February 4, 2009 / 12:23 PM / 9 years ago

Kraft and Sara Lee cut 2009 forecasts

<p>Kraft brand macaroni and cheese boxes are shown in a store in Oakton, Virginia September 18, 2008.Larry Downing</p>

CHICAGO (Reuters) - Food makers Kraft Foods Inc KFT.N and Sara Lee Corp SLE.N cut their profit forecasts for the current year on Wednesday as a stronger dollar and weaker global economy hurt international sales.

Shares of Kraft, which makes Oreo cookies and Kraft cheese, fell more than 7 percent while Sara Lee, which makes its namesake bread and Hillshire Farm lunch meat, shed 5 percent.

Kraft also saw shipment volume in the United States weaken as retailers cut inventories in the recession and both companies saw consumers turn to lower-priced competitors.

Kraft and Sara Lee are vulnerable to the impact of the stronger dollar, which cuts into the value of sales made outside the United States.

"At current levels, the impact of the stronger dollar is just too hard to overcome," Kraft CEO Irene Rosenfeld said during a conference call with analysts.

The dollar's rise is also offsetting some of the gains Kraft has made in recent years by cutting costs and spending on product development and marketing.

"It's just currency is swamping a lot of the progress they are making," Edward Jones analyst Matt Arnold said.

Kraft, the largest North American food maker, said fourth-quarter profit fell to $163 million, or 11 cents a share, from $585 million, or 38 cents a share, a year earlier.

Excluding one-time items, earnings were 43 cents a share, below the average analyst forecast of 44 cents, according to Reuters Estimates.

Kraft revenue rose 6.2 percent to $10.8 billion, helped by the acquisition of the LU biscuit business.

Sara Lee posted a loss of $17 million, or 2 cents a share, in the second quarter ended December 27, compared with a year-earlier profit of $182 million, or 25 cents a share.

Excluding one-time items, earnings were 21 cents a share, matching the analysts' average estimate.

Sales fell to 2 percent to $3.34 billion. Sales fell 16.4 percent in its international bakery business and 15.7 percent in its household and body care business.

PRICE GAP

Both companies had raised prices in the past year to offset then-soaring commodity costs. But now they are becoming more vulnerable to lower-priced, private-label players, especially in more commoditized markets like cheese.

Sara Lee lost market share to private label brands in four of five key categories in the most recent quarter, Morgan Stanley said in a research note this week, while Kraft lost market share in 15 of its top 20 categories. Morgan Stanley cited research by Information Resources Inc in the report.

Kraft's Rosenfeld said she is now comfortable with the gap between Kraft's prices and those of its competitors and that she sees improvements in sales volume as the year progresses.

Kraft cut its 2009 net earnings forecast to $1.88 a share from a previous view of at least $2 due to higher-than-expected pension costs and a stronger dollar. It also expects sales to rise 3 percent before the effect of currency changes, acquisitions and divestitures, compared with its previous view of a 4 percent increase.

Sara Lee cut its 2009 earnings forecast to a range of 73 cents to 80 cents a share, excluding items, down 4 cents a share from its previous outlook.

The company cited weakness in its international businesses as one of the reasons for the cut in the forecast.

Kraft shares slid $2.17 to $26.57, while Sara Lee fell 57 cents to $9.86.

Editing by Lisa Von Ahn

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