Kraft profit climbs 10%; sales fall 6.5%

by Eric Schroeder
Share This:

NORTHFIELD, ILL. — Earnings at Kraft Foods Inc. rose 10% in the first quarter ended March 31, boosted in part by $87 million in gains related to its hedging program that helped ease some of the impact of a 6.5% decline in sales. Net income in the first quarter totaled $660 million, equal to 45c per share on the common stock, up from $599 million, or 35c per share, in the same period a year ago. Last year’s results were adversely affected by $98 million in restructuring costs and included $25 million in hedging gains.

Sales were $9,396 million, down 6.5% from $10,046 million.

"Our business momentum remains strong despite a challenging consumer environment," said Irene Rosenfeld, chairman and chief executive officer. "We are intensely focused on investing our cost savings to build our core brands, improve our product mix and drive superior retail execution. This will further enhance our profit margins and improve market shares as the year unfolds."

In a breakdown of results by division, Kraft said operating gains across nearly all business segments drove operating income growth, margin expansion and higher earnings per share.

Operating income of the U.S. Grocery business was $262 million, up nearly 10% as the benefits of higher price levels and improved product mix more than offset the impact of higher input costs and lower volume. Sales in the unit rose 3% to $818 million.

"The effect of higher price levels and double-digit volume growth in Kraft macaroni and cheese dinners more than offset the impact of unfavorable volume/mix in other parts of the business," Kraft said. "Volume/mix was unfavorably impacted by the Easter shift and the third quarter 2008 exit of Handi-Snacks ready-to-eat desserts as part of the company’s initiative to discontinue less profitable product lines."

Operating income of U.S. Convenient Meals soared 52% to $141 million, boosted by an 8% gain in sales to $1,117 million. The company attributed the bump in income to the absence of restructuring program charges in the most recent quarter, while the growth in sales reflected strong performance from DiGiorno, California Pizza Kitchen and Jack’s pizza, Oscar Mayer Deli Fresh meats, Oscar Mayer bacon and Oscar Mayer Lunchables.

Operating income in the U.S. Cheese division rose 60% to $131 million behind the benefits of improved alignment of prices with costs. Sales in the unit, meanwhile, fell 7%.

In U.S. Snacks, operating income rose 8% to $129 million, up from $120 million. The growth, which was due in part to solid gains in biscuits, was weighed down in part by a $17 million charge related to the pistachio recall. Sales climbed 1% behind solid growth in both cookies and crackers.

Operating income in the U.S. Beverages business rose 12% to $162 million on a 1% gain in sales to $783 million.

"Net revenues for coffee declined due to a combination of the Easter shift and the rollback of 2008 price increases to reflect lower green coffee costs," Kraft said. "Ready-to-drink beverages grew at a double-digit rate behind successful quality and marketing investments in Capri-Sun. Value-oriented marketing behind Kool-Aid continued to drive solid growth in powdered beverages."

Looking forward, the company left its earnings forecast unchanged for the year at $1.88 per share.

Comment on this Article
We welcome your thoughtful comments. Please comply with our Community rules.

The views expressed in the comments section of Baking Business News do not reflect those of Baking Business News or its parent company, Sosland Publishing Co., Kansas City, Mo. Concern regarding a specific comment may be registered with the Editor by clicking the Report Abuse link.