Analyst sounds optimistic tone on fortunes for bakery ingredients firm CSM

By Jane Byrne

- Last updated on GMT

CSM may be able to move out of the danger zone if pressures alleviate on the costs input side towards mid-2012 and if its new rationalization plan generates some significant cost savings, notes an analyst.

The Dutch ingredients giant issued a profit warning last week, saying it would miss earnings expectations in the second half of the year because of lower consumer spending, and it set out plans to cut costs to the tune of €30m in 2012 alone through company-wide restructuring.

A subsequent research note from ING claimed investors were calling for CSM to be broken up as a result of management’s declaration that the bakery ingredients suppliers would not be able to meet its full-year guidance of gradually recovering volumes and higher selling prices to offset cost increases.

CSM, in response, said that any discussions about splitting up the Dutch bakery ingredients company would be "inappropriate"​, reported Reuters.

And John O’Reilly, an analyst with Dublin-based Davy Stockbrockers, echoed that statement.

He told FoodNavigator.com that the stress on the management at CSM and the overall business could ease somewhat if external factors play out in its favour such as lower raw material costs and reduced inflation, regardless of whether the demand side improves.

“The pick-up in margins from, for example, a reduction in wheat prices coupled with the planned cost-cutting initiatives could see improved conditions for the company in 2012.”

Industry insiders say declining share prices for the Dutch firm over the past three months indicated that investors’ were questioning the soundness of CSM’s price increase strategy to gradually balance out the raw material hikes, given the available macro data showing continued lower disposal incomes for consumers.

Last week, CSM said it had identified reduced spending power in North America as driving lower sales volumes and it added that its European operations were struggling to cope with competition from in-store bakeries in supermarkets.

In July, the company was quite optimistic, reporting that, despite a disappointing performance in the first half of the year due to environmental factors, CSM would continue with its focus of growing its bakery supplies activities, exploiting growth opportunities in its Purac business and “unlocking the considerable potential in bioplastics”.

The Dutch supplier now said it expects third-quarter earnings before interest, taxes and amortization, (EBITA), to be around €30m excluding any one-off items, and added that the current negative market sentiment will also impact fourth-quarter results.

This contrasts strongly with its third quarter of 2010 reported EBITA excluding one-offs of €56.7m.

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