Food Companies Cautious About Sales Performance at CAGNY

Food companies are optimistic, but cautious about sales performance.

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Optimistic, but cautious about sales performance was the message food company executives delivered to investment analysts at the annual Consumer Analyst Group of New York (CAGNY) conference.

Most of the presenters at the February meeting said they were cognizant of the need for convenient and affordable frozen meals, snacks and beverages for cash-strapped consumers dining at home more often. They plan to respond with less expensive lines, but said any price reductions on existing products are unlikely.

Most of their 2008 bottom lines were hurt by commodity price increases, weaker consumer spending, competition from private labels, tight credit markets and a global recession. So the food & bev execs attempted to reassure investors that they will meet their 2009 profit forecasts. To do that, focus will be on conserving cash, cutting costs, driving growth and nurturing brand loyalty with their top brands.

“Consumers are not only eating in more often, they are becoming increasingly more particular and sophisticated shoppers,” said William Johnson, H.J. Heinz Co.’s  chairman and CEO. “The weekly trip to the supermarket is now accompanied with grocery lists and coupons or replaced altogether with multiple trips in different channels geared specifically to cost-effectively optimizing the family’s day-to-day menu.”

Heinz plans to reduce costs, invest in core brands that appeal to value-minded consumers, focus on breakthrough products such as Ore-Ida Steam n’ Mash and take advantage of long-term growth opportunities in emerging markets. Johnson said Heinz’s key financial targets for fiscal 2009 are organic sales growth of 6 percent, earnings per share (EPS) of $2.87-2.91, a growth rate of 9-11 percent and operating free cash flow of around $850 million.

Despite the tight credit market, Campbell Soup Co. has its eye on possible acquisitions to add to its soup, snacks or beverage businesses. “We have a balance sheet, and we’re not afraid to use it,” CEO Douglas Conant told Reuters. “Some possible acquisition targets are tied up as private equity investors who own them look to maximize their investment,” he said. “Others are locked up in the portfolios of companies in ways that make it difficult to sell the assets individually.” Although he didn’t name specific companies, Conant added, “There’s evidence that there will be some good values coming free within the next year or two.”

Campbell’s focus is on sodium reduction (though the use of natural sea salt via a patent-pending process), elimination of nutrition negatives and the addition of positives. Sodium in all 25 varieties of Campbell’s Healthy Request, Condensed, Chunky, Select Harvest and V8 soups will be lowered, and all-natural soup varieties will be launched. By the end of next year, Campbell expects 30 percent of its soups to have a full serving of vegetables, 36 percent to contain 80 calories or less per serving and more than half will have no MSG.

General Mills Inc. is on track for a good 2009, with margins expanding in its fiscal third quarter (which ended in February) as commodity prices declined. “General Mills has weathered the storm due in large part to the strength of our product categories and the strength of our brands,” said CEO Ken Powell.

But Big G is not planning to roll back prices, partly because the company has been raising prices at a much slower pace than commodity inflation. “We never priced to the peak,” said Ian Friendly, chief operating officer for its U.S. retail business. “As consumers work to stretch their food dollars, private label sales are kicking up. But private label penetration is lower in our categories (about 15 percent) than in food and beverage overall (19 percent) across the store.”

General Mills estimates its consumer-marketing spending will be up by “double digits” for the full fiscal year. The company will target baby boomers with the launch of new versions of its most popular brands -- Banana Nut Cheerios, Cinnamon Chex and Fiber One Frosted Shredded Wheat cereals -- and Hispanics with Progresso products such as Menudo being tested in Texas.

Increased marketing also led to increased sales at Kellogg Co.  Net sales for 2008 were $12.8 billion, up 4 percent from 2007, and earnings per share were $2.99. Kellogg has set an “aggressive goal” of achieving $1 billion in cost savings over the next three years through initiatives that range from a review of indirect procurement and purchasing to a best practices program called K-LEAN (which stands for Lean, Efficient, Agile and Network).

“We’re going to apply the K-LEAN approach to help us review our processes and procedures to truly simplify our work across the organization,” said David Mackay, president/CEO. “And it’s very important when you think about what we’re doing in manufacturing, streamlining there to reduce complexity and to save costs, that we review the organization from end to end to make sure that every aspect of our business is as streamlined as possible.”

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