Europe's crisis hits food firms

Europe's top food groups, Unilever, Danone, and Nestle, will report that growth slowed at the end of 2011 and are expected to warn of an even tougher year ahead as steadier commodity costs give them less room to raise prices and offset weaker economies.

The prolonged eurozone crisis and worries over a slowdown in key emerging markets will give all groups reason to be cautious over the outlook for 2012.

"After 6%-8% organic sales growth in 2011, food-sector sales growth looks set to slow to 4%-5% in 2012 due to tough comparisons, a weak consumer and lower pricing," said analyst Robert Waldschmidt at Bank of America Merrill Lynch.

Analysts at UBS estimate Danone has the highest exposure to the eurozone with 40% of its sales from the troubled 17-member single currency region compared to 24% from Nestle and only 23% from Unilever.

This is reflected in Danone's shares, which are trading at the lowest rating of the three at 14.6 times 2012 earnings compared to Nestle, with its wider geographic spread, on 16.2 times. Unilever, with the highest exposure to emerging markets, is trading at 14.9 times earnings.

Unilever, maker of Hellmann's, Lipton and Knorr, is likely to have the fastest quarterly growth at 6.8% of the three groups, but this will be driven by raising prices.

"Unilever remains vulnerable to weak consumer sentiment and down-trading in developed markets, particularly western Europe, which accounts for 29% of operating profit," said Citi's analyst Robert Dickinson.