Kraft sees growth outstripping forecasts

Posted by Daniel Palmer on 5th August 2009

Kraft Foods has announced an 11 per cent hike in profits for the second quarter, topping estimates from analysts and leading to an upgrade of their full-year forecasts.

Revenues declined, however, pushed lower by unfavourable currency movements and divestitures of less-profitable brands but partially offset by higher prices and a small (0.2 per cent) rise in volumes.

Irene Rosenfeld, Chairman and CEO of Kraft, said the company’s results highlighted continued momentum in a turnaround program that started a few years ago.

“The investments we’ve made over the past three years are driving solid business momentum in a challenging economic environment,” she said. “We’re on track to deliver strong top- and bottom-line results, restore our profit margins to industry averages and consistently deliver against our long-term earnings growth target of 7 to 9 per cent.”

After stripping out the impact of currency movements, developing markets led the way in terms of revenue growth – with a 9.3 per cent increase in sales across Latin America, Asia Pacific and Central and Eastern Europe.

“In Asia Pacific, growth was driven by higher price levels and strength in the priority brands, particularly Oreo cookies and Tang,” the company advised in a statement.

Product innovation

The maker of Vegemite said that their new innovation were being dictated by the frugal consumer, with premium products put on hold.

“I would tell you that we have certainly a number of items in our pipeline that would be more premium kinds of offerings and we have chosen to just hold those in abeyance while we wait for the economy to recover,” Ms Rosenfeld told analysts on a conference call. “I would say the focus of our near-term innovation pipeline is on snacking. It is on health and wellness products and continued focus on value.”

Guidance

“Looking ahead, this strong operating momentum will continue,” Ms Rosenfeld contended. “For the full year despite a challenging economic environment and significantly lower dairy costs, we are maintaining our target for organic revenue growth of about 3%. Pricing will be less of a factor and vol/mix in priority categories, core brands and key markets will continue to improve as the year progresses. Although we are seeing weakening category consumption trends in certain European and developing markets we are offsetting much of that gains in market share.”