Kraft Food: reports disappointing third quarter

Northfield / IL. (kf) Kraft Foods Inc. reported strong third quarter revenue growth of 9,8 percent. Earnings per share excluding items affecting comparability declined as investments in growth initiatives and higher input costs, particularly dairy, more than offset the benefits of strong revenue growth, cost savings and share repurchases. The report in key points:

• Third quarter net revenues increased 9,8 percent; organic net revenues grew 6,2 percent.
• Organic net revenue growth well-balanced with solid gains in volume, product mix and pricing.
• Third quarter diluted EPS decreased 15,6 percent; diluted EPS excluding items that affect comparability decreased 4,3 percent to 0,44 USD.
• Decline in EPS excluding items due to investments in growth and higher input costs, particularly dairy.
• 2007 guidance unchanged for organic revenue growth and EPS.

Third quarter 2007 net revenues increased 9,8 percent to 9,1 billion USD, led by strong, broad-based organic growth in all geographies. Reported net revenue growth included a favorable 1,1 percentage point impact from acquisitions, net of divestitures, and a favorable 2,5 percentage point impact from currency. Excluding these items, organic net revenues grew 6,2 percent, including favorable pricing of 2,3 percentage points. Investments in product quality, new products and marketing drove volume gains of two percentage points and favorable product mix of 1,9 percentage points, despite higher pricing.

Reported operating income decreased 27,6 percent from the prior year to one billion primarily due to a one-time gain in the third quarter 2006. Operating income excluding items declined 5,8 percent versus the prior year and operating income margin excluding items decreased to 13,1 percent in third quarter 2007 from 15,2 percent in third quarter 2006. The benefits of strong revenue growth and cost savings were more than offset by investments in product quality, new products and marketing as well as higher input costs, particularly dairy.

Third quarter 2007 diluted earnings per share were 0,38 USD, down 15,6 percent from 0,45 in 2006 primarily due to a one-time gain in 2006. During the quarter, the company incurred 0,06 USD per diluted share in asset impairment, exit and implementation costs, including a 0,03 USD impairment charge related to the company´s agreement to sell the Fruit2O water and Veryfine juice brands and related assets. The remaining 0,03 USD reflects progress on the company´s restructuring program.

Info: The full news release «Kraft Foods Reports Continued Top-Line Momentum in Third Quarter» of Kraft Foods´ Q3/2007 is available here (15 pages | 78KB).