Bloomberg News

D.E Master Blenders Cuts 2013 Forecast on Product Pricing

February 27, 2013

D.E Master Blenders 1753 NV (DE), the coffee and tea company spun off by Sara Lee Corp., dealt a fresh blow to investors by reducing its 2013 sales and profitability forecasts amid increasing pressure on prices in Europe.

Organic sales will rise as much as 2 percent in the year through June, the Amsterdam-based maker of Douwe Egberts coffee said today, compared with a previous prediction of 3 percent to 5 percent growth. The underlying operating margin will widen by 1 percent to 1.5 percent, it also said, less than its earlier guidance for an increase of 1.5 percent to 2 percent.

Since being spun off from Sara Lee in June, Master Blenders has restated earnings because of accounting irregularities in Brazil and reported sales that missed estimates. Chief Executive Officer Michiel Herkemij left at the end of last year because of a difference of opinion, leaving Chairman Jan Bennink in charge.

“The negative is obviously they lowered the outlook and that is a nasty surprise,” said Robert Jan Vos, an analyst at ABN Amro in Amsterdam with a reduce rating on the stock. “It’s the third hiccup since their listing, they’ve had accounting issues, the CEO stepping down and now this.”

Master Blenders shares declined as much as 4.4 percent in Amsterdam and were down 3.3 percent at 8.80 euros at 9:47 a.m. Joh. A. Benckiser, the investment firm run by Bart Becht, raised its stake in the company to 15.05 percent in October.

Senseo Coffee

Sales of the Senseo coffee brand were hurt by competitors’ discounts over the holiday period, particularly in the Netherlands, according to Master Blenders, which also reported first-half profit that missed analysts’ estimates. Price pressures are expected to persist in western Europe, it said.

“We decided it is much better to just lower the guidance and be realistic rather than pushing the organization to do things which is not healthy for the future of the business,” Bennink said in a separate online statement.

Still, the company maintained its medium-term forecasts for sales growth of 5 percent to 7 percent and an underlying operating margin of 15 percent to 17 percent. The margin widened by 1 percentage point to 13.5 percent in the fiscal first half.

The search for a new CEO has only just started, Bennink said on a conference call today, adding that the process is likely to take as long as five or six months.

Speaking in September, former CEO Herkemij said product innovation, missing under Sara Lee’s stewardship, would help the company close the gap with competitors such as Kraft Foods Inc. and Nestle SA (NESN), whose Nespresso is the biggest single-serve brand in the $45 billion global coffee business. He said at the time he aimed to overtake Kraft as the world’s No.2 coffee maker.

New Machine

Master Blenders has revamped its Senseo system with new packaging and flavors and has said it plans to expand into new regions. The company has introduced a new machine called Sarista that uses whole beans and is aimed at coffee aficionados.

So-called normalized net income totalled 130 million euros ($170 million) in the six months ended Dec. 31, compared with the 131.5 million-euro average of six analyst estimates.

Sales rose 1.6 percent excluding acquisitions and exchange- rate fluctuations, with a decline in selling volume easing to 0.8 percent in the second quarter from 2.7 percent in the first.

To contact the reporters on this story: Paul Jarvis in London at pjarvis@bloomberg.net; Sarah Shannon in London at sshannon4@bloomberg.net

To contact the editor responsible for this story: David Risser at drisser@bloomberg.net


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