Kraft posts strong quarter, first-half results

by Eric Schroeder
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NORTHFIELD, ILL. — Net income of Kraft Foods Inc. in the second quarter ended June 30 was $1,029 million, equal to 58c per share on the common stock, up 5% from $976 million, or 55c per share, in the same period a year ago. Sales were $13,286 million, down 4% from $13,878 million.

Operating income of the U.S. Convenient Meals segment jumped 30% in the second quarter from the same period a year ago; the U.S. Cheese segment was up 9%; U.S. Snacks rose 3%; U.S. Grocery inched up 1%; Canada and N.A. Foodservice fell 6% and U.S. Beverages eased 3%. Kraft Foods Europe fell 5% in operating income in the quarter while Kraft Foods Developing Markets was up 5%.

“Our second-quarter and first-half results reflect the success of our brand-building investments over the past few years and the resilience of our businesses,” said Irene Rosenfeld, chairman and chief executive officer. “As we embark on our journey as two industry-leading, independent companies, I’m confident that both companies have the brands, the executional capability, and the leadership teams to succeed in their respective missions.”

Ms. Rosenfeld said Kraft will spin off its North American Grocery business on Oct. 1.

Overall sales in North America rose 1.2%, including organic growth of 1.7% due to higher pricing across each segment. Overall operating income in North America was up 3%, which included a negative 5.9 percentage point impact from restructuring program costs net of lower integration programs costs. Excluding these factors, operating income would have been up high-single digits, the company said.

In Europe, net revenues fell nearly 15%. The decline in operating income of 5% reflected a negative 9 point impact from accounting calendar changes and 8.3 points from currency, partially offset by a favorable 8.1 point impact from lower integration costs versus the prior year. Excluding these factors, operating income in Europe would have been up as favorable pricing and productivity gains more than offset higher raw material costs and a strong increase in A&C support behind power brands, Kraft said.

In developing markets, negative impacts from currency and accounting calendar changes drove a 3.6% decrease in net sales. The 5% gain in operating income included a 6 percentage point benefit from lower integration costs and a negative 7.6 point impact from currency. Accounting calendar changes also adversely affected growth by nearly 2 points.

“Excluding these factors, effective cost management and volume/mix gains drove segment operating income growth,” Kraft said. “This was partially offset by higher SG&A, including a strong increase in A&C support.”

For the six months ended June 30, overall net income at Kraft Foods was $1,842 million, or $1.04 per share, up 4% from $1,775 million, or $1.01 per share, in the same period a year ago. Net sales were $26,379 million, down narrowly from $26,451 million.

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