.

Switzerland's Nestle , the world's biggest food group, raised its 2011 outlook after strong emerging market demand and also said although conditions will stay challenging, pricing should help more in the second half.

CSM, which makes muffins and pastries mainly for European and U.S. retailers, had already guided for first-half EBITA of about 80 million euros in a profit warning, blaming a spike in raw material prices.

Analysts in a Reuters poll had expected EBITA before one-offs of 80.8 million euros on sales of 1.52 billion euros.

Despite CSM's more upbeat tone, SNS Securities analysts said CSM needs to restore confidence after its profit warning, while analysts at Rabo Securities said they failed to see the reason for CSM's confidence in achieiving a flat second-half EBITA.

"It depends on costs savings, price increases and the impact on volumes (whether CSM will meet its second half target). If volumes can be sustained, this will be sufficient, but they also need cost savings," Rabo Securities analyst Patrick Roquas said.

CSM said it is cutting costs by minimising travel and consultancy expenses and has enforced a hiring freeze. It did not say by how much it planned to cut costs. (Reporting by Aaron Gray-Block; Editing by David Cowell and Mike Nesbit)

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