Packaged food giants Kraft Foods Inc. (KFT) and Sara Lee (SLE) both lowered their guidance for the year as consumers cut back even on small purchases and traded down to cheaper private label products.

Kraft, the nation's largest packaged food maker, was hurt by inventory reductions as retailers across the board, including the world's largest retailer Wal-Mart Stores Inc. (WMT), cut stocks. More consumers have traded down to cheaper private label products and some retailers have boosted focus on their store-brand products as the U.S. economy has slipped into recession

"Wal-Mart is cutting its inventories - they are quite public with that fact. All of our retailers are cutting back," Kraft Chief Executive Irene Rosenfeld told Dow Jones Newswires. "The good news is our consumption is very strong

 at Wal-Mart and the inventory position has not impacted our consumption [there]."

Despite the impact to shipments, Kraft still had a "terrific year" with Wal-Mart as more consumers turned to the retail giant in search of better value in tough times, she said.

Kraft shares were recently down 8% to 26.47 and Sara Lee lost 6% to 9.85.

Branded food companies like Kraft and Sara Lee have seen some benefit as consumers have cut back on eating in restaurants and have spent more on food in grocery stores. But cheaper private label, or store, brands have also gained market share as consumers have pinched pennies and traded down.

Rosenfeld said the "the inventory impact has hit branded products disproportionately," but the company isn't seeing any significant changes in the shelf space retailers allot its branded products. Kraft has seen products like its DiGiorno frozen pizzas do well, but expects impulse categories like snacks to be pressured by weaker consumer spending. "These are two of the more 'penetrated by private label' companies in the foods space, and thus each company's pricing is more affected by falling commodity costs and more aggressive private label competition," UBS analyst David Palmer said in a note to clients on Kraft and Sara Lee's guidance cuts. Kraft in recent months has cut prices on some products like cheese and nuts, although Rosenfeld said she is comfortable with where the company's prices currently stand and doesn't expect more price reductions.

For 2009, Kraft now sees per-share earnings of $1.88 with revenue growing 3%. In October, the company forecast per-share earnings of at least $2 with organic revenue growing at least 4%.

Meanwhile, the maker of Kraft cheese, Oscar Mayer lunch meat and Planters nuts reported fourth-quarter net income of $163 million, or 11 cents a share, compared with $585 million, or 38 cents, a year earlier. Excluding items, earnings edged down to 43 cents from 44 cents.

Net revenue increased 6.2% to $10.77 billion.

Analysts polled by Thomson Reuters had expected earnings, excluding items, of 44 cents a share on revenue of $11.29 billion. Organic revenue, which excludes divestitures, acquisitions and the impact of foreign-currency fluctuations, rose 4.4% on higher prices as volume slipped 5.2% amid "unprecedented cost-driven pricing actions."

Sara Lee Corp. (SLE), meanwhile, swung to a fiscal-second-quarter loss amid restructuring charges, a write-down of its North American food-service beverage business and commodity-hedging losses. The company, which produces its namesake frozen deserts, Jimmy Dean sausages and Hillshire Farm's meats cut its fiscal-year outlook for earnings excluding special charges by 4 cents to 73 cents to 80 cents a share and lowered its revenue guidance to a range of $12.8 billion to $13 billion from a range of $13 billion to $13.3 billion.

For Sara Lee "the primary driver of the weak earnings growth performance was the international divisions as general market sluggishness and aggressive private label competition in its categories weighed on sales," said Stifel Nicolaus analyst Chris Growe in a research brief.

Sara Lee said it has not seen much impact from inventory reductions on the food side because the food products it sells tend to have short shelf lives, and it rarely sees a significant increase in in-store inventory for these products.

For the period ended Dec. 27, Sara Lee reported a net loss of $17 million, or 2 cents a share, compared with year-earlier net income of $182 million, or 25 cents. Excluding the write-down and other items, earnings fell to 21 cents from 22 cents. Net sales fell 2% to $3.34 billion because of the stronger dollar.

-By Anjali Cordeiro; Dow Jones Newswires; 201-938-2408; anjali.cordeiro@dowjones.com

(Shirleen Dorman and Veronica Dagher contributed to this article)