Pressure of input costs and weak consumer confidence hitting General Mills

Pressure of input costs and weak consumer confidence hitting General Mills

In a week that saw Kellogg grab the headlines for its decision to move for snacks brand Pringles, an announcement made on Friday afternoon UK time perhaps had wider significance for the food sector.

General Mills, the US company that is home to brands including Cheerios cereal, Yoplait yoghurt and Haagen-Dazs ice cream, issued a surprise profit warning. "Weak" volumes in the US throughout December and January were blamed for a cut to its forecast for annual earnings and highlighted how tough manufacturers are finding managing the twin pressures of input costs and low consumer confidence.

Sure, 2012 is expected to be a year in which commodity costs ease a little but, with many major manufacturers hedging their exposure to raw materials and buying months in advance, it will be a while before they can take advantage of falling prices (or at least prices that do not rise as quickly as last year). Financial analysts and investors are hoping manufacturers will be able to benefit from the reduced pressure from commodity costs and increase margins this year. With consumer confidence in the US and Europe weak, it may not be that easy.

The topic is likely to be on the minds of those attending the annual CAGNY investment conference, which kicks off in Florida tomorrow. CAGNY is a highlight in the industry calendar in the US and is where Wall Street analysts and leading manufacturing executives meet to discuss the trends and major talking points in the sector. General Mills is in fact the company scheduled to give the first presentation tomorrow morning US time and management will no doubt face questions over its announcement on Friday, whether there are any signs that volumes have improved this month and its outlook for consumer confidence in the US.

The CAGNY line-up also includes Kellogg and its planned US$2.7bn acquisition of Pringles is likely to be the focus of attention. On Wednesday, when Kellogg announced the deal, chief executive John Bryant said he would go into more detail on Pringles' business and on where the US cereal giant saw the greatest opportunities from the deal at CAGNY.

There is little doubt that the acquisition of Pringles will be a step-change for Kellogg. It could boost its presence internationally and open up more markets in Asia. However, the US cereals giant faces a formidable competitor in savoury snacks in PepsiCo, which has seven of the world's top ten brands and will be focused on rebounding after a challenging year. And Kellogg also faces tough markets in the US and Europe in its core cereals division, a business that has concerned investors.

PepsiCo will present at CAGNY on Thursday and is likely to be asked for more detail on its plans to revitalise its core snacks and drinks operations. However, investors will also be interested in how the company believes Kellogg's takeover of Pringles will affect the savoury snacks sector.

And another interested observer of the Pringles deal will be Kraft Foods. It presents its 2011 annual results at CAGNY tomorrow and is creating its own global snacks business. In fact, Kraft was seen as a potential buyer of Pringles.

As always, there will be plenty to analyse at CAGNY (as well as the margin conundrum, emerging markets, NPD and the challenge of developing healthier products are also likely to be chewed over) and just-food will report on the latest news and views. And, this week, there is also the small matter of Wal-Mart's annual results, which are due out tomorrow.

A final note, as well as hearing from the likes of Indra Nooyi and Irene Rosenfeld at CAGNY, we want to hear your views on the year ahead. Last week, just-food launched its 2012 Confidence Survey to find out how you see the industry environment evolving this year. If you have yet to take part, click here. The results will be discussed on a webinar hosted by just-food next month.