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Five analysts and top management from thirteen sector firms examine the Food Stocks sector in this special 82-page issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info392.htm

TWST: Romitha, for the most part, have the companies in your universe met or exceeded your expectations for the first or second quarter of the year? Are there any issues related to the quality of earnings?

Ms. Mally: For the most part, companies met expectations in the first quarter, but those expectations were lowered for some companies early on in the year due to higher energy costs, rising raw materials costs, and also some trade inventory de-loading. Just adding to what David Nelson said in talking about the defensive nature of this sector, the food industry tends to be more defensive than many other sectors but, clearly, we’ve seen a sharp contraction in p/e multiples over the past two years, since investors’ confidence in the ability of food companies to deliver consistent and good quality earnings growth is much lower than it once was.

TWST: Are there any stocks that have particularly disappointed you, in terms of their earnings?

Ms. Mally: Well, ConAgra, Heinz and Sara Lee would stand out among the pack. I think ConAgra was the first and probably the most shocking due to the magnitude of the shortfall. ConAgra cited some reasons that we had heard other companies, both in the food and other sectors, mention such as higher energy costs, but, again, there seemed to be a number of problems there, most of which were specific to ConAgra. Both Heinz and Sara Lee faced some challenges in some core business areas, but the weak euro was also a major negative to earnings.

TWST: Romitha, you gave us Sara Lee (NYSE:SLE), are there any others that you’d like to suggest?

Ms. Mally: I’m actually recommending Suiza as well. And on the small to mid-cap side, I’m recommending American Italian Pasta Company (NYSE:PLB), which has an interesting story. American Italian Pasta is the leading pasta producer in the US, and the pasta category is an area where there isn’t a tremendous amount of brand leadership. American Italian has the lowest cost structure, and basically started to sell private label pasta to retailers. That was a smart move, given that retailers are trying to increase private label sales since they generate higher gross margins for them. The private label segment of the pasta category has been growing quite rapidly, and as a result, AIPC has delivered great unit volume growth. They are also focused on the ingredient segment of the pasta market, and given that there are a number of products out there that have pasta as an ingredient, they’ve been doing quite well in this area as well. Competition for this company is falling away. They’ve been very consistent over the past three or four years since they’ve gone public.

TWST: Are there any negative issues, anything that investors should be alerted to?

Ms. Mally: They recently bought the Mueller’s brand, and they also bought some brands from Borden. Initially, their strategy was to focus on the unbranded side of the pasta category. If you look at the branded pasta category, many of the branded players have been losing share. In Mueller’s case, AIPC was actually producing the pasta for Bestfoods, so when the brand came up for sale, AIPC went out and acquired it. I think there’s some risk in the strategy to suddenly go from being primarily a private label player to a branded marketer of pasta.

This special issue includes:

1) Investing in Food Stocks - In an in-depth (13,000 words) Analyst Roundtable, David Adelman, Principal at Morgan Stanley Dean Witter & Co., Romitha Mally,Vice President at Goldman Sachs & Co., David Nelson, Managing Director in the equities division of Credit Suisse First Boston and G. Leonard Teitelbaum, Managing Director at Merrill Lynch Global Securities, examine the outlook for the sector including, agribusiness companies, packaging costs and share specific stock recommendations.

2) The TWST confidential Off-The-Record survey of management performance at sixteen sector firms asked market insiders about the ability of management teams to create shareholder value.

3) Food & Agricultural Stocks - In an in-depth (3,500 words) Analyst Interview, John McMillin, Managing Director at Prudential Securities, examines the outlook for the sector and shares specific stock recommendations.

4) CEO interviews (average 2,500 words). Top management of nine sector firms examine the outlook for their firm and the sector.