Nov. 14 (Bloomberg) -- Parmalat SpA, Italy's largest dairy company, cut its annual profit and sales forecasts as pressure on incomes spur more shoppers to pass up its branded products for goods carrying food retailers' own names.

Parmalat, the maker of Zymil low-lactose milk, also said nine-month profit soared on proceeds from settling lawsuits against banks that allegedly contributed to its collapse in 2003.

Sales will rise 2.4 percent this year, excluding currency fluctuations, the Collecchio, Italy-based company said today in a stock-exchange statement, down from its previous forecast of 3 percent. Parmalat forecast earnings before interest, taxes, depreciation and amortization of 310 million euros ($394 million) to 315 million euros, below its July forecast of 350 million euros. Total revenue will rise 7.5 percent, it said.

``The economic environment is very difficult,'' Chief Executive Officer Enrico Bondi said on a conference call with investors and analysts. ``Households have weaker spending power.''

Parmalat's performance worsened in the third quarter, Chief Operating Officer Carlo Prevedini said on the call. The company is having difficulty persuading shoppers to pay more for its branded goods in markets including Italy, Australia and South Africa, after price increases made cheaper products carrying grocers' names and other discounted items more attractive, he said.

Milk Contracts

The company is negotiating with suppliers following a decline in raw-milk prices, and expects new contracts by early next year, Prevedini said.

Third-quarter profit climbed to 213.2 million euros from 32.6 million euros in 2007. Sales fell 1.4 percent to 973.7 million euros from 987.1 million euros, according to Bloomberg calculations that were based on nine-month figures and confirmed by a company spokeswoman who declined to be identified.

Nine-month net income jumped to 638 million euros from 276.3 million euros a year earlier, Parmalat said after the Italian stock market closed. Revenue increased 2.8 percent to 2.88 billion euros.

Parmalat fell 0.5 percent to 1.28 euros in Milan trading. The shares have slid 49 percent this year. They plunged by a fifth on Oct. 21 after jurors found Citigroup Inc. blameless of aiding in thefts that helped bankrupt the company in 2003.

The Italian company collapsed, wiping out the savings of more than 100,000 investors, after revealing that a 3.95 billion- euro account at Bank of America Corp. didn't exist and said documents certifying the account had been falsified. Hearings resumed this week in the trial of former lenders to the dairy company in the northern Italian city of Parma.

Claims Pending

Parmalat still aims to recoup as much as 1 billion euros from claims against former lenders. To date, CEO Bondi has won about 2 billion euros in settlements from UBS AG, Merrill Lynch & Co. and other financial companies. In the first nine months of this year, Parmalat collected 624.5 million euros in settlements from Unicredit SpA, UBS AG, Credit Suisse Group AG, Banca Monte dei Paschi di Siena SpA, among other former lenders.

Nicola Palmieri, Parmalat's legal counsel, said the company has filed two motions to overturn the Citibank verdict and expects news on the ruling within the first half of next year. Outstanding damages cases against Bank of America and former auditor Grant Thornton LLP are still pending, he said.

Sales in Italy rose 2.3 percent in the first nine months to 845.1 million euros, while sales in the rest of Europe climbed 11 percent. Revenue from Canada, the company's biggest market, was little changed at 981.4 million euros. Revenue advanced 4.7 percent in Australia and fell 3 percent in Africa. Sales in Central and South America jumped 14 percent.

To contact the reporter on this story: Sara Gay Forden in Milan at sforden@bloomberg.net

Last Updated: November 14, 2008 16:45 EST