Kraft quarterly operating profit growth strong

by Josh Sosland
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NORTHFIELD, ILL. — With new products generating positive returns and cost savings outpacing stepped-up marketing spending, first-quarter operating income was strong at Kraft Foods Group, said Tony Vernon, chief executive officer.

Kraft net income in the first quarter ended March 30 totaled $456 million, equal to 77c per share on the common stock, down 6% from $483 million, or 82c per share, in the first quarter of 2012. Net revenues were $4,546 million, up 2.1% from $4,453 million.

Results for the 2013 quarter included $123 million in interest and other expenses, net, versus a $2 million cost in the 2012 quarter. Excluding these interest costs, operating income in the first quarter of 2013 was $809 million, up 9% form $741 million.

Describing the first quarter as a “solid start,” Mr. Vernon was optimistic about prospects for the balance of the year.

“In the months to come, we’ll execute our marketing playbook more broadly across our portfolio and we expect to see good progress in both top- and bottom-line performance for the full year,” he said.

Similarly, Tim McLevish, executive vice-president and chief financial officer, was positive in updating guidance for the year.

“Our cash generation in the first quarter was very encouraging and, overall, we’re on track to deliver every element of our 2013 financial guidance,” he said.

Elements of the guidance included:

  • Organic net revenue growth in line with growth of the North American food and beverage market,
  • Earnings per share of about $2.75  and
  • Free cash flow of approximately $1 billion

Areas of strength for Kraft in the first quarter included strong volume and improved products mix in Cheese, “driven by significant consumption growth in Kraft natural cheeses and Velveeta,” the company said. Operating income for Cheese was $172 million, up 3% from the first quarter of 2012. Profits were boosted by volume/mix improvements, overhead cost savings and lower manufacturing costs. Headwinds were higher commodity costs and restructuring program costs.

In Refrigerated Meals, Lunchables enjoyed continued growth, though the segments revenue totals were adversely affected by “product line pruning.” Operating income was $97 million, up 4%. The gain was driven by lower commodity costs and overhead cost savings.

Grocery segment sales were boosted in the wake of innovation introductions in Velveeta dinners and Kraft macaroni and cheese, but Jell-O, Kraft dressings and Planters snack nuts were weak. Operating income was $328 million, down 3%. Pressuring income were lower volumes, higher marketing spending and restructuring costs.

In beverages, Kool-Aid and Capri Sun enjoyed strong sales results, but coffee revenues were weak because of pricing adjustments related to lower green coffee costs. Operating income was $125 million, up 28%. The income improvement was attributed to better volume/mix, lower manufacturing costs, overhead cost savings, partly offset by restructuring costs and higher commodity costs.
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