'Current reality' leads CSM to lower guidance outlook

by Eric Schroeder
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DIEMEN, THE NETHERLANDS — After forecasting in July that it expected gradually recovering volumes and selling prices to progressively balance cost increases, CSM n.v. on Oct. 10 said “these two assumptions are overtaken by the current reality, with volume and margin development equally impacting EBITA delivery negatively to an extent that will not be able to meet our guidance for the full year.”

CSM said it now expects third-quarter EBITA before one-time costs to total about €30 million ($41 million). Additionally, second-half earnings are expected to fall short of the same period of fiscal 2010, when CSM posted earnings of €113 million.

“The on going challenging financial crisis has worsened and is clearly having an impact on consumer confidence,” CSM said. “This, combined with higher food costs and in some geographies lower disposable income, is impacting consumer behavior and volumes sold. Specifically in North America it is noticeable that reduced spending power, in combination with lower shopping frequencies, is driving lower sales volumes. The artisan channel in Europe faces the challenge of lower cost competition from in-store bakeries impacting their market position.

“This further worsening in end consumer demand takes place at a time when all players in the food value chain are trying to manage their profitability as a result of the high volatility in raw material prices. This has led in a number of markets, for example in U.S. and European retail, to an increase in price competitive actions. In this tough trading environment CSM has been facing trade-offs between margins and volumes. Based on current insights, our volume development in the third quarter is in line with market developments, albeit lower than our previous expectations.”

CSM said it plans to reduce costs by about €50 million through a wide restructuring program. The first step in the program included a strengthening in the management of the company’s North American organization. More details of the program will be unveiled when the company releases its third-quarter interim statement on Oct. 27, CSM said.

Following the announcement, CSM shares dropped as much as 21% to €11.06. The stock has lost 57% in 2011, valuing the company at €795 million.

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