Show BUSINESS and the thi STOCK MARKET by BABSON'S REPORTS INC Copyright 1973 1673 Cereal Stocks React to Troubles Frozen prices along with runaway costs in the processing of farm commodities com modifies plus what plus what may be even worse worse- the threat of inadequate supplies Inthe inthe in inthe the months ahead have placed prospects for the profit margins of food pr producers in general under a clo cloud d of uncertainty Included in this group group are those com those those- com in the cereal and snack-items snack lines whose stocks have been under a good deal of selling pressure since the mid-June mid inflation anti-inflation move by the Ad Ad- ministration On the other hand an export export ex ex- port policy which first considers domestic domes domes- tic needs plus a more encouraging crop outlook suggests that this sector of the stock market will watching for investment opportunities hen prices prices' in inthis' inthis th this this' s1 gi group up begin to firm I T Target t J et For Comp Complaints Not No Noi only is the cereal industry highly competitive but in late years the handful hand hand- ful of companies in the field have been subject to government criticism concernIng concerning concern concern- ing their advertising practices and the nutritional value of their products Despite De Dc- spite this however the sales and earning of the nie l leading ading firms have progressed in satisfactory fashion The makers have risen to the challenge and have increased the nutritional value of their products through vitamin and mineral fortification the thrust of advertising has also been improved Yet to be resolved however are FTC charges encompassing such aspects aspects as as- peets as brand proliferation advertising practices shelf shell space allocation at retail retail re reo tail outlet and the limited number of major manufacturers Offsetting Pluto Pluses Only a small number of companies have any meaningful participation dothe in rin rinthe inthe the breakfast cereals cereals' market In its shared monopoly charge made In early 1972 the FTC estimated that 91 percent of the market for cold cereals is Inthe in inthe inthe the hands of four companies namely Kellogg General Mills General General- Foods and Quaker Oats Except for Kellogg however breakfast cereal items both cold and hot bulk relatively small in the sales and earnings picture of the four major producers and they rank even smaller for Nabisco and Ralston Purina Purina- As is true with nearly all food processors moreover cereal firms are diversifying more broadly broad broad- ly Iy within the vast of food re businesses and even externally into other fields Mostly of a consumer or Tented nature Uncertainties Spawn Opportunities The diversification of companies related related re re- to the cereal business generally kept profits at satisfactory levels during the early months of this year Results might have been still stUl better had It not been for the profit restraint of Phase 3 3 Nevertheless the stocks of all six have pulled back from their respective 1973 1972 highs to a considerable extent This backtracking has reflected not only the adverse market sentiment but also the threat of further profit profit margin margin pinches pin ches due to the partial price freeze since mid June Surprisingly retail retal sales of cereal products pro ducts advanced an estimated 8 percent both physical volume and dollar value last year and a though further smaller smaller- growth is likely in 1973 The improvement improve improve- ment in demand reflected increased consumer consciousness of nutritional requirements and the high cost of other breakfast foods In the past in mo most t periods of economic uncertainty stocks of companies with some participation in the cereal market have offered a reasonably gOOd defensive defensive sive sine position Thus despite their recent loss of investment favor these issues should bring worthwhile reward when more are restored to the stock market At present the General Foods General Mills Kellogg Nabisco and Quaker Oats All are priced at rather depressed levels and Ralston Purina's off sell is bringing its price into a more reasonable range I |