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The fallout from rising commodity costs will take center stage next week as the world's largest consumer-products companies converge in Boca Raton, Fla., for the annual Consumer Analyst Group of New York conference.
The week-long confab, which brings together companies such as Procter & Gamble Co. (PG), General Mills Inc. (GIS) and Coca-Cola Co. (KO), is expected to be slightly more upbeat than in recent years as shoppers continue opening their wallets wider. But cheers may be muted given uncertainty over how the companies can offset increased expenses from packaging materials and key ingredients, such as coffee and grains.
The companies likely won't make any bombshell announcements during the conference, as many just reported quarterly earnings in the past few weeks, but attendees are hoping they will provide more details about how they are handling the new pressures.
With commodity costs soaring, many food and household products companies are in a bind. Most have already streamlined operations and slashed expenses during the recession, so there is little fat left to trim. If they try passing costs on to consumers by raising prices, they might scare off shoppers who are just now returning to name-brand products from private-label brands. Without some changes, though, the added costs could crush margins.
A number of companies in recent weeks have forecast commodities rising by high single digits this year, and companies such as Kellogg Co. (K), PepsiCo Inc. (PEP), Kraft Foods Inc. (KFT) and J.M. Smucker Co. (SJM) are increasing prices in response. But some, including Pepsi, have expressed concern about alienating consumers by boosting prices too much, so they will try absorbing some of the costs themselves.
"Virtually no one's offsetting inflation fully through pricing," said Morgan Stanley analyst Dara Mohsenian.
The biggest risk to raising prices, said Stifel Nicolaus analyst Chris Growe, is that volumes could suffer. As a result, he expects companies to offer a host of new products to keep consumers interested and ease the pain from seeing loftier price tags.
For example Clorox Co. (CLX), which is facing higher plastic resin prices, plans to introduce Tilex and Pine Sol products this year.
In addition to wanting details on pricing strategies, conference attendees also will be hungry for new deal news. The consumer products market has seen a number of pairings and breakups lately, including proposed splits at Sara Lee Corp. (SLE) and Fortune Brands Inc. (FO) and Pepsi's purchase of Russian dairy and fruit-juice company Wimm-Bill-Dann Foods (WBD, WBDF.RS). That activity isn't likely to drop off, as companies may turn to consolidation for savings opportunities and access to high-growth areas.
Emerging markets likely will be in focus themselves, though, as investors question some companies' aggressive pushes into Asia and Latin America. While the regions' economies are still expanding at a faster clip than the U.S. and Western Europe, Morgan Stanley analysts said worries about rate increases in countries like China and inflation in general could start to pressure results.
-By Melissa Korn, Dow Jones Newswires; 212-416-2271; firstname.lastname@example.org