 Nestle and Kellogg struggle on food cost
(China Daily)
Updated: 2008-08-12 08:15
Nestle SA, the world's largest food company, and Kellogg Co, the biggest US cereal maker, can't raise prices fast enough to sustain earnings growth after the cost of grains, dairy products and meat surged to records. Vevey, Switzerland-based Nestle said on Aug 7 that first- half profit increased 5.9 percent, the slowest in four years, as cocoa and coffee costs rose. Kellogg said July 31 that second-quarter net income growth of 3.7 percent was curbed by expenses of making products from Cheez-It crackers to Pop-Tarts. While corn, used in Kellogg's Frosted Flakes cereal and Nestle's Albers cornmeal, fell 35 percent from a record $7.9925 a bushel on June 27, it's still 50 percent above the level of a year ago. Kellogg's gross profit margins narrowed 2.5 percentage points in the second quarter, partly on higher commodity and energy prices, Chief Financial Officer John Bryant said on a conference call July 31. "The food manufacturers are facing a dilemma," Stephen Pope, London-based chief strategist for Cantor Fitzgerald, said in a phone interview. "If they put up their prices too much, they face falling sales as consumers switch to other brands, but if they don't raise prices, then their margins are eroded." Nestle CFO Jim Singh said consumers are switching to cheaper products, limiting revenue from brands such as Stouffer's prepared meals in the US Sales growth sales in the nutrition division, where margins are among the highest, slowed in the second quarter. Wheat futures for December delivery, which closed at $7.9025 a bushel on the Chicago Board of Trade on Aug 8, have advanced 19 percent in the past year. Corn closed at $5.1825 a bushel. Cocoa on London's Liffe was at 1,463 pounds ($2,810) a metric ton, after rising 51 percent in the past 12 months. Agencies (China Daily 08/12/2008 page20) |
