Shop Talk
Retailers, consumers and prices
Check Out Line: Upset tummies in the food sector?
Check out sluggish results in the U.S. food sector.
Fast food giant McDonald’s and Kroger, the largest U.S. grocery chain, saw shares decline 2.5 percent and 10 percent, respectively, after reporting weak results.
McDonald’s said same-store sales at its U.S. restaurants slipped 0.6 percent in November, marking the second straight monthly decline. Following Yum Brands’ recent weaker-than-expected sales, it was the latest sign that the fast-food sector that had performed well through most of the recession was weakening.
Rising unemployment has begun to take a noticeable bite out of sales, particularly at breakfast — where McDonald’s leads the industry.
Kroger reported a much lower-than-expected quarterly profit and cut its full-year forecast as it feels pressure from falling food prices and stepped up competition.
Not everything was dark at the dinner table.
Chicken producer Sanderson Farms posted a quarterly profit compared with a year-ago loss as it benefited from higher poultry prices and lower feed costs. To wash that news down, alcoholic beverage maker Brown-Forman posted a higher quarterly profit and raised its outlook for the current fiscal year.
The tequila sunrise could soon set
Investors — and drinkers — got sobering news on Thursday when Brown-Forman described how agricultural difficulties rocking Mexican farmers hurt the bottom line of the company, which is based in Louisville, Kentucky.
Brown-Forman saw a big part of its first-quarter profit guzzled by a $22 million charge it had to take to deal with an abnormal number of dead or dying agave plants, which it uses to make its Herradura and el Jimador tequilas.
According to Brown-Forman executives, there had been a glut of blue agave cacti in Mexico, which led prices to collapse. That has caused farmers to abandon their fields in favor of more profitable crops like corn. The neglected agave plants became more susceptible to diseases, and Brown-Forman said it recently noticed that about 25 percent of its agave crop is unusable.
A recent article in USAToday explained that in some places over-ripe agave plants are rotting in the fields, since their depressed market price makes harvesting them a losing proposition.
Here’s what Brown-Forman Chief Financial Officer Don Berg had to say during a conference call:
With agave’s typical seven-year growing cycle it is natural to have some plants that perish due to any number of factors including climate conditions, old age or disease. However, during the quarter we experienced an abnormal loss rate and determined that about 25% of our agave plants were unusable. We believe that this situation is not unique to Brown-Forman. As a result of the current glut and relatively low prices for agave we believe that a number of fields have been left untended, creating an environment where normal disease fighting practices generally are more lax.
After blaming neglectful farmers, two Wall Street analyst demanded more details. TIM RAMEY (D.A.Davidson): Good morning. I would like to learn a little bit more about the agave situation. You are responsible for farming those plants as I recall. I think you bought them from the previous owner. Is that right? And if so, how could it be that (in) just one quarter we discover 25% of what we are farming is no longer viable?
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