February 4, 2010 / 1:51 PM / 8 years ago

Foodmakers post rosy outlooks, but pricing worries

CHICAGO (Reuters) - Food makers Kellogg Co (K.N) and Sara Lee Corp SLE.N forecast 2010 profit above analysts’ estimates, but concerns about aggressive price-cutting to gain market share weighed on some stocks.

Falling prices for wheat and other commodities have helped foodmakers cut prices and offer one-time promotions. But with high unemployment and consumers turning more to lower-priced store brands to save money, analysts were concerned that manufacturers were risking profits to chase sales volume.

“Even though commodity costs have moderated, I don’t know if the level of moderation has warranted the price declines that were passed through,” Morningstar analyst Erin Swanson said.

She noted that Hellmann’s mayonnaise and Knorr soup maker Unilever (ULVR.L) was one company that slashed prices, though it saw a large increase in the volume of products sold. Unilever also faces stiff competition on the personal care products side of its business from rivals such as Procter & Gamble Co (PG.N)

“We expect the environment for our business in 2010 to continue to be tough.... Unemployment will continue to stay high and consumer confidence is likely to remain low,” Unilever CEO Paul Polman told investors at a presentation after the company posted a 7 percent drop in its 2009 underlying earnings. Unilever shares fell 3.7 percent.


Kellogg, the maker of Rice Krispies cereal and Keebler cookies, said profit was $176 million, or 46 cents a share, for the fourth quarter. Analysts on average forecast 49 cents a share, according to Thomson Reuters I/B/E/S.

Sales fell 1 percent to $2.9 billion, just below the consensus analysts estimate of $2.94 billion. Kellogg shares fell 3 percent to $53.50.

Kellogg forecast 2010 earnings of $3.51 to $3.57 a share on a currency-neutral basis. Analysts on average forecast $3.18 a share.

Sara Lee, which makes Hillshire Farm deli meats and Sara Lee bread, had profit of 28 cents a share excluding discontinued operations and other items. That compares with analysts expectations of 23 cents a share, according to Thomson Reuters I/B/E/S.

Sara Lee forecast 2010 earnings before items of $1.00 to $1.05 a share, while analysts on average forecast 95 cents a share. Its shares rose 0.4 percent to $12.49.

Sara Lee’s baking competitor, Flowers Foods Inc (FLO.N), posted profit of $31.8 million, or 33 cents a share, down slightly from a year earlier. Analysts on average forecast 34 cents a share.

Flowers stood by its forecast of a 10 percent to 15 percent increase in 2010 earnings. That would put earnings at $1.55 to $1.62 a share. Analysts on average forecast $1.55 a share.

(Additional reporting by David Jones, Mihir Dalal)

Reporting by Brad Dorfman, editing by Dave Zimmerman

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