Ralcorp reported an overall 6% base business volume decline

Ralcorp reported an overall 6% base business volume decline

US private-label food group Ralcorp Holdings has said it expects to see volume trends improve after recording a 6% decline in its third quarter.

The company this week reported an increase in third-quarter profits, helped by higher sales and a gain from hedging contracts.

However, the increase in sales came after recent acquisitions. Volumes from Ralcorp's base business fell 6% driven by weakness in the firm's snacks, sauces and spreads segment.

CEO Kevin Hunt blamed the decline on "sharp decreases" in consumer purchases of peanut butter and snack nut products as prices increased. He also pointed to the impact of the end of a production contract at its Bloomfield plant.

"To give you a better feel for how the base business is performing, if we exclude those specific factors, base business line was down 2%," he told analysts on the firm's earnings call on yesterday (8 August). 

"For the food industry as a whole, the overarching theme that we continue to see is volume softness across the board driven by significant year-over-year price increases. The key driver in these declines continues to be the overall increase in pricing for the categories in total for private brand in particular."

Hunt added Ralcorp expects to see volumes improve, although he acknowledged the prospects of a lower corn crop in the US and higher commodity prices could affect that forecast.

"As we left price increases from last year, we would expect to see these volume trends improve," he said. "The whole crop situation is a bit of a wild card but we would expect those price increases to even out and to lap the price increases, and see an improved volume."

For fiscal 2013, Ralcorp said it expects input costs to be lower than fiscal 2012 by 1.5% to 2.5%.

However, a hot summer and drought in the corn belt has resulted in a dramatic run up in corn prices in the past several weeks, over 45% since early summer.

Hunt said wheat, the second largest commodity Ralcorp purchases, has risen by 17% since early July.

"We continue to follow our policy, which is to remain hedged for six to nine months on all of these key commodities. The severe drought conditions have created significant volatility in the grain complex making a longer-term forecast very challenging," he told analysts.

"At this time, we expect to have a significantly smaller benefit than we originally forecast," he told analysts. "We are monitoring the commodity landscape closely. And we'll provide a more comprehensive outlook during our November conference call."