Kraft cuts forecasts as volumes decline

Posted by Isobel Drake on 5th February 2009

Kraft Foods reported overnight that organic net revenues – assisted by price rises – increased by 6.6% in the second year of its three-year turnaround plan.

“Growth in operating income … reflected the benefits of further investments in brand building and improved cost management,” the company reported. “This, combined with improved working capital management, resulted in strong cash flow.”

In what is becoming a trend amongst major global manufacturers, revenues rose despite volume falling. In Kraft’s case volume was down 5.2 per cent; “reflecting the full impact of unprecedented cost-driven pricing actions taken throughout the year in every geography.” They added that North American volumes had also been hit by “retailer inventory reductions and the company’s pruning of less profitable items.” The impact of US dollar strength is also taking its toll on the international sales figures of a number of American-based manufacturers.

Irene Rosenfeld, Chairman and CEO of Kraft, noted a difficult year would confront the food manufacturer but believed they could make market share gains as their turnaround nears completion. “Despite a difficult environment in 2008, we delivered our commitments and made significant strides in staging the portfolio for sustainable growth,” she said. “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.”

Krafts’ Oreo biscuit brand, which grew 20 per cent in the final quarter, and their convenience meals were among the best performers for the company along with international markets. “Revenues in the Asia Pacific region grew due to gains in biscuits as well as improved consumer programming behind Toblerone chocolates and Tang powdered beverages,” the company noted. “The primary drivers of the strong increase in operating income in the quarter were pricing and favourable product mix that more than offset higher input costs and the timing of overhead costs.”

Kraft reported that 2009 organic net revenue growth was now expected to be 3 percent, down from a previous expectation of at least 4 percent, “due to a lower-than-expected contribution from pricing as certain input costs, particularly dairy, have declined.”