One Corporate Center Rye, NY 10580-1422 Tel (914) 921-5125 Fax (914) 921-5098 www.gabelli.com

January 21, 2004

Gabelli & Company, Inc.

THE LOW-CARB REVOLUTION: IMPACT ON THE FOOD INDUSTRY

Low-carb diets continue to gain momentum in the U.S. With an estimated 32 million Americans practicing carbconscious lifestyles, protein-based food categories are experiencing strong consumption while grain-based food companies struggle to overcome weak categorical growth. As an example, annual U.S. per capita egg consumption increased in 2002 to 254 vs. 236 in 1997. In contrast, annual flour consumption in the U.S. dropped to 137 pounds per person in 2002 vs. 147 pounds in 1997. The low-carb phenomenon is the continuation of a trend that has challenged the food industry for many years: consumers are demanding healthy food alternatives that taste good. As with previous shifts in consumer dietary needs (low-fat, low-cal, low-sodium), food companies are capitalizing on the low-carb craze by developing products targeting carb-conscious consumers. In this regard, the low-carb market has created an attractive growth and margin opportunity for companies with effective low-carb strategies. However, grain-based food companies are fighting to overcome an image problem, exacerbated by the heavily publicized obesity epidemic facing the U.S. According to the surgeon general, 60% of the U.S. population is either overweight or obese. With the U.S. focused on obesity, we believe grain-based companies offering health-conscious alternatives are in the best position to overcome this obstacle. Given the proliferation of low-carb diets, we believe it is important to understand food companies’ exposure to such diets (Table 1). However, Atkins should not overshadow other elements equally critical to the success of food products, such as value, quality, convenience, innovation, and overall nutrition. Based on these criteria, we continue to recommend Flowers Foods (FLO-24.40-NYSE) as the company continues to demonstrate that providing quality, trend-relevant products, such as low-carb bread, can affectively combat weak grain-based categorical growth. In addition, we continue to recommend H.J. Heinz (HNZ-35.05-NYSE), Del Monte (DLM10.30-NYSE) and General Mills (GIS-45.93-NYSE).

-Please refer to important disclosures at the end of this report-

Gabelli & Company, Inc. COMPANIES EXPOSED The low-carb trend impacts certain food categories more than others, with those categories high in starch, grain, and sugar most negatively impacted. Therefore, products such as pasta, cereal, ice cream, potatoes, rice, biscuits, cookies, fresh bread, snack cakes, soft drinks, and candy have the most negative exposure. Conversely, high protein food categories will benefit the most from the low-carb craze, including beef, poultry, pork, eggs, cheese, and fish. Table 1 provides examples of food companies that are impacted by the low-carb trend. Table 1:

Examples of Food Companies Impacted by Low-Carb Diets

Positively Impacted by Low-Carb Trend Hormel (HRL-25.60-NYSE) 95% of revenue generated from beef, pork, or poultry products. Pilgrims Pride (PPC-17.10-NYSE) Chicken and turkey account for 88% and 12% of revenue, respectively. Smithfield (SFD-22.22-NYSE) Tyson (TSN-13.51-NYSE)

Pork and beef account for 49% and 25% of revenue, respectively. Hog production generates 12%. Beef and chicken generate 45% and 31% of revenue, respectively, while pork accounts for 11%. Processed meats generate the remaining 13%.

Negatively Impacted by Low-Carb Trend Campbell (CPB-25.88-NYSE) High-carb categories of snacking/baking and sauces/beverages each account for more than 20% of revenue. A number of soup varieties are high in carbs. Flowers (FLO-24.40-NYSE) 79% of revenue generated from fresh bread, while 21% is derived from snack cakes & frozen rolls. General Mills (GIS-45.93-NYSE) Cereal (at least 20% of revenue), consumer dough/baking products (19% of revenue), snacks (8% of revenue), and bakery/foodservice (17% of revenue) are high in carbs. However, many cereal varieties target health-conscious consumers. Hershey (HSY-75.00-NYSE) Revenue generated entirely from chocolate and non-chocolate confectionary products. Launched a sugar-free line of confectionary products in 2003. H.J. Heinz (HNZ-35.05-NYSE) Frozen foods (24% of revenue) consist of high-carb potatoes, entrees, and appetizers. Ketchup, condiments and sauces (34% of revenue) are not considered Atkins-friendly. Interstate (IBC-14.60-NYSE) Fresh bread and snack cakes account for 55% and 45% of revenue, respectively. Kellogg (K-37.44-NYSE)

Multifoods (IMC-19.56-NYSE)

Cereal (53% of revenue) and snacks (35% of revenue) are high in carbs. However, many cereal varieties (Kashi, Special K) target health-conscious consumers. Snacks (30% of revenue) and convenience meals (16% of revenue) are generally high in carbs. However, cheese (18% of revenue) is low in carbs. 85% of revenue from bakery products (baking and dessert mixes, flour).

