Kraft Foods: reports strong 2008

Northfield / IL. (kf) Kraft Foods Inc. reported 2008 results that reflected solid top-line and bottom-line results in the second year of its three-year turnaround plan. Strong organic net revenue growth was driven by pricing actions in response to higher input costs. Growth in operating income excluding items reflected the benefits of further investments in brand building and improved cost management. This, combined with improved working capital management, resulted in strong cash flow. As expected, fourth quarter reported earnings per share decreased largely due to the final costs related to the company’s previously announced restructuring program.

• Net revenues: Fourth quarter net revenues increased 6,2 percent to 10,8 billion USD. The LU biscuit acquisition added 8,0 percentage points to net revenue growth that was partly offset by a negative 5,3 percentage point impact from currency and a 0,9 percentage point impact from divestitures.
• Excluding these factors, organic net revenue growth was 4,4 percent. Input cost-driven pricing added 9,8 percentage points to growth. Volume was down 5,2 percent reflecting the full impact of unprecedented cost-driven pricing actions taken throughout the year in every geography. Additionally, North American volumes were negatively impacted by retailer inventory reductions and the company´s pruning of less profitable items.
• Operating income: Fourth-quarter reported operating income declined 68,5 percent from the prior year to 302 million USD primarily due to the final costs related to the company´s restructuring program, which was completed at the end of 2008. Operating income excluding items was down 0,8 percent versus the prior year. In fourth quarter 2008, approximately 170 million USD of unrealized, mark-to-market losses related to the company´s commodity hedging activities affected results. Operating results improved as the benefits of the LU biscuit acquisition and cost-driven pricing actions more than offset the impacts of higher input costs, lower volume, higher marketing and the timing of overhead costs.
• Tax rate: Kraft´s reported tax provision in the fourth quarter 2008 was a credit of 90 million USD reflecting higher costs related to the company´s restructuring program and the recognition of several specific tax benefits. Excluding items, the fourth quarter rate was 19,7 percent compared to 27,4 percent in fourth quarter 2007, primarily reflecting several discrete tax benefits recognized in fourth quarter 2008.
• Earnings per share: Fourth-quarter 2008 reported earnings per share were 0,11 USD, down from 0,38 USD in fourth quarter 2007. During the quarter, the company incurred 0,36 USD per share in asset impairment, exit and implementation costs, compared to 0,06 USD in the same quarter a year ago, and recognized a 0,05 USD adjustment on the previously recognized gain from the split-off of the Post cereals business.

«Despite a difficult environment in 2008, we delivered our commitments and made significant strides in staging the portfolio for sustainable growth», said Irene Rosenfeld, Chairman and CEO. «While our 2009 earnings face a number of headwinds, particularly currency and pension costs, we will complete our turnaround in 2009 by continuing to invest in our brands, better leveraging our overhead costs and improving both market shares and profit margins from 2008 levels», she said in the statement.