Commodity Costs To Be Hot Topic At Consumer Products Confab
February 18 2011 - 9:56AM
Dow Jones News
The fallout from rising commodity costs will take center stage
next week as the world's largest consumer-products companies
converge in Boca Raton, Fla., for the annual Consumer Analyst Group
of New York conference.
The week-long confab, which brings together companies such as
Procter & Gamble Co. (PG), General Mills Inc. (GIS) and
Coca-Cola Co. (KO), is expected to be slightly more upbeat than in
recent years as shoppers continue opening their wallets wider. But
cheers may be muted given uncertainty over how the companies can
offset increased expenses from packaging materials and key
ingredients, such as coffee and grains.
The companies likely won't make any bombshell announcements
during the conference, as many just reported quarterly earnings in
the past few weeks, but attendees are hoping they will provide more
details about how they are handling the new pressures.
With commodity costs soaring, many food and household products
companies are in a bind. Most have already streamlined operations
and slashed expenses during the recession, so there is little fat
left to trim. If they try passing costs on to consumers by raising
prices, they might scare off shoppers who are just now returning to
name-brand products from private-label brands. Without some
changes, though, the added costs could crush margins.
A number of companies in recent weeks have forecast commodities
rising by high single digits this year, and companies such as
Kellogg Co. (K), PepsiCo Inc. (PEP), Kraft Foods Inc. (KFT) and
J.M. Smucker Co. (SJM) are increasing prices in response. But some,
including Pepsi, have expressed concern about alienating consumers
by boosting prices too much, so they will try absorbing some of the
costs themselves.
"Virtually no one's offsetting inflation fully through pricing,"
said Morgan Stanley analyst Dara Mohsenian.
The biggest risk to raising prices, said Stifel Nicolaus analyst
Chris Growe, is that volumes could suffer. As a result, he expects
companies to offer a host of new products to keep consumers
interested and ease the pain from seeing loftier price tags.
For example Clorox Co. (CLX), which is facing higher plastic
resin prices, plans to introduce Tilex and Pine Sol products this
year.
In addition to wanting details on pricing strategies, conference
attendees also will be hungry for new deal news. The consumer
products market has seen a number of pairings and breakups lately,
including proposed splits at Sara Lee Corp. (SLE) and Fortune
Brands Inc. (FO) and Pepsi's purchase of Russian dairy and
fruit-juice company Wimm-Bill-Dann Foods (WBD, WBDF.RS). That
activity isn't likely to drop off, as companies may turn to
consolidation for savings opportunities and access to high-growth
areas.
Emerging markets likely will be in focus themselves, though, as
investors question some companies' aggressive pushes into Asia and
Latin America. While the regions' economies are still expanding at
a faster clip than the U.S. and Western Europe, Morgan Stanley
analysts said worries about rate increases in countries like China
and inflation in general could start to pressure results.
-By Melissa Korn, Dow Jones Newswires; 212-416-2271;
melissa.korn@dowjones.com
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