Tasty Baking (TBC-10.70-NYSE)

Revenue generated entirely from sweet snacks and snack cakes.

Kraft (KFT-31.83-NYSE)

Low-Carb Neutral Del Monte (DLM-10.30-NYSE) JM Smuckers (SJM-46.54-NYSE) Sara Lee (SLE-21.50-NYSE) Wrigley (WWY-56.48-NYSE)

Tuna (18% of revenue) is Atkins-friendly. However, canned fruit (18% of revenue) is not. Shortening/oils and peanut butter generate 26% and 22% of revenue, respectively. However, fruit spreads account for 20% of revenue. 20% of revenue generated from processed meats, but 18% of revenue derived from fresh bread. Sugar-free gum accounts for 70% of gum portfolio.

Source: Company information and Gabelli & Company, Inc. estimates.

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Gabelli & Company, Inc. FOOD INDUSTRY RESPONSE TO LOW-CARB TREND Whether their products are deemed Atkins-friendly or not, food companies are seeking to capitalize on the lowcarb trend by developing new products or touting existing products that meet this group’s specific dietary needs. Flowers Foods, one of the largest fresh bread producers in the U.S., provides a good example of this dynamic. The company capitalized on this trend by offering consumers a low-carb fresh bread alternative, becoming the first commercial baker in the U.S. to do so. Branded Nature’s Own Wheat n’ Fiber, the product has proven to be the company’s most successful new product launch to date. In addition, the bread is positioned as a premium product, commanding superior margins. Many other food companies are employing similar initiatives, hoping to capture incremental volume and improve product mix. Table 2 highlights examples of such initiatives. Table 2: Campbell Soup Del Monte Flowers Hershey HJ Heinz Interstate General Mills Sara Lee

Examples of Packaged Food Low-Carb Initiatives Featuring chicken, rather than pasta, in new Prego pasta sauce advertising campaign. Initiated a low-carb ad campaign for tuna. Produces low-carb private label soup for Wal*Mart. First U.S. commercial bakery to launch low-carb fresh bread. Launched sugar-free line of confectionary products in 2003. Developing low-carb ketchup and launched low-carb Smart-Ones entrees. Announced 12/18/03 it will introduce low-carb line of bread early in calendar year 2004. Launching Total Protein cereal, which will have 13g of protein and 8g of net carbs. Announced 12/29/03 it will introduce low-carb sandwich bread.

Source: Company information

CONCLUSION The popularity of the Atkins and other low-carb diets continues to expand, with an estimated 11% of Americans following some sort of controlled-carb regimen. We believe the low-carb craze is indicative of a broader food industry trend that has been around for many years: consumers are demanding healthy alternatives that taste good. Food companies continue to respond by developing nutritious products that target diverse dietary needs (low-fat, low-cal, low-sodium, low-carb, etc.). Although the “Atkins Revolution” distorts the traditional perception of nutritious, the carb-conscious phenomenon is a continuation of this healthy food theme. Low-carb diets create an obstacle for companies with considerable high-carb exposure. However, recent performance by companies such as Kellogg and Flowers Foods demonstrate that developing new products and focusing on trend-relevant innovation can drive consumption in high-carb categories. Additionally, offering carbconscious options can help combat category weakness because low-carb products often command premium pricing and enhance product mix. Going forward, we believe innovation and product news will continue to be the most effective means by which to combat the low-carb movement. Although we believe investors should understand food companies’ exposure to low-carb diets, we believe it is equally important to examine other critical success factors, including value, quality, convenience, innovation, and overall nutrition. With these elements in mind, we reiterate our purchase recommendations for Flowers Foods, Del Monte, HJ Heinz, and General Mills (Table 3): Table 3:

Gabelli Packaged Food Recommendations

Company

Investment Case

Del Monte

Trading at 10.2x 2005E EPS (4/30 FYE), we believe Del Monte’s shares do not reflect the company’s improved growth dynamics following the Heinz transaction. The acquired brands are responding well to revitalization efforts and the company is benefiting from enhanced center-store scale and distribution gains.

