Milling & Baking News - January 25, 2011 - 22


$7
per share

Kraft Foods Inc.

$1
Jan. March May

Lance, Inc.
$30

$25

$20

$15
Jan. March May

$41

2010
2009
July Sept. Nov.

bakingbusiness.com / world-grain.com

July Sept. Nov.

Maple Leaf Foods, Inc.

$11

$9
2010
2009
$7
Jan. March May

July Sept. Nov.

MGP Ingredients, Inc.
$12
$10
$8
$6
$4
2010
2009

$2
$0
Jan. March May

$110

per share

$30

$25

$20
Jan. March May

2010
2009

$13

$96

$47

July Sept. Nov.

Panera Bread Co.

$35

per share

$53

$35
Jan. March May

2010
2009

per share

Kellogg Co.
$59

Krispy Kreme Doughnuts, Inc.

per share

brands have the best chance to stop
the margin slide."
While offering different justifications than Mr. Katzman, Mr. Moskow
also views prospects for General Mills
positively.
"I think they have the best track record over the last three years introducing resonant product innovation and
increasing advertising," he said. "I trust
them to be able to balance out pricing
and hold margins. They figured out
how to integrate Pillsbury, and they also
introduced cross functional teams to
gain better alignment on productivity
efforts. Once they stopped the bleeding
on missing numbers after Pillsbury, they
could put more focus and resources on
observations about consumer needs."
A company without a track record of
growth in recent years but with prospects for improvement is Kraft Foods
Inc., Northfield, Ill., Mr. Moskow said.
He described the Cadbury acquisition
as a "unique opportunity, in part because of cost synergies that could be
reinvested into Kraft to fuel growth."
"But I think, especially in North America, the organization is not where it needs
to be in terms of business momentum
or having the right team," Mr. Moskow
said. "A lot of their problems were cultural years ago. It was very bureaucratic
with way too much analysis, not enough
action. Years ago they were still cutting
the quality out of their products and running it like a financially driven organization rather than a marketing driven organization. Now, I'd like to think there is a
different operating philosophy in place.
The results have been spotty."
Mr. Moskow's managerial criticism
does not extend to the company's chief
executive officer, Irene Rosenfeld.
"I am very impressed by her," Mr.
Moskow said. "I think she understands
the consumer, and she is a very effective leader internally. But integrating
this Cadbury business is going to take
longer and have more bumps along the
road than they probably realize."
Internationally, Mr. Moskow said the
importance of international exposure

per share

done a pretty good job of passing along
costs of consumers and grocers."
Still, Mr. Moskow said success is not a
foregone conclusion in what he described
as a "more complicated" situation.
"That's because the food industry's
consumer base is very stressed financially, and the grocers have had a terrible
time," he said. "The supermarkets are
nervous about passing it through and
probably a little confused. They know
they need price to drive same-store sales
growth. On the other hand, they are nervous about taking price increases."
Mr. Moskow said whether or not
price increases take hold in 2011 will
be known before the end of March.
"We will know at least half the story
by then," he said.
Mr. Moskow said his overall view
of the food industry from an investment perspective has been one of
skepticism, largely because earnings
growth projections were higher than
he thought were justified.
"Since then, companies like Campbell,
Kellogg and ConAgra all have lowered
their guidance," he said. "So, the space is
more investable than it was a few months
ago from a stock perspective.
"Fundamentally, are these companies going to enjoy good growth? Elasticity to the price increases is going to
be painful in the first two quarters. It
will balance out by the end of the year.
It makes sense sales should be better
in 2011, when you consider how easy
the comparison is to a weak 2010, in
terms of price and volume.
"Operating margins reached a fouryear peak in the middle of 2010, then
started to decline slowly as commodity
costs rose. It shows how much more important it is for the pricing to go through."
Mr. Moskow noted that a number of
industry executives have verbalized
their commitments to aligning prices
with costs to preserve profitability.
"Ralcorp said they are out there to
protect margins with their price increases," Mr. Moskow said. "Sara Lee
said the same thing. Kraft, same thing.
The ones with the most differentiated

Stock Market Analysis

2010
2009
July Sept. Nov.

2010
2009

$82
$68
$54
$40
Jan. March May

July Sept. Nov.

Milling & Baking News January 25, 2011 / 23

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Milling & Baking News - January 25, 2011

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