Analysts at Deutsche Bank (NYSE:DB) state that they remain cautious on the food industry in the third quarter of 2011 as they don't see sufficient fundamental or valuation-based reasons to become more positive. They believe that from a fundamental perspective higher prices in both 2011 and into 2012 still pose a question for consumers and the potential for volume elasticity.
DB analysts state that major food companies including ConAgra Foods Inc. (NYSE:CAG), Campbell Soup Co. (NYSE:CPB) and Diamond Foods Inc. (Nasdaq:DMND) that have reported in the last 7 weeks have largely kept annual fiscal year forecasts unchanged, albeit signaling strong calendar first half of FY 2012 results to offset currently sluggish trends. They add that to a great extent it is top-line growth from pricing, currency and acquisitions that has offset lower margins. They state that volume trends have been okay but questions remain, particularly as additional prices hit retail shelves in coming quarters. They add that with currency turning from a positive to negative and higher prices still necessary to offset inflation it is likely EPS forecasts will come under greater scrutiny. They state that to the extent the consumer has changed, the status quo is harder to defend and this has led almost every food company to make acquisitions, dispose of non-core assets or challenge the status quo. They believe that this is reasonable and with financing costs so low a reasonable use of typically strong balance sheets. They add that in the third quarter of FY 2011the S&P Food Products Index was -5.4 percent versus the S&P 500 Index, down 14.3 percent. They state that the risks involving the sector include competition, input costs, currency and M&A integration.
On a year-to-date basis, ConAgra has a share performance of 7.26 percent, and compared with Standard & Poor's 500 it has a year-to-date share performance of 19.23 percent. Campbell Soup has a year-to-date share performance of -6.85 percent, and compared with S&P's 500 it has a year-to-date share performance of 3.54 percent. Diamond Foods has a year-to-date share performance of 50.06 percent, and compared with S&P's 500 it has a year-to-date share performance of 66.80 percent.
Shares of ConAgra gained 1.39 percent, or $0.34, to trade at $24.77. Shares of Campbell Soup fell 0.03 percent, or $0.01, to trade at $32.54. Shares of Diamond Foods lost 0.34 percent, or $0.25, to trade at $73.50.