Flowers

We believe leading technology, trend-relevant innovation, solid management, and strong brands have made Flowers the best in the baking business and will enable the company to continue to outperform its peers.

General Mills

Short-term challenges, such as an SEC inquiry, the Diageo overhang, and weak volume performance in its latest quarter, have contributed to General Mills’ weak valuation (trading at 14.4x 2005E EPS, 5/31 FYE). Long-term, we believe GIS will generate 10-11% EPS growth. The company’s current return is 2.4%.

H.J. Heinz

We continue to recommend H.J. Heinz based on improving foodservice trends, its international exposure (62% of sales), new product pipeline, and attractive valuation (trading at 14.5x 2005E EPS, FYE 4/30).

Source: Gabelli & Company, Inc. estimates.

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Gabelli & Company, Inc. APPENDIX DETAILS ON THE ATKINS DIET •

How Low-Carbohydrate Diets Work The key principle behind the Atkins diet is that consumption of carbohydrates promotes insulin production, which is ultimately stored as fat if not burned off. Therefore, limiting carbohydrate intake promotes weight loss by preventing excess insulin production. In addition, the theory goes, Atkins takes advantage of the fact that the body first burns carbohydrates to produce energy. In the absence of excess carbohydrates, the body burns its stored carbs (glycogen) for energy. When burning glycogen, the body releases water, which results in weight loss. The body will also start to burn some fat. In addition, burning fat in the absence of carbohydrates creates a byproduct called ketones that build up in the bloodstream (ketosis), which is believed to be a natural appetite suppressant. Finally, if the total caloric intake on a low-carb diet is low enough, the body will burn muscle tissue, resulting in further weight loss.

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Advantages of Low-Carb Diets Participants are not required to starve themselves, making the diet easier to maintain. In addition, followers report the diet suppresses their appetite, making it easier to control caloric intake. The diet has received some positive press from the medical community as well. In its May 2003 issue, the New England Journal of Medicine compared the results of the Atkins diet with a traditional low-fat, low-calorie diet. The study concluded the following:

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Atkins Subjects Lost More Weight Faster: Researchers observed that both diets resulted in weight loss; subjects on the Atkins diet lost more weight after three months and six months. However, the difference was not significant after 12 months.

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Atkins Subjects Improved HDL Cholesterol Levels: After three months, no significant differences were found between the groups’ level of low-density lipoprotein, or LDL (the “bad” cholesterol). However, the increase in high-density lipoprotein cholesterol, or HDL (the “good” cholesterol), was greater among subjects on the low-carb diet. Therefore, the low-carb diet was associated with a greater improvement in some risk factors for coronary heart disease.

Disadvantages of Low-Carb Diets The medical community has not yet determined the long-term heath risks of low-carb diets. Therefore, lowcarb dieters are potentially exposing themselves to unknown hazards to achieve a comparable weight loss advantage that disappeared after 12 months. Concerns include the following: -

Loss of Water and Muscle Drive Weight Loss: A significant portion of the initial pounds lost on Atkins comes from the loss of water, not fat. Additionally, in the absence of carbs, the body breaks down lean body tissue (muscle) to provide glucose for energy. Therefore, much of the weight loss in the beginning stages of the Atkins diet is believed to come from the loss of water and muscle.

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Benefits of Ketosis Unproven and Potentially Harmful: According to the Mayo Clinic, researchers have found no correlation between ketosis and weight loss in the Atkins diet. However, prolonged ketosis may deplete mineral levels in bones, causing them to possibly become porous and brittle.

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Long-Term Coronary Impact: Foods advocated by the Atkins diet, including items high in saturated fat such as red meat, have been documented as increasing the risk of heart disease.

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Restricted Foods Offer Health Benefits: According to the Mayo Clinic, certain foods restricted by lowcarb diets, such as whole grains, vegetables, and fruits, can reduce the risk of heart disease, cancer and other health conditions. The long-term health impacts of reducing consumption of such foods have yet to be determined for those following low-carb diets.

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Gabelli & Company, Inc. APPENDIX (continued) •

The Four Phases of the Atkins Diet -

Phase One: Induction In the Induction phase, which lasts 14 days, participants limit carbohydrate consumption to 20 grams per day. By way of comparison, the National Academy of Sciences’ Institute of Medicine recommends adults consume at least 130 grams of carbohydrates every day. Induction eliminates nearly all carbohydrates for two weeks in order to stabilize blood sugar levels and to switch the individual’s metabolism from a carbohydrate-burning to a fat-burning process.

