Industry shares fall 21% in 2008; smaller tumble than overall market

by Josh Sosland
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In a year marked by the worst stock market performance since the 1930s, share prices of grain-based foods companies declined broadly in 2008. The Grain-Based Foods Share Index, calculated by Milling & Baking News, ended the year at 9,146.77, down 21%.

For the G.B.F. index, the performance in 2008 was the second worst since the index was created by Milling & Baking News in 1988. Only in 1999 did the index lose more ground, falling 28%. The 21% drop last year compared with a 1% advance in 2007, a 19% gain in 2006 and an 11% decline in 2005.

By a number of significant comparative measures, though, the Grain-Based Foods Share Index performance in 2008 was not all bad. The 21% decline in 2008 compared with significantly wider declines for broad market indexes. The Dow Jones average of industrial shares was down 34% in 2008, the S&P 500 fell 39% and the Nasdaq index dropped 41%.

The wide outperformance by grain-based foods shares versus the S&P 500 (17 percentage points in 2008) was consistent with earlier bear market experiences. For instance in 2001, after the Internet bubble burst, the Grain-Based Foods Share Index outperformed the S&P by 14 percentage points and then outperformed by 27 points in 2002.

While the financial sector of the stock market was hit hardest by the Wall Street selloff in 2008, every other sector of the economy also lost ground. In fact, of the10 sectors tracked by Standard & Poor’s, 9 lost more ground than the Grain-Based Foods Share Index. In addition to a 57% decline in financials, energy shares fell 36%; materials were down 47%; industrials were down 42%; consumer discretionary fell 35%; health care fell 25%; information technology fell 44%; telecommunications fell 34%; and utilities fell 32%.

Only consumer staples, down 18% and of which grain-based foods are a part, bested the G.B.F. index. In addition to packaged foods, the S.&P. consumer staples category includes agricultural products, brewers, distillers/vintners, drug retailers, food distributors, food retailers, household products, hypermarkets/super centers; personal products, soft drinks and tobacco.

Within the S.&P. category of consumer staples, packaged foods and meats were down 15%. Most of the other categories sustained losses greater than 20%. A notable exception was brewers, up 40%. Major consolidation took place in the brewing industry in 2008.

Within the G.B.F. index, 7 companies, or 27%, saw share prices advance in 2008 while 19, or 63%, experienced a decline. It is by this measure, losers versus winners in 2008, that the sector stood out particularly well versus the overall stock market. Within the Dow Jones industrials, only 2 stocks of 30, or 7%, ended the year with gains. Of the Nasdaq 100 companies, 7 posted share price gains in 2008. Only 22 stocks in the S&P 500, or 4%, were higher on Dec. 31, 2008, than at the start of the year.

Leading among G.B.F. gainers was American Italian Pasta Co., up 219%. Investors showed faith in new AIPC management’s assessments that it has resolved its internal problems and is positioned for growth. In December, AIPC announced fiscal 2008 earnings of $19,111,000, equal to $1 per share on the common stock, up 260% from $5,348,000, or 29c per share, in the previous fiscal year. The results prompted a one-day gain of 37% in the company’s share price. The company’s closing price in 2008 was $22.34 per share, versus $7 at the start of the year and the January 2006 low of $3.

Only four companies besides AIPC saw double-digit share gains in 2007. Shares of Panera Bread Co., St. Louis, jumped 46% in 2008. The strong performance by Panera was remarkable given the weakness of the stock market and the company’s poor performance at the year’s outset. Shares of Panera fell 9% on Jan. 3, 2008, because of slower-than-expected sales. The early drop appeared to be a continuation of a weak trend for the company’s shares, which dropped 36% in 2007 and 17% in 2006.

In addition to achieving double-digit earnings growth in 2008, the company expressed comfort with projected growth in 2009. Despite a "very fragile consumer environment," Panera said its confidence stemmed from its prospective input costs, many of which are "already locked in and clearly understood."

Shares of J&J Snack Foods Corp., Pennsauken, N.J., rose 15% following a decline of 24% in 2007. For J&J, the performance marked a return to the winning ways that had characterized it earlier in the decade. J&J shares were up 36% in 2006, 21% in 2005 and 30% in 2004. While the company’s earnings for the year were adversely affected by higher ingredient costs, J&J ended fiscal 2008 (year ended Sept. 27) with a 7% earnings gain in the fourth quarter.

The fourth best performance in the index in 2008 was Lance, Inc., Charlotte, N.C., up 12%. The gain followed a 2% advance in 2007. Shares of Lance were fairly stable over the course of the year but ended 2008 on a strong note after announcing plans to acquire the assets of Archway Cookies L.L.C.

