CHICAGO Food company shares regained a bit of their defensive luster on Friday when several showed they still have pricing power in the weak economy on the same day that investor Warren Buffett disclosed an 8.6 percent stake in the largest company in the sector.
On Friday, ketchup maker H.J. Heinz Co HNZ.N forecast quarterly profit above expectations and Hormel Foods Corp (HRL.N) posted higher-than-expected quarterly profit. Both benefited from price increases that helped offset rising commodity costs, though lower pork prices also aided Hormel.
Even Campbell Soup Co (CPB.N), which missed analysts' estimates for its fiscal second quarter, on Friday reported improvement in its U.S. soup business and said it should benefit from price increases it took in February.
Friday's reports came a day after Buffett's Berkshire Hathaway Inc (BRKa.N)(BRKb.N) disclosed it had taken an 8.6 percent stake in Kraft, making it the largest shareholder in the North American food company.
"I think there's a bit of a halo effect that comes with any announcement of Buffett taking a position in any security and how it ripples through the sector," Matthew Kaufler, portfolio manager at Clover Capital Management, said. Clover owns 670,596 Kraft shares and 364,576 Heinz shares.
The Standard & Poor's packaged foods index .15GSPFOOD rose more than 3 percent on Friday to its highest level in almost a month.
Food stocks, traditionally considered defensive plays when the economy slows as people always need to eat, had been battered over the past two months by soaring prices for wheat, cocoa and other commodities. Adding to those cost pressures was concern that U.S. consumers would begin to balk at the price increases being used to offset some commodities' costs.
"We clearly know that we need to try to continue to advance pricing to try to keep up with these cost increases," Jeffrey Ettinger, Hormel's chief executive, said in an interview with Reuters. He added that the company has not seen consumers balking at the prices in grocery stores.
Hormel said profit rose to $88.2 million, or 64 cents a share, in the first quarter ended on January 27, from $75.3 million, or 54 cents a share, a year earlier, on an 8 percent sales increase.
Analysts on average forecast 58 cents a share, according to Reuters Estimates.
Ettinger did say that the company's food service business saw some softness as consumers eat out less often.
NOT SO BAD
Food companies are counting on consumers who eat out less to buy more of the company's products in the grocery store.
"I would urge you to go out and tell all your neighbors that this (Campbell soup) is the perfect recession food," Douglas Conant, Campbell chief executive, said during a conference call with analysts.
Campbell profit fell to $274 million, or 71 cents a share, in the fiscal second quarter ended January 27, from $285 million, or 72 cents, a year earlier, despite a 7 percent sales hike.
Excluding one-time items, earnings were 69 cents a share, compared with the average analyst expectation of 71 cents, according to Reuters Estimates.
Still, Campbell shares rose 6 percent on Friday as a 4 percent increase in U.S. soup sales helped eased concerns about that business. The company also maintained its full-year earnings forecast.
"It's almost like a relief rally that they didn't lower the bar." Matt Arnold, analyst at Edward Jones, said.
Heinz said it expected profit of 67 cents to 68 cents a share in the third quarter ending January 30. Analysts on average were expecting 63 cents, according to Reuters Estimates.
Heinz shares rose 4 percent and Hormel and Kraft were both up more than 5 percent.
(Reporting by Brad Dorfman; Editing by Gary Hill)