Tate & Lyle warns on profit as sweetener price tumbles

By Martinne Geller

LONDON, Feb 13 (Reuters) - British food ingredients firm Tate & Lyle (LSE: TATE.L - news) cut its profit outlook on Thursday, citing a dramatic drop in prices of its sucralose artificial sweetener and weak sales volumes in developed markets.

Shares of Tate & Lyle, which sells sucralose under the Splenda brand and other ingredients to packaged food and drink makers, tumbled 17 percent in their biggest intraday drop since 2007.

The price of Tate's sucralose, a mainstay of its specialty food ingredients business, is falling because of competition from cheaper rivals in China and a glut of unsold inventory there.

The specialty food ingredients business accounts for roughly 29 percent of annual sales and about 65 percent of adjusted annual profit.

Tate said it expects sucralose prices to decline by about 15 percent in the current quarter and its next year financial year that starts in April, versus an earlier forecast for a mid-single-digit decline.

The company said it has renewed several multi-year supply contracts for sucralose at lower prices, as it seeks to defend its market share.

For the full year to 31 March, Tate said profit should be in line with the prior year, when its adjusted profit was 329 million pounds ($545.65 million). That is below analysts' average estimate of 340 million pounds, based on the company's earlier forecast for growth.

In the third quarter to Dec. 31, the company said group adjusted profit before tax was lower than expected as a result of weak sales of its customers' products, which include soft drinks, in Europe and North America.

Chief Executive Javed Ahmed said on a conference call that he still liked the sucralose business, despite the pricing pressure. In the longer term, he said lower sucralose prices could prompt some food and drink makers to reformulate their products to use sucralose instead of other sweeteners.

Jefferies analyst Alex Howson attributed the stock price drop to likely downgrades to earnings forecasts and renewed weak sentiment on sucralose.

"The specialty food ingredients story remains intact, but near-term earnings progression is likely to be subdued," Howson said.