Food Companies Cautious About Sales Performance at CAGNY

March 2, 2009
Food companies are optimistic, but cautious about sales performance.

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.”

On the new product front, Kellogg launched savory cracker products tied to its Special K brand and Eggo waffles with flax and blueberries.

Innovative products, coupled with price increases on some products, helped push Kraft Foods Inc.’s annual revenue up 17 percent in 2008 to $42.2 billion. But in the past year, Kraft’s stock dropped 15 percent, slightly more than the 12 percent drop in the Standard & Poor’s packaged-food stock index, but a lot better than the 40 percent loss in the S&P 500.

Kraft expects volume to fall as much as 5 percent in the current first quarter, but volume should improve significantly later on. Company execs stood by their 2009 earnings forecast, which they cut early in February.

In its most recent fiscal year, Sara Lee Corp. posted a 10 percent increase in revenue, to $13.2 billion, but the share price was down 34 percent. “Our objective is to become more streamlined, more focused, more efficient and more effective in the marketplace,” said Chairman/CEO Brenda Barnes. Project Accelerate, the company’s cost-cutting plan, is expected to save $200-250 million in about two years.

“Our marketing will place greater emphasis on the value proposition of products,” Barnes said. “We’re focused on affordable innovation delivering new versions of products at lower price points.” Barnes said that given where commodities currently are, she doesn’t expect major price increases for the rest of the fiscal year.

ConAgra Foods Inc. expects 2009 earnings to top analysts’ expectations, and is emphasizing value with its Banquet brand, which includes frozen meals priced at $1 for bargain-hunting consumers. CEO Gary Rodkin said the company also is launching a marketing campaign on March 30 to support its Healthy Choice brand.

Rodkin claimed Healthy Choice Cafe Steamers were the best-selling new food product in the industry in the first half of 2008. The new steaming technology has been transferred to Marie Callender’s meals, with an Italian-style Pasta Al Dente that scored the highest of any ConAgra product in home testing for taste and uniqueness.

Andre Hawaii, president of consumer foods, said ConAgra’s focus in snacks is on popcorn, seeds and meat sticks, and the company would like to grow its grain bar and fruit snack business.

PepsiCo, which counts on North America for the bulk of its sales (some 60 percent compared to 30 percent for Coca-Cola) had declining volumes in the region – but its business model is more diversified than its rival’s. John Compton, CEO of PepsiCo Americas Foods, said Frito-Lay in March will roll out the company first snack targeted at women: 100-calorie individual bags of Smartfood popcorn clusters. They “will be the right combination of sweet and salty and will be an excellent source of fiber and calcium.” Compton said the company estimates $650 million in additional sales by targeting women.

Meanwhile, Coca-Cola reported better-than-expected earnings, driven by double-digit volume growth in emerging markets, which helped offset declining volumes in North America. And it raised its quarterly dividend by 3 cents a share, to 41 cents. That marks the company’s 47th consecutive annual dividend increase.

Unilever’s global sales in 2008 totaled $59 billion, divided into sales of $21 billion (36 percent) in Asia/Africa, $19 billion (32 percent) in the Americas, and $19 billion (32 percent) in Western Europe. CFO Jim Lawrence said the company focus in 2009 is on strengthening its value brands; protecting cash flow and margins; taking advantage of strategic growth in personal care, developing and emerging markets and vitality; and considering smaller packages as it tries to sell more food and household items.

The integration of Folgers helped drive an 84 percent gain in earnings at J.M. Smucker Co. in the third quarter ended Dec. 31. The company said the acquisitions of Folgers, Carnation, Europe’s Best and Knott’s Berry Farm contributed approximately $492 million in net sales during the quarter.
Smucker officials claim the company is well positioned with nine No. 1 brands in the U.S and eight in Canada. Plans are to launch Jif Natural.

Along with fewer new products, more line extensions, and fewer giveaways for attendees, the recession hurt attendance at the conference, as well. Registration fell to 485 this year from 600 a year ago.

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