Chicago, Oct 29 - Consumers expecting a big drop in food prices as commodity costs fall and the economy weakens may be disappointed by comments from Kraft Food Inc and Kellogg Co executives.
Price increases helped both foodmakers post better-than-expected third-quarter profits on Wednesday, and those increases by Kraft, the largest North American food company, and Kellogg, the world's largest cereal maker, may stay in place on many products.
The soaring costs of commodities like energy and wheat that prompted those price hikes have retreated from historic highs. But chief executives for both companies noted that costs remain high on a historic basis -- and that prices for other commodities have gone up.
"I don't think you're going to see this dramatic across the board decline," Kellogg CEO David Mackay said when asked about commodities and pricing.
"While the headlines talk about how corn and wheat and soy have all been dropping, sugar is up 40-50 pct, and so is rice," Mackay said in an interview. Kellogg forecast a 5 percent increase in its commodity costs for 2009, in part because hedges it has used to lock in lower commodity costs will end.
Kraft CEO Irene Rosenfeld said that as commodity costs fall, Kraft could lower prices on some products. But she also noted that most commodity costs remain higher.
"We will continue to be sensitive to the marketplace," she said. "Our pricing decisions will reflect a balance of our cost profile, our revenue growth, our share performance and our profit growth."
Increased prices contributed to a 0.9 percent decline in physical sales volume for Kraft.
Both Kellogg and Kraft have taken steps to cut costs and shift funds into product development and advertising, which can help keep consumers from moving to lower-priced products.
But Kellogg is much further along in the brand-building process and was better able to cope with rising costs, Edward Jones food analyst Matt Arnold said.
Kellogg "has been well invested (in building its brands) for years and it shows," Edward Jones analyst Matt Jones said. "In the case of Kraft, we're getting very early evidence of the investments paying off; but they went into this very challenging period far less prepared."
Through Tuesday, Kellogg shares traded at about 15.4 times estimated 2009 earnings, with Kraft trading about 14.2 times.
Shares of Kraft rose 0.9 percent to $29.13 on Wednesday afternoon on the New York Stock Exchange and Kellogg rose 0.6 percent to $50.98.
KRAFT BEATS BY A LITTLE, KELLOGG A LOT
Kraft, which makes products including Oreo cookies, Tang breakfast drink and Oscar Mayer hot dogs, reported a third-quarter profit of 45 cents a share before one-time items, a penny above what analysts polled by Reuters Estimates had expected.
The company's 0.9 percent drop in volume was better than the company had expected.
Analysts are watching volume to see how much consumers cut back on buying higher-priced branded products in the face of rising food prices and a slumping economy.
Kraft sales rose 19.4 percent to $10.46 billion. Organic sales, which exclude the impact of currency, acquisitions and divestitures, rose 7.1 percent due to higher pricing.
Over the past several years, Kraft has closed factories, cut jobs and divested brands to focus on areas like cookies and crackers, pizza and healthier foods.
Kellogg, the maker of products such as Rice Krispies cereal and Eggo waffles, said third-quarter profit rose to 89 cents a share from 76 cents a year earlier. The results were far better than the 80 cents analysts had forecast.
Sales rose 9 percent to $3.29 billion. Excluding the impact of currency and acquisitions, the increase was 7 percent.
Kellogg said it expects full-year profit per share to come in at the high end of its prior forecast of $2.95 to $3, compared with analysts' expectations of $3.
For 2009, the company said it is confident earnings per share will increase at a high single-digit percentage rate, excluding the impact of currency fluctuations. (Additional Reporting by Ben Klayman; Editing by Lisa Von Ahn and Gerald E. McCormick)