Rosenfeld emphasizes biscuit strength in quarter

by Josh Sosland
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NORTHFIELD, ILL. — The strength of the company’s global business helped fuel a “terrific start in 2012” at Kraft Foods Inc., said Irene Rosenfeld, chairman and chief executive officer.

Ms. Rosenfeld and colleagues reviewed the first-quarter results in a conference call May 3 with investment analysts. While the fastest sales (and earnings) growth was in non-U.S. markets, the North American business was “solid” as well, she said.

“Global biscuits were up 8% on a constant currency basis, with developing markets growing in the high teens,” Ms. Rosenfeld said. “China was up 40%, leading the way, with Oreo growing by more than 60%. Tock and Club Social crackers also continued to post strong performance, up 12% across developing markets. Our biscuit businesses in North America and Europe were also solid, with mid-single-digit growth in each region.

“Again, Oreo was a major driver, while new platforms, such BelVita breakfast biscuits and Choco-Bakery in Europe made significant contributions.”

The biscuit business also featured prominently in a review of the North American sales results by David A. Brearton, executive vice-president and chief financial officer. Noting organic net revenue growth was 3%, he said the company’s power brands had 6% sales growth.

“Let me give you some examples of standout performers,” he said. “Oreo, which celebrated its 100th birthday in March, and Miracle Whip, behind a new marketing campaign, each grew double digits. Philadelphia increased by more than 20% behind the launch of Philly Indulgence, and Newtons were up nearly 50%, with the continued success of Fruit Thins.”

He called the introduction of BelVita breakfast biscuits very successful.

While pricing was a major contributor to the sales growth, Mr. Brearton said most of the price increases were carryovers from actions taken late in 2011 to offset higher raw materials costs.

“Despite the higher pricing, vol/mix was solid, with few puts and takes,” he said. “The benefit of the Easter shift was essentially offset by product pruning of about 1 percentage point. Most of the pruning was in Oscar Mayer, food service, and Canada. In addition, vol/mix was negatively impacted by approximately 70 basis points from trade inventory reductions in U.S. Beverages.”

U.S. Beverages was the weakest sector in the first quarter, with sales down 14% as reported and 3.5% on an adjusted organic basis. Mr. Brearton attributed the weakness to timing issues he said will not undermine the segment’s prospects for the balance of the year.

“So, what happened in beverages?” he asked. “Two factors. First, customers built Capri Sun inventories last year in advance of an announced January price increase. This trade load helped drive 15% growth in beverages in the fourth quarter. As a result, Capri Sun volume was soft in quarter one, as customers reduced stocks. And second, customers, anticipating possible price reductions in the second quarter, reduced inventories of Maxwell House coffee. The timing of marketing programs also impacted Maxwell House sales. These two factors affected both the top- and bottom-line performance of the beverage business in quarter one. However, sales at the cash register remains strong across the business. So we’re confident the beverages will show solid top- and bottom-line growth for the full year.”

In her remarks, Ms. Rosenfeld said chocolate was an area of strength with sales globally up 10%, buoyed by a double-digit gain in developing markets, especially Latin America (sales in Brazil were up almost 30%).

The company’s “sole disappointment” in the quarter remained the gum and candy business.

“Frankly, it’s taken us longer to change gum’s trajectory than we had anticipated, largely due to the sluggishness of the macro environment,” she said.

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