By Martinne Geller
LONDON, Feb 13 (Reuters) - British food ingredients firmTate & Lyle cut its profit outlook on Thursday, citinga dramatic drop in prices of its sucralose artificial sweetenerand weak sales volumes in developed markets.
Shares of Tate & Lyle, which sells sucralose under theSplenda brand and other ingredients to packaged food and drinkmakers, tumbled 17 percent in their biggest intraday drop since2007.
The price of Tate's sucralose, a mainstay of its specialtyfood ingredients business, is falling because of competitionfrom cheaper rivals in China and a glut of unsold inventorythere.
The specialty food ingredients business accounts for roughly29 percent of annual sales and about 65 percent of adjustedannual profit.
Tate said it expects sucralose prices to decline by about 15percent in the current quarter and its next year financial yearthat starts in April, versus an earlier forecast for amid-single-digit decline.
The company said it has renewed several multi-year supplycontracts for sucralose at lower prices, as it seeks to defendits market share.
For the full year to 31 March, Tate said profit should be inline with the prior year, when its adjusted profit was 329million pounds ($545.65 million). That is below analysts'average estimate of 340 million pounds, based on the company'searlier forecast for growth.
In the third quarter to Dec. 31, the company said groupadjusted profit before tax was lower than expected as a resultof weak sales of its customers' products, which include softdrinks, in Europe and North America.
Chief Executive Javed Ahmed said on a conference call that he still liked the sucralose business, despite the pricingpressure. In the longer term, he said lower sucralose pricescould prompt some food and drink makers to reformulate theirproducts to use sucralose instead of other sweeteners.
Jefferies analyst Alex Howson attributed the stock pricedrop to likely downgrades to earnings forecasts and renewed weaksentiment on sucralose.
"The specialty food ingredients story remains intact, butnear-term earnings progression is likely to be subdued," Howsonsaid.
Tate & Lyle (TATE)
