Jul 03, 2013 12:36 PM EDT
Drop in natural food colouring price hits Chr. Hansen

Danish food ingredient maker Chr. Hansen missed third-quarter profit expectations and cut its sales forecast as volatile prices of a food colouring made from insects led customers to switch to synthetic alternatives made by rivals.

Shares in the firm, which makes ingredients for the food, health and animal feed industries, fell over 7 percent in early Wednesday trading after it reported weak demand for carmine, a food colouring it derives from cactus-dwelling lice in Peru.

Chief Financial Officer Klaus Pedersen blamed volatile prices - two years ago carmine reached $120 a kilo from just $15 a kilo the year before, although it has since plunged back to around $15 as production ramped up and some customers switched to alternatives.

Pedersen did not see the shift away from carmine as permanent. However, some analysts were concerned after the company also missed second-quarter profit expectations.

"Growth and earnings disappoint the market's, and my own expectations, and particularly the problems in the colour division are visible," said Sydbank's Morten Imsgard.

"This is the second consecutive time they disappoint the high expectations in the market and the stock is punished when they do not deliver."

At 0840 GMT, Chr. Hansen shares were down 4.8 percent at 191.10 Danish crowns, against a 1.2 percent decline in the Copenhagen stock exchange's benchmark index

Third-quarter operating profit rose 2 percent year-on-year to 52.8 million euros ($68.8 million), missing analysts' average forecast for 56.5 million in a Reuters poll.

The company cut carmine prices in the first half in a bid to stabilise volumes, but that came at the expense of margins.

It also warned underlying revenue growth in its Natural Colours Division would be hit in the fourth quarter by the loss of a large unidentified customer in South America.

The division accounted for 23 percent of group revenues in the first nine months of the financial year and carmine is its single biggest product.

Chr. Hansen said it now expected underlying revenue growth of 6-7 percent for the full year, down from 7-9 percent before.

Third-quarter revenue rose nearly 6 percent to 191.6 million euros, below an average forecast for 198 million.

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