Consumer Products Companies Focusing On Costs, Opportunities

Macroeconomic trends were in focus this week as some of the world's best known brand-name companies gathered in Florida to provide Wall Street with insight into their attempts to combat rising commodity costs and their forecasts for growth in emerging markets.

More than 25 consumer products companies from around the globe met with analysts and investors at the Consumer Analyst Group of New York's annual conference in Boca Raton, laying bare the difficulty in reconciling higher input costs with still-fragile sales markets. They didn't offer revolutionary new plans during the conference, which boasted record attendance, but the companies added details to previously announced plans and reinforced the fact that strategies are shifting.

After an extended period--in some cases, years--of heavy promotions to drive volume growth, giants including ConAgra Food Inc. (CAG) and Hershey Co. (HSY) are changing their approaches in the face of sharp increases in grain, packaging and oil costs.

Cuts in production costs and other streamlining efforts should offset the increases for many, as might potential acquisitions, though the companies admitted it's unclear where the cost ceiling might be.

"I don't know where it ends," Procter & Gamble Co. (PG) Chief Financial Officer J.R. Moeller said Thursday. Moeller said the company, whose products include Pampers diapers and Pantene hair care, now expects commodity headwinds could top the $1 billion forecast it gave less than a month ago. While it is increasing prices in response, P&G may still see operating margin improve at a slower pace than previously expected.

ConAgra Chief Financial Officer John Gehring said Tuesday that his company, which makes Banquet frozen dinners and Hunt's ketchup, doesn't expect the pressure to ease any time soon and could see costs rise by 7% in fiscal 2012. Though new price increases and cost-saving measures will help over time, the company still cut its long-term earnings growth forecast to the 6% to 8% range from its prior 8% to 10% view.

Coca-Cola Inc. (KO), meanwhile, said at the conference it is tweaking the sizes of some products, offering 16-ounce bottles in a bid to raise prices on its traditional 20-ounce servings. And Sara Lee Corp. (SLE) is reformulating some coffee blends to include more Robusta beans, which despite jumping nearly 60% since December 2009, are still significantly cheaper than the Arabica variety.

Still, Sara Lee Chief Executive Marcel Smits said that because prices have soared for two of its biggest inputs, meat and coffee, "We're taking a lot on the chin."

As they grapple with an uneven economic recovery and cost fluctuations, a number of companies expressed hunger for acquisition-based growth.

Gary Rodkin, chief executive of ConAgra, said in an interview that his company is "more open [to acquisitions] than we have been in my five years [as chief]."

While that company plans to focus on domestic opportunities in order to leverage existing infrastructure, other firms are looking to places like China, Colombia and parts of Africa to fuel expansion.

H.J. Heinz Co. (HNZ) Chief Executive William R. Johnson said his company is "actively evaluating" opportunities in countries including Vietnam and Brazil.

"I've never seen more opportunities" in emerging markets, Johnson said, noting such locations could generate as much as one-third of total sales by fiscal 2016.

Alcohol manufacturer Diageo PLC (DEO, DGE.LN) is continuing to invest in its African operations, increasing brewery production in Nigeria and expanding in South Africa. That company, which already derives one-third of its sales from emerging markets, could see that contribution increase to 50% within five years, Chief Executive Paul Walsh said. Monday, Diageo announced it would buy Turkish spirits company Mey Icki Sanayi ve Ticaret AS, and Walsh said the company is open to other opportunities as well.

Church & Dwight Co. (CHD) also is excited about deal opportunities. "We are very hungry for good acquisitions," Chairman and Chief Executive Jim Craigie said Friday. That company, which makes Trojan condoms and Arm & Hammer household products, has particular interest in Brazil and India.

-By Melissa Korn, Dow Jones Newswires; 212-416-2271; melissa.korn@dowjones.com

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