SOURCE: The Bedford Report

The Bedford Report

November 25, 2010 11:25 ET

Commodity Price Spike Affecting Some Foods Manufacturers More Than Others

The Bedford Report Provides Analyst Research on Kraft & Heinz

NEW YORK, NY--(Marketwire - November 25, 2010) - The prices of corn, wheat and other commodities have surged this year in part due to a decline in US and Russian production prospects. While crop prices had a bit of pull back in early November due to Chinese demand concerns, the cold winter expected from "La Nina" has fuelled speculation that even southern hemisphere crops may struggle, and once again send prices higher. The spike in crop prices has increased costs in the processed & packaged goods industry, and caused many notable companies to raise prices on some of their products. The Bedford Report examines the outlook for companies in the Processed & Packaged Goods Industry and provides research reports on Kraft Foods, Inc. (NYSE: KFT) and HJ Heinz Co. (NYSE: HNZ). Access to the full company reports can be found at:

Kraft acted quickly to offset rising costs from corn, wheat and other commodities. Irene Rosenfeld said earlier this month during Kraft's third quarter earnings call that the company had increased its prices in dealing with its primary customer base. While she says that "no one is happy" raising prices, it became necessary as Kraft's input costs on half of its products had risen nearly 30% year-over-year.

Kraft credited this strategy of shifting price increases to consumers for its impressive third quarter results. Kraft reported earnings of 47 cents per share as sales rose 26.6 percent year-over-year, to $11.9 billion.

The Bedford Report releases regular market updates on the processed & packaged goods industry so investors can stay ahead of the crowd and make the best investment decisions to maximize their returns. Take a few minutes to register with us free at and get exclusive access to our numerous analyst reports and industry newsletters.

Heinz has not reported nearly as much inflation in its input costs as its rivals have. The prices for potatoes and tomatoes -- two of Heinz's primary inputs -- have not increased at the rate corn and wheat have. In the third quarter, Heinz posted earnings of $251.4 million or 78 cents a share. The company said consumer product sales grew 1.4% year-over-year to $802.9 million in North America as volume climbed 1.6%.

At Heinz's third quarter earnings call the company's CEO William Johnson acknowledged that "the consumer is very fickle." Johnson says Heinz raises prices only where it has been determined that "the elasticity is there." 

Raising prices is a risky maneuver, and a difficult choice for manufacturers to make, as this strategy could scare customers from the more expensive products. A recent report from The Wall Street Journal argued that employment concerns could cause many Americans to merely trade down on brands.

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