Food Inflation Hits Consumers in the Wallet and Stomach

February 20, 2012

According to the latest Bureau of Labor Statistics report, consumer prices in January increased 2.9 percent over the past 12 months. Energy prices jumped 6.1 percent, while food prices rose 4.4 percent. The increasing costs of items such as gasoline is taking its toll on consumers and food companies.

On Friday, General Mills, Inc. (NYSE:GIS), the maker of Cheerios, fell nearly 4 percent after the company said soft sales will reduce third quarter earnings. General Mills now expects earnings between $2.53 to $2.55 per share, below street estimates of $2.60. Although the company did not provide specifics on the weak demand trends, analyst Rob Dickerson said, “In their top five U.S. categories, General Mills continues to see strength from Nature Valley snack bars, but recent weakness, namely in yogurt, should have led to the guidance cut.”

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Campbell Soup Co. (NYSE:CPB) also reported earnings on Friday, which experienced a 14 percent drop due to lower volume and higher commodity costs. “The resulting decrease in personal disposable income has forced consumers to decrease discretionary spending, including food,” Chief Executive Denise Morrison said Friday on the company’s earnings call. In addition to Campbell Soup, food companies such as H.J. Heinz Co. (NYSE:HNZ) and Kraft Inc. (NYSE:KFT) have also suffered lower sales volumes.

Sales volumes at J.M. Smucker Co. (NYSE:SJM) fell 10 percent in the most recent quarter as customers were hit with sticker shock on Folgers coffee and Jif peanut butter. On average, Smucker’s average price on items jumped 16 percent from the prior year, while Jif peanut butter prices surged 30 percent. Chief Executive Richard Smucker said, “There’s a bit of sticker shock on our promoted prices from last year and the consumer needs to adjust to those.” The Ohio based company also reduced its full-year earnings guidance to $4.60 to $4.65 per share, compared to previous estimates of $4.90 to $5.00 per share.

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To contact the reporter on this story: Eric McWhinnie at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com