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US food stocks fall, but fare better than market

US food stocks fall, but fare better than market

Fluctuating ingredient costs hampered U.S. food makers' profits in 2008, but grocery stores had higher traffic, a trend that helped shares of companies like General Mills Inc. thrive, while some others suffered.
Not all companies in the sector are making money now, said Christopher Shanahan, a research analyst with Frost & Sullivan, but investors like food stocks because they're relatively immune to tough times while other types of companies falter.
U.S. food stocks lost 28 percent in 2008, according to the Dow Jones U.S. Food Producers Index. In the same period, the Dow Jones Total Market Index lost 40 percent and the Standard & Poor's 500 lost about 39 percent.
Although the sector declined, stocks of some companies like General Mills gained as investors looked to the company as a safe haven. The company, known for brands like Yoplait yogurt and Cheerios cereal, has been leading the way this year. Analysts say they like its focus on cost-savings and creating new products, which helps keep consumers wanting its brands, even as they look for less expensive alternatives.
The stock of the Golden Valley, Minnesota-based company gained nearly 5 percent, while rivals like Northfield, Illinois-based Kraft Foods Inc. lost 16 percent and Battle Creek, Michigan-based Kellogg Co., H.J. Heinz Co., based in Pittsburgh, and Campbell Soup Co., based in Camden, New Jersey, each slid about 18 percent. Sara Lee Corp., based in Downers Grove, Illinois, dropped 40 percent for the year.
The year was marked with many issues for food makers. The costs of key ingredients like corn and oil rose to record highs over the summer, crimping margins. Food makers raised prices to offset the costs and some tried to hedge their ingredient purchases to save money. But that hurt too as the cost of commodities dropped in the fall.
Costs were particularly troublesome for meat producers. Shares of Tyson Foods Inc., the Springdale, Arkansas-based world's largest meat maker, fell 44 percent as the company posted losses in its chicken business amid the high costs and an oversupply of meat on the market, which keeps prices down. Pork producer Smithfield Foods Inc., of Smithfield, Virginia, saw its stock value fall about 54 percent on similar issues. The largest U.S. chicken producer, Pilgrim's Pride Corp., filed for Chapter 11 bankruptcy reorganization protection in December. The Pittsburg, Texas-based company said it was hobbled by debt and volatile feed costs.
Some food companies shed jobs to cut costs. Kraft, maker of brands like Oreos and Oscar Mayer, announced in October it was cutting 400 jobs, or 1 percent, of its North American work force. Sara Lee said in December it would cut 700 jobs to bring between $200 million and $250 million in savings in the next three years.
But even as costs rose, trends were good for food makers. As cash-strapped consumers looked this year to save more on their food costs _ grappling with their budgets amid job cuts and record-high gas prices earlier this year _ they turned more to grocery stores and away from pricier restaurants. This brought in more traffic to groceries and a bigger market for food makers that's expected to continue as long as consumers are trying to stretch their budgets.


Updated : 2021-02-25 21:51 GMT+08:00