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Phase Two: Ongoing Weight Loss In phase two, five grams of carbs are added to the daily diet per week until a level is reached that produces no further weight loss. Once this level is determined the individual drops back to the previous level, which is considered the Critical Carbohydrate Level for Losing (CCLL), or the maximum number of daily carbohydrates an individual is able to consume while losing weight.

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Phase Three: Pre-Maintenance When the participant is within five to ten pounds of their goal, they may move to phase three or “PreMaintenance,” which is the start of a slow transition to a permanent eating regimen. According to the Atkins Nutritional Approach, the follower continues to add carbohydrates daily, but in increments of less than ten grams per week, until weight loss is slowed to approximately one pound per week. This process is followed in order to lose the last few pounds over a one to three month period.

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Phase Four: Lifetime Maintenance Lifetime Maintenance recommends following the same nutritional practice of protein and limited carbohydrates to the highest level or the Critical Carbohydrate Level for Maintenance. Atkins also recommends exercising regularly and taking nutritional supplements throughout the entire process.

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Gabelli & Company, Inc.

Flowers Foods (FLO $24.40 – NYSE)

Del Monte Foods (DLM- $10.30 – NYSE)

Flowers Company Reports: Initial Report – 10-24-03

Del Monte Company Reports: Initial Report – 03-07-03 Q4 Update: On Track – 07-07-03 Ahead of Plan – 01-05-04

General Mills (GIS - $45.93 – NYSE)

H.J. Heinz (HNZ-35.05-NYSE)

General Mills Company Reports: Short-Term Concerns Create Opportunity – 11-21-03

Heinz Company Reports: Positioned for Growth – 10-09-03

We, Michael Hildebrandt and Sarah Donnelly, the Research Analysts who prepared this report hereby certifies that the views expressed in this report accurately reflect the analysts’ personal views about the subject companies and their securities. The Research Analysts have not been, are not and will not be receiving direct or indirect compensation for expressing the specific recommendation or view in this report.

Michael Hildebrandt 914-921-5125

Sarah Donnelly 914-921-5197

 Gabelli & Company, Inc. 2004

ONE CORPORATE CENTER RYE, NY 10580 GABELLI & COMPANY, INC. TEL (914) 921-3700 FAX (914) 921-5098 Gabelli & Company, Inc. (“we or “us”) attempts to provide timely, value-added insights into companies or industry dynamics for institutional investors. We do not have any formal ratings system for our research reports, and we do not undertake to “upgrade” or “downgrade” ratings after publishing a report. We generally write reports on securities that we believe to be undervalued and do not issue any “sell” ratings. Thus, virtually all of our reports containing recommendations would be considered “buy” ratings. We prepared this report as a matter of general information. We do not intend for this report to be a complete description of any security or company and it is not an offer or solicitation to buy or sell any security. All facts and statistics are from sources we believe to be reliable, but we do not guarantee their accuracy. We do not undertake to advise you of changes in our opinion or information. Unless otherwise noted, all stock prices reflect the closing price on the business day immediately prior to the date of this report. We do not use “price targets” predicting future stock performance. We do refer to “private market value” or PMV, which is the price that we believe an informed buyer would pay to acquire 100% of a company. There is no assurance that there are any willing buyers of a company at this price and we do not intend to suggest that any acquisition is likely. Additional information is available on request. In the last 12 months we have provided investment banking services as a syndicate or selling group member of underwritten offering to none of the companies that were the subjects of our research reports (all of which would be considered “buy” ratings). Our affiliates beneficially own on behalf of their investment advisory clients or otherwise approximately 0% of HRL, 0% of PPC, 0% of SFD, 0% of TSN, 0.3% of K, 0% of KFT, 0.3% of GIS, 6.7% of IMC, 11.9% of FLO, 0.4% of IBC, 0% of TBC, 0.1% of HSY, 0.6% of WWY, 0.3% of CPB, 3.9% of DLM, 0.01% of SLE, and 0.4% of SJM. Because the portfolio managers at our affiliates make individual investment decisions with respect to the client accounts they manage, these accounts may have transactions inconsistent with the recommendations in this report. These portfolio managers may know the substance of our research reports prior to their publication as a result of joint participation in research meetings or otherwise. The analyst who wrote this report may receive commissions from customers’ transactions in the securities mentioned in this report and may receive compensation that is based upon (among other factors) our revenues from acting as a syndicate or selling group member in underwritten offerings.

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