Kraft Foods: reports strong result

Northfield / IL. (kf) Kraft Foods Inc. reported strong second quarter 2008 results that reflect continued momentum as it reached the midpoint of its three-year turnaround plan. Organic top-line growth was strong, driven by pricing actions to offset significantly higher input costs. Reported earnings per share increased in the second quarter due to gains from operations and certain commodity hedging activities, partially offset by a one-time loss on divestitures. Earnings per share excluding items grew at a double-digit rate.

«Our business continues to strengthen in a challenging operating environment, and performance is exceeding our expectations», said Irene Rosenfeld, Chairman and Chief Executive Officer. «Our investments are driving stronger top-line growth and we are now seeing that play through in improved profitability. I expect our year-over-year results to improve further in the back half of 2008 as we continue to reinvest in our brands and reduce our costs».

• Net revenues: Second quarter net revenues increased 21,4 percent to 11,2 billion USD. Net revenue growth included a favorable impact of 9,6 percentage points from the LU biscuit acquisition and a 5,6 percent gain from currency that was partially offset by an unfavorable impact of 0,7 percentage points from divestitures. Excluding these factors, organic net revenues grew 6,9 percent. Higher pricing contributed 7,2 percentage points, while favorable mix added 0,7 percentage points. Volume was down only 1,0 percent despite the impact of significant cost-driven pricing actions taken during the quarter.

• Operating income: Reported operating income in the quarter increased 27,1 percent from the prior year to 1,5 billion USD. Operating income excluding items increased 27,6 percent versus the prior year. Operating income margin excluding items increased to 15,3 percent in second quarter 2008 from 14,5 percent in second quarter 2007. The benefits of strong revenue growth and associated overhead cost leverage, as well as a commodity hedging favorability, more than offset significantly higher input costs and investments in product quality, marketing and new products. Results include approximately 150 million USD in gains from certain commodity hedging activities, which will be offset in the second half of 2008.

• Tax rate: Kraft´s reported tax rate in second quarter 2008 was 37,9 percent. Excluding items, the second quarter rate was 36,1 percent compared to 32,5 percent in second quarter 2007. The second quarter rate is consistent with the company´s full-year guidance of 33,5 percent excluding items but reflected quarterly timing of certain discrete items.

• Earnings per share: Second quarter 2008 reported earnings per share were 0,48 USD, up 9,1 percent from 0,44 USD in second quarter 2007. During the quarter, the company incurred 0,05 USD per share in asset impairment, exit, implementation and other costs, compared to 0,06 USD in the same quarter a year ago. The company also incurred 0,04 USD in losses on the divestiture of certain biscuit assets that was required as part of the company´s LU biscuit acquisition (press release).