George Weston Ltd., Toronto, which in 2008 announced plans for a major retreat from its involvement in grain-based foods, saw an 11% share price gain during the year. In December, Grupo Bimbo S.A.B. de C.V. said it has agreed to buy the U.S. fresh bread and baked foods business from a George Weston Ltd. subsidiary for about $2.4 billion.

Other gainers in 2008 were General Mills, Inc., Minneapolis, up 7%, and Flowers Foods, Inc., Thomasville, Ga., up 4%.

Of the 19 companies experiencing declines in 2008, 3 fell by more than 50%, 11 declined by more than 25% and all but one fell by at least 10%.

While weakness in the shares of many companies was partly due to general investor flight from equity markets, other factors were evident as well. Surging ingredient prices and other input costs, peaking early in 2008, put severe pressure on earnings of several companies.

The widest decline in 2008 was the 93% plunge by MGP Ingredients, Inc., Atchison, Kas. The share-price collapse followed a 58% drop in 2007 and extended the extraordinary price volatility that has characterized the gluten/alcohol maker that has been transforming its business toward a specialization in value-added ingredients. In the four years before 2007, MGPI shares were up by 88%, 37%, 10% and 103%, respectively.

Late in the year, MGPI said it was closing its Atchison flour mill and had signed a long-term supply agreement with ConAgra. In its first quarter ended Sept. 30, MGPI sustained a loss of $17,243,000, versus a loss of $353,000 in the same period a year ago.

The second steepest decline in 2008, 59%, was sustained by Tasty Baking Co., Philadelphia. The plunge followed a drop of 7% in 2007. Tasty has been struggling to reestablish solid footing for several years. A move into a new flagship manufacturing facility in 2009 may help. In the meantime, the company’s net earnings have been reduced by the accelerated depreciation required on its existing Philadelphia operations.

Still, in the third quarter ended Sept. 27, Tasty sustained a loss of about $350,000 even after accounting for the accelerated depreciation.

Shares of Bunge Ltd. declined 56% in 2008. The precipitous drop followed a 61% gain in 2007 when Bunge was the top performing grain-based foods company.

During the year, Bunge announced and then shelved plans for an acquisition of Corn Products International, Inc., Westchester, Ill. Before the deal was finalized, the value of the transaction to Corn Products shareholders collapsed when the value of Bunge shares began falling precipitously.

Bunge earnings slumped amid what the company termed a "volatile time in the global agribusiness and food markets," but share price weakness also appeared to reflect investor concern over the company’s large exposure in Brazil.

Krispy Kreme Doughnuts, Inc., Winston-Salem, N.C., ranked third in declines, with a 47% share price drop. Shares began the year on a weak note with the resignation of Daryl Brewster as chief executive officer. After trading up to $5.65 per share in June, Krispy Kreme closed at $1.81, down from $3.16 at the start of the year. The company reported a profitable quarter in June, but losses resumed and then widened as the year progressed.

Shares of Anaheim, Calif.-based Bridgford Foods fell 43% in 2008. The decline followed a 6% gain in 2007. The company has sustained operating losses in recent quarters, and its balance sheet has been weakened. The company’s net equity as of July 11 was $36.6 million, down from $50 million on Nov. 2, 2007.

Shares of The Hain Celestial Group, Inc., Melville, N.Y., declined 40% in 2008, following a gain of 3% in 2007. For Hain, the decline was largely centered on the month of November, when the company announced earnings for the first quarter of $7,022,000, down 35% from the same period the year before. Shares traded in November as low as $14.09, but rallied in December to close at $19.09.

Sara Lee Corp. shares fell 39% in 2008 on top of a 6% decline in 2007. The Downers Grove, Ill.-based company has struggled trying to reach its long-term profitability objectives, and late in the year the company’s longtime chief financial officer, Theo de Kool, announced that he would retire.

Shares of Archer Daniels Midland Co., Decatur, Ill., fell 38% in 2008. In 2007, the share price performance of ADM, up 47%, was second only to Bunge. Slumping crude oil prices and ethanol overcapacity were factors in the weaker performance by ADM shares. Still, the company’s earnings were sharply higher in the most recent quarter, reflecting dramatic gains in the company’s oilseed processing business.

Shares of ConAgra Foods Inc., Omaha, fell 31% in 2008. The company, which has struggled following major product recalls, saw a 12% decline in 2007.

This article can also be found in the digital edition of Milling and Baking News, January 13, 2008, starting on Page 1. Click here to search that archive.

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