Hire Wire Apr 09 2012

Layoffs Mount in Consumer Goods as Commodity Prices Fluctuate

By damian ghigliotty

Consumer goods companies are planning more layoffs than all other industries this year due to company reorganizations, rising commodity prices and weak consumer spending, according to Chicago-based outplacement firm Challenger, Gray & Christmas.

Companies such as Procter & Gamble, PepsiCo and Kraft Foods announced a total of 18,438 job cuts in the first quarter of 2012, up from 4,571 in the first quarter of 2011. Other consumer goods companies that have announced layoffs this year include R.J. Reynolds Tobacco and the Conyers, Ga.-based Acuity Brands subsidiary Lithonia Lighting.

"We've seen some of these companies restructuring for the years ahead and we've also seen companies closing down product lines that have become outdated." said John Challenger, chief executive of Challenger, Gray & Christmas. "Consumer spending is not as strong as these companies need it to be and higher commodity costs are having an additional impact on their bottom lines."

The rise of using food for fuel over the past decade, including corn for ethanol, has caused food prices to become more volatile, said Alexia Howard, a Sanford C. Bernstein analyst who covers Kraft. Unpredictable price changes have put "a significant amount of pressure on company margins" for the companies that sell food products, she said.

Soybean futures, for instance, have risen about 20% over the past three months, according to Barchart.com and the Commodity Research Bureau. Other food prices, including corn and wheat, have shifted up and down in the short term, while rising in the long-term. Corn futures, while down in 2012, have been hovering around a 25-year-high.

"As a result of that price volatility, new generations of management teams have had to make their cost structures as efficient as possible," said Howard of Sanford C. Bernstein. "That combined with technological improvements has contributed to the job cuts in consumer goods."

The number of layoffs in the consumer goods industry in March was an improvement over February. Consumer goods companies announced 2,118 job cuts last month, down 85% from 13,856 job cuts in February.

The consumer goods industry often reflects consumer demand and thus employment in other sectors, so the industry will be closely watched in the coming months, said Challenger.

Planned layoffs across all industries in March fell to the lowest level since May 2011, totaling 37,880 job cuts last month, down 27% from 51,728 job cuts in February.

The media industry announced 477 job cuts in March, down from 745 job cuts in February. The retail industry announced 2,175 job cuts in March, up from 2,090 job cuts in February.

Write to Damian Ghigliotty at Damian.Ghigliotty@dowjones.com

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