It could be a tough year ahead for the packaged food industry as it faces weak sales volume, fluctuations in the dollar and higher ingredient costs, according to Janney Capital Markets analyst Jonathan Feeney, reports Business Week.
Feeney said in a research note that outside of store brands, Hershey Co., Kellogg Co. and PepsiCo Inc. are the only major packaged food companies now improving sales volume, largely through growth overseas. General Mills Inc. and H.J. Heinz Co. are among companies struggling with some of the biggest pressures on their profit margins while sales volume is dropping.
As investors look to 2012, Feeney said there might be some disappointment. Emphasis on emerging markets and financially driven corporate restructurings used to offset company pressures could lose their effectiveness. Companies have also protected their profit margins at the risk of selling fewer of their products for several quarters. And with no clear move toward increasing advertising spending, Feeney anticipates the industry will report disappointing revenue.
A recent strengthening of the U.S. dollar could help ease some of the pressure from rising ingredient costs. But it could also hurt companies with a significant stake overseas, where the impact of the dollar could turn the benefit they've gotten from foreign exchange rates into a problem.
