Cereal Killer: Falling Prices Hurt Goodman

Sydney Morning Herald

Friday April 23, 1999

By MORGAN MELLISH

A blowout in commodity costs and falling prices for breakfast cereal and chicken have prompted leading food analysts to cut earnings forecasts for Goodman Fielder, with half now saying it will not achieve even the lower end of its profit forecasts.

Leading brokers such as Deutsche Bank, J. B. Were, Macquarie Equities and ABN Amro recently have lowered their profit forecasts to levels below the $105 million to $112 million profit range the company told the market to expect in February.

The most recent downgrades take to eight the number of analysts now forecasting that Goodman will disappoint the market when it announces its full-year results in September.

Analysts' fears are based on the impact of higher wheat and edible oil prices, falling chicken prices and a price war in the breakfast cereal market.

Deutsche Bank is the most pessimistic, forecasting a profit of $96.5 million, or a 9 per cent profit shortfall to the lower end of the company's forecast, with several other analysts sitting at, or below, $100 million.

One of those analysts said: "I don't think their forecasts are achievable. It would take a dramatic improvement on the first-half result."

Goodman warned in February that its net profit would be between 20-25 per cent below last year's $140 million pre-abnormal result - implying a profit of $105 million to $112 million. Abnormal losses, which some analysts are predicting, could send the result even lower. The latest profit downgrades have pushed the shares about 14 per cent lower over the past month. They closed yesterday down 1c at $1.48.

A spokesman for Goodman Fielder said its outlook had not changed since its statement in February. "They [the analysts] have taken our forecasts and put in a discount for uncertainty," he said. "The commodity-price outlook has not changed. It's exactly in line with what we said at the half-year."

The spokesman said the company had not told the analysts to lower their figures. "The only comments we've been making to brokers over the past week or so is to respond to questions about the exposure of Steggles to Newcastle disease," he said, adding that the company had no exposure.

The relationship between food analysts and Goodman was tested last year when the company announced a surprise profit warning which prompted several analysts to claim that it was not keeping the market fully informed.

Several analysts said the company's long-term outlook was made brighter by last year's $428 million Bunge acquisition.