Advertising spend hurts Kraft third-quarter earnings

by Staff
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NORTHFIELD, ILL. — Stepped-up spending on advertising weighed on third-quarter earnings at Kraft Foods Inc., while the integration of recently acquired Cadbury P.L.C. helped drive sales higher. Net income in the quarter ended Sept. 30 totaled $754 million, equal to 43c per share on the common stock, down 8% from $824 million, or 56c per share, during the same quarter of the previous year.

Revenue for the quarter was $11,863 million, up 26% from $9,397 million during the same quarter of the previous year. Kraft said it received a 26.2 percentage point boost from the Cadbury acquisition, which more than offset a negative 2.3-point impact from currency and a negative 0.2-point impact from divestitures.

“We had another good quarter, and we’re executing well,” said Irene Rosenfeld, chairman and chief executive officer. “Our global growth strategy of focusing on snacking and power brands gives us a clear path to top-tier performance. The Cadbury integration has proceeded smoothly and quickly, and we’re already benefiting from significant cost synergies. I remain confident that we will achieve our goals for 2010 and accelerate our growth in 2011.”

Operating income for Kraft Foods North America rose 5% during the third quarter to $1,002 million, up from $956 million in the same period a year ago. Sales for the segment also advanced, rising to $5,873 million from $5,372 million.

Within Kraft Foods North America, four units posted year-over-year operating income gains and two sustained declines. The biggest mover was U.S. Convenient Meals, which posted operating income of $82 million, up 30% from $63 million in the same period a year ago. Net sales for the unit rose 4% to $806 million from $774 million.

Canada & North America Foodservice operating income increased 14% to $160 million on a 15% gain in sales, while U.S. Snacks income rose 10% to $216 million on a 22% gain in sales. U.S. Cheese operating income inched up 2% to $169 million, while sales for the unit rose 5% to $863 million.

U.S. Grocery and U.S. Beverages, meanwhile, eased during the quarter. U.S. Grocery income totaled $244 million, down 5% from $258 million in the same period a year ago. Net sales were narrowly higher, at $779 million compared with $778 million in the same period a year ago. Operating income for U.S. Beverages was down 2% at $131 million, while sales rose slightly to $756 million from $754 million previously.

“Focused investments drove solid volume/mix growth in power brands such as Chips Ahoy! cookies, Ritz crackers, Starbucks coffee, Capri Sun and Kool-Aid ready-to-drink beverages, Oscar Mayer Deli Fresh cold cuts and Lunchables combination meals, and Velveeta processed cheese,” Kraft said. “In addition, the introduction and expansion of new product platforms, such as Oscar Mayer Carving Board cold cuts, Jell-O Mousse Temptations desserts, Wheat Thins Stix crackers and Crystal Light Pure powdered beverages also contributed to Kraft Foods’ base business growth.”

For the nine months ended Sept. 30 Kraft earnings totaled $3,574 million, or $2.10 per share, up 55% from $2,311 million, or $1.56 per share, during the same period of the previous year. Sales during the nine months totaled $35,434 million, up 26% from $28,157 million during the same period of the previous year.

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