Kraft Second-Quarter Profit Climbs 13% as Emerging Markets Sales Advance
July 30 (Bloomberg) -- Alexia Howard, an analyst at Sanford C. Bernstein & Co., talks about the outlook for Kellogg Co., Kraft Foods Inc. and Sara Lee Corp. Howard speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)
Kraft Foods Inc., the world’s second- largest food company, said second-quarter profit increased as improved performance in Europe and emerging markets offset weaker-than-expected sales in North America.
Net income at the maker of Oreos and Cadbury chocolate rose 13 percent to $937 million, or 60 cents a share, from $827 million, or 56 cents, a year earlier, the Northfield, Illinois- based company said today in a statement. Analysts anticipated 52 cents, the average of projections compiled by Bloomberg.
Sales for Kraft Foods North America climbed 6.3 percent, fueled by new gums from Trident and Dentyne, and grew 73 percent in developing markets, led by chocolate in India, Oreo cookies in China, and gum across Latin America. Organic revenue, which excludes acquisitions, divestitures and foreign currency fluctuations, increased 2.2 percent.
“I think in general Kraft is in good shape,” said Robert Cummins, an analyst at Wellington Shields & Co., a New York brokerage firm. “They are showing improvement in profit margins, and their European business seems to be doing really well. I am reasonably optimistic for sales and earnings growth in the balance of the year.” He recommends buying the shares.
Kraft rose as much as 5.2 percent to $31.20 in late trading after closing at $29.66 on the New York Stock Exchange. The shares have risen 9.1 percent so far this year.
The company lowered its organic net revenue growth forecast to 3 percent to 4 percent, down from at least 4 percent previously, hurt by rivals’ price cuts and reduced merchandising of its snacks and macaroni and cheese dinners by Wal-Mart Stores Inc., its biggest customer. Kraft also reaffirmed its 2010 forecast of operating earnings per share of at least $2.
Promotional Spending
In an interview today, Chief Executive Irene Rosenfeld said she plans to increase promotional spending on products like salad dressings, cheese and cookies in the third quarter, as “we will not continue to tolerate market share losses.” She said she also expects Wal-Mart to increase its in-store support of Kraft’s brands in the second half of the year.
Total revenue rose 25 percent to $12.25 billion, in line with the $12.29 billion average of estimates compiled by Bloomberg.
In February Kraft acquired Uxbridge, England-based Cadbury for about 13.6 billion pounds ($20.8 billion) in cash and stock after a five-month standoff. The deal transformed the maker of Velveeta cheese into the world’s biggest confectionary company, and Kraft said the acquisition would give it leading positions in emerging markets like India.
‘Revenue Opportunities’
“We see all kinds of revenue opportunities and we can capitalize on some of them sooner than anticipated,” Rosenfeld said on a teleconference with analysts. “But the real impact will not be until next year.” She cited Brazil, India, and Southern Europe as areas where Cadbury’s business will receive additional investments in marketing and innovation.
Kraft increased its estimate for cost savings from the Cadbury integration to at least $750 million from $675 million, and raised the anticipated cost of merging the two companies together to approximately $1.5 billion from $1.3 billion.
“Though the quarter featured strong underlying growth in the base business, the integration of Cadbury remains top-of- mind for investors and will likely keep the stock here in a holding pattern,” said Christopher Growe, an analyst at Stifel, Nicolaus & Co. Inc. in St. Louis, in a note to clients today. He recommends buying the shares.
To contact the reporter on this story: Matthew Boyle in New York at mboyle20@bloomberg.net
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