February 4, 2010 / 1:50 PM / in 8 years

WRAPUP 4-Food makers Kellogg, Sara Lee hit on pricing worry

 * Kellogg Q4 EPS $0.46 vs Wall St $0.49 view
 * Sara Lee Q2 EPS $0.28 ex-items
 * Flowers Foods Q4 EPS $0.33 vs Wall St $0.34 view
 * Sara Lee, Kellogg see 2010 EPS above analysts' view
 * Kellogg shrs down 4 pct on pricing worry, Sara Lee dips
 (Adds comments by Sara Lee CEO, analyst comments, updates
shares)
 By Brad Dorfman
 CHICAGO, Feb 4 (Reuters) - Concerns that food makers would
overdo price cuts to lure cautious consumers weighed on Kellogg
Co K.N and Sara Lee SLE.N, even though both forecast
better-than-expected 2010 earnings.
 Cost-cutting measures helped Sara Lee post quarterly profit
that beat analysts' estimates, while analysts said Kellogg
missed estimates due to higher-than-expected interest costs for
debt refinancing and a drop in profit in its international
business.
 Kellogg shares were down more than 4 percent on Thursday
afternoon, while Sara Lee shares dipped 0.4 percent.
 Falling prices for some commodities have helped food makers
cut prices and offer one-time promotions. But as unemployment
remains high and consumers turn to lower-priced store brands to
save money, analysts are concerned that manufacturers are
risking profits to chase sales volume.
 "Even though commodity costs have moderated, I don't know
if the level of moderation has warranted the price declines
that were passed through," Morningstar analyst Erin Swanson
said.
 Kellogg CEO David Mackay also noted that costs for some
commodities, including sugar, are up sharply and that the
company expects its commodity costs to rise 3 percent.
 "Discounting to try to drive your volume is a means to
profitless prosperity," Mackay said in an interview with
Reuters.
 He expects industry pricing to remain stable in 2010,
though he acknowledged that promotional spending -- which
consumers see as special price deals in the store -- increased
in the second half of 2009 and will likely continue in 2010.
 UNILEVER ALSO ON WATCH
 Morningstar's Swanson noted that Hellmann's mayonnaise and
Knorr soup maker Unilever ULVR.L slashed prices, though it
saw a large increase in the volume of products sold. Unilever
also faces stiff competition on the personal care products side
of its business from rivals such as Procter & Gamble Co. PG.N
 "We expect the environment for our business in 2010 to
continue to be tough ... Unemployment will continue to stay
high and consumer confidence is likely to remain low," Unilever
CEO Paul Polman told investors at a presentation after the
company posted a 7 percent drop in 2009 underlying earnings.
[ID:nLDE61307I] Unilever shares were down 3.7 percent.
 The bread market, which includes Sara Lee and rival Flowers
Foods FLO.N, is another area where consumers are seeing lower
prices.
 "I think bakery is probably just a little intense right now
in terms of how much the prices have dropped," Sara Lee CEO
Brenda Barnes said in an interview.
 Flowers, meanwhile, said it expects the competitive
environment to remain heavily promotional in 2010, and its
shares were down more than 2 percent.
 KELLOGG, FLOWERS MISS, SARA LEE BEATS
 Kellogg, the maker of Rice Krispies cereal and Keebler
cookies, said profit was $176 million, or 46 cents a share, for
the fourth quarter. Analysts on average forecast 49 cents a
share, according to Thomson Reuters I/B/E/S.
 Sales fell 1 percent to $2.9 billion, just below the
consensus analysts' estimate of $2.94 billion.
 Profit in the international business was down 23 percent,
as the company spent more on advertising and other costs to try
to drive sales. Volume fell 5.7 percent in Latin America and 9
percent in Asia.
 Kellogg forecast 2010 earnings of $3.51 to $3.57 a share on
a currency-neutral basis. Analysts had forecast $3.18 a share.
 Sara Lee, which makes Hillshire Farm deli meats and Sara
Lee bread, had profit of 28 cents a share excluding
discontinued operations and other items. That compares with
analysts' expectations of 23 cents a share.
 Sara Lee, long an industry laggard, has recently been
reaping the benefits of a strategy to cut costs, sell off
noncore brands and focus on food and beverages.
 The company said it will disclose plans later this month
for using proceeds from the pending $1.87 billion sale of its
personal care business and the $475 million sale of its
air-freshener business.
 Sara Lee forecast 2010 earnings before items of $1.00 to 
$1.05 a share, while analysts on average forecast 95 cents a
share.
 Sara Lee's baking competitor, Flowers Foods, posted profit
of $31.8 million, or 33 cents a share, down slightly from a
year earlier. Analysts on average forecast 34 cents a share.
 Flowers stood by its forecast of a 10 to 15 percent
increase in 2010 earnings. That would put earnings at $1.55 to
$1.62 a share. Analysts on average forecast $1.55 a share.
 (Additional reporting by David Jones in London, Mihir Dalal in
Bangalore)
 (Reporting by Brad Dorfman, editing by Dave Zimmerman and
Matthew Lewis)




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