Kraft net down 58%; adjusted income climbs 37%

by Eric Schroeder
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NORTHFIELD, ILL. — Net income at Kraft Foods Inc. fell nearly 58% in the first quarter of fiscal 11, bogged down by integration costs associated with its acquisition of Cadbury, but adjusted operating income rose 37%, besting analyst expectations.

Net income in the quarter ended March 31 was $799 million, equal to 45c per share on the common stock, down from $1,883 million, or $1.17 per share, in the first quarter of fiscal 2010.

Excluding one-time items, Kraft earned 52c per share, versus 49c per share last year.

Adjusted operating income in the first quarter was $1,646 million, which compared with $1,206 million in the same period a year ago.

Net sales rose 11% to $12,573 million as pricing, which accounted for 3.7 percentage points of growth, was higher in each geographic region. Volume/mix contributed 0.9 percentage points.

“We’re off to a stronger-than-anticipated start to the year as our teams around the world execute our growth strategy,” said Irene Rosenfeld, chairman and chief executive officer. “Our business fundamentals are solid, and we continue to benefit from brand-building investments, which allowed us to successfully deliver net pricing to offset commodities increases and drive top-tier growth. At the same time, we’re generating cost savings to reinvest in further growth and expand margins.”

Operating income within Kraft Foods North America totaled $1,036 million, up 5% from $983 million in the same period a year ago. Net sales rose to $5,936 million from $5,688 million.

U.S. Grocery operating income rose 2% to $292 million, while sales fell 3% to $794 million.

Operating income of U.S. Snacks fell to $193 million, down 7% from $207 million in the same period of fiscal 2010. Sales, meanwhile, rose 7% to $1,492 million from $1,392 million.

Also sustaining a decline in the quarter was Kraft’s U.S. Beverage division, where operating income fell 6% to $161 million from $172 million. Net sales were flat at $821 million.

Operating income in U.S. Convenient Meals were $105 million, up 25% from $84 million, while sales rose 3% to $792 million from $770 million.

“First-quarter results bolster our confidence in our 2011 outlook,” said Tim McLevish, executive vice-president and chief financial officer. “We’re realizing better alignment between pricing and input costs, and volumes to date have held up well. At the same time, raw material costs continue to escalate and the economic environment remains unsettled.”

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