Food & Beverage Industry Outlook Solid Despite Inflation
Despite higher input prices, CreditSights sees a solid outlook for the Food and Beverage industry this year and maintains an “outperform” rating on the sector.
“We expect the issue of higher (and volatile) input costs to continue to burden food producers in the coming year. The protein sector stands most exposed to higher grain costs given their reliance on animal feed.”
Consumer packaged food companies will face cost inflation rates of roughly 7%-8% range for FY08, CreditSights says.
The food versus fuel conundrum is here to stay as heightened demand for corn (for biofuels) puts a strain on supplies of corn and other grains.
Nonetheless, continued price hikes and vigilance for productivity initiatives will help offset cost pressures in 2008, CreditSights says in 2008 Food & Beverage Outlook: Savor or Savior?
Increased brand-building initiatives, awareness/acceptance of rising food prices, and greater home dining trends will continue to draw the consumer (pinched or not) to purchase branded products, CreditSights says.
“With the M&A environment relatively quiet for the past several years and shareholder activists keeping an eye on the defensive and stable free cash flow generating Food & Beverage world, we expect shareholder rewards to tick up in 2008.”
The perceived safe-haven status of the Food & Beverage sector will be more pronounced should the economic picture deteriorate. Accordingly, we are maintaining our overweight recommendation on the sector as a whole.
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