Kraft Foods 4Q profit more than triples, sales up
Kraft Foods Inc. said Tuesday its fourth-quarter profit more than tripled on strength in developing markets and continued benefits from its restructuring plan to focus more on its money-making products.
The food maker, which is buying British candy maker Cadbury, said it expects long-term earnings growth at the high end of its previous guidance.
Kraft, whose brands include Maxwell House, Oreo cookies and its namesake cheese, said profit surged to $710 million, or 48 cents per share, for the period ended Dec. 31. That’s up from $178 million, or 12 cents per share, a year ago.
Analysts expected a smaller profit of 45 cents per share, according to Thomson Reuters.
Sales rose 3 percent to $11 billion, but missed Wall Street’s $11.07 billion estimate. The rise was primarily due to currency exchange effects, the company said. A weaker dollar helped boost revenue by 3.2 percent in the quarter.
Shares fell 45 cents to $28.64 in morning trading Tuesday.
The company, based in Northfield, Ill., continued to see falling sales in the U.S. in the fourth quarter. Shoppers are increasingly buying food from grocery stores rather than restaurants during the recession, but they’re trading down to less expensive, store-label brands. That forces Kraft and others to compete by promoting brands and cutting prices. Lower pricing drove revenue down 1.2 percentage points in the quarter, much of it for lower dairy costs.
The U.S. cheese business’ revenue fell 13.7 percent, largely on lower prices. The company matches its dairy prices to market costs, and those have been falling.
Revenue in the company’s U.S. beverage business fell 1.9 percent as Kraft saw weakness in its Maxwell House and Starbucks coffee brands, which could not offset growth in Capri Sun and Crystal Light.
The U.S. snacks business, which includes Ritz crackers and Oreos, saw its revenue fall 2.8 percent on weakness in cookies and crackers. Snack nuts revenue fell because of steep price competition.
A standout in the U.S. business was convenient meals, which includes frozen pizzas such as Tombstone and other foods people eat at home. Revenue there rose 3.9 percent, with Oscar Mayer Deli Fresh meats and pizza posting double-digit growth.
With the U.S. business stagnant, the company is looking for growth overseas. Revenue in developing markets grew 10.4 percent. Both Latin America and Asia Pacific had double-digit revenue growth, with strength in brands such as Tang and Philadelphia cream cheese.
Europe also figures prominently in Kraft’s growth plans. The company’s $19.5 billion deal to buy chocolate and gum maker Cadbury is a way for Kraft to expand its reach in other markets. The move will create the world’s largest candy company, with 40 major candy and gum brands and more than $50 billion in annual revenue, and greatly expand Kraft’s share of that lucrative business.
In the fourth quarter, revenue in Europe fell 0.3 percent, largely on Kraft’s shedding of unprofitable product lines there, particularly in coffee. Chocolate and cheese were strong, but biscuits were weak. Shoppers in Europe are also feeling pinched in the recession.
For fiscal 2009, the company earned $3 billion, or $2.03 a share, up from $2.89 billion, or $1.90 a share, the year before. Revenue fell 3.7 percent to $40.39 billion. The effects of currency exchange caused the revenue decline.
The company reiterated its guidance of near term net revenue growth of 4 percent or more and earnings per share growing at the high end of its range of 7 to 9 percent. For the long term, after its acquisition of Cadbury, Kraft is targeting revenue growth of at least 5 percent.
“The Cadbury acquisition, in our opinion, is simply a reaction to the slowing organic growth landscape in the U.S.,” Bill Pecoriello, an analyst who heads ConsumerEdge Research LLC said, “and an acknowledgement (unlike other U.S.-based packaged food companies) of the secular competitive trends in the U.S.”