Kraft’s sales fall but profit beats expectations

Posted by James Ferre on 4th November 2009

Kraft Foods beat analysts profit expectations in the third quarter as volumes and profit margins improved on the second quarter. Despite the growth in profit, the company reported a 5.7 per cent decline in revenues thanks to currency headwinds and divestitures.
“We continue to build our operating and financial momentum despite the difficult consumer environment,” Irene Rosenfeld, Chairman and CEO of Kraft, said. “Our volume/mix, profit margin and cash flow trends are strengthening as we successfully execute our growth plan. As a result, we expect to deliver higher earnings and cash flow in 2009, while further increasing our brand investments to drive future growth.”

The company is expected to formalise their offer for Cadbury this week, with Ms Rosenfeld indicating that a bid would be made before the November 9 deadline is reached.

“We remain interested but will maintain a disciplined approach. Our criteria include accretion to cash EPS in the second year, delivering a return on investment well in excess of our cost of capital, and maintaining both our investment grade credit rating and our dividend,” she advised.

OutlookKraft increased its earnings per share due to lower taxes and “strong year-to-date profit performance”. However, net revenue forecasts were revised downwards due to a lower contribution from higher prices as inflation remains soft.

The new guidance also reflects further investments in marketing to drive future growth as well as an estimate for certain costs in connection with the company’s possible combination with Cadbury.

“We remain focused on driving sustainable top-line growth, while implementing our strong cost-savings pipeline. We are making good progress toward our goal to be at or above industry margins in the next two years, and are well-positioned to deliver top-tier performance,” Ms Rosenfeld concluded.