Kraft Declines After Lowering 2011 Earnings Forecast

Kraft Foods Inc., the world’s second-largest food company, lowered its full-year earnings forecast because of rising commodity costs. The shares fell.

Profit excluding costs related to the integration of its Cadbury Plc acquisition will rise 11 percent to 13 percent, the Northfield, Illinois-based company said today in a statement. That’s down from an earlier projection of a rise in the “mid- teens.” The latest forecast would total as much as $2.28 a share. Analysts predicted $2.32, the average of 19 estimates.

Kraft Chief Executive Officer Irene Rosenfeld in the statement cited surging commodity costs and “persistent consumer weakness in many markets.” Food and beverage companies including Kraft, Sara Lee Corp. and General Mills Inc. have raised prices on many products to cope with the rising costs of wheat, corn and sugar.

“Input costs are a significant challenge and are unlikely to abate over the near term,” Erin Lash, an analyst at Morningstar, said today in an interview. “As a result, profitability is likely to be constrained.” Chicago-based Lash recommends holding the shares.

Kraft fell as much as 71 cents, or 2.3 percent, to $30.40 in extended trading, after closing at $31.11 in New York Stock Exchange composite trading.

‘Consumer Weakness’

“In the face of consumer weakness, input costs continue to rise, and that will require additional pricing,” Rosenfeld said on a conference call today.

Net income fell 24 percent to $540 million, or 31 cents a share, from $710 million, or 48 cents, a year earlier. Excluding costs for integrating Cadbury, profit was 46 cents a share. Analysts projected 46 cents, the average of 18 estimates compiled by Bloomberg.

Chief Financial Officer Tim McLevish said on the call that Kraft’s 2011 profit could be reduced by at least 4 cents a share if Starbucks Corp. terminates the companies’ agreement to distribute the coffee-shop operator’s products in grocery stores.

Starbucks has said it seeks to take over the business March 1. Kraft sued last year to prevent Seattle-based Starbucks from terminating the deal before the companies resolved their dispute. Kraft has appealed a ruling denying that request, which will receive an expedited review from an appeals court.

Starbucks Deal

McLevish said the company’s 2011 profit forecast includes a full year of the Starbucks business, which generates $500 million in sales annually. Trina Smith, a spokeswoman for Starbucks, didn’t immediately respond to an e-mail seeking comment.

Total revenue at Kraft rose 30 percent to $13.8 billion in the quarter that ended Dec. 31. Organic revenue, which excludes acquisitions, divestitures and foreign-currency fluctuations, increased 5.7 percent.

Kraft Foods North America sales climbed 12.2 percent, fueled by Maxwell House coffee and Planters nuts. Revenue advanced 74 percent in developing markets, aided by sales of Oreo cookies in China.

Last year, Kraft acquired British confectioner Cadbury for about 13.6 billion pounds ($20.8 billion) in cash and stock, transforming the maker of Velveeta cheese into the world’s biggest confectionary company. Kraft said in September that the acquisition would produce $1 billion in additional revenue by 2013, primarily from snacks like cookies, chocolate and gum.

Rosenfeld said today that the integration was going “ahead of plan,” and that 25 percent of the expected $750 million in annual cost savings from the integration were achieved in 2010, compared with its September forecast of 15 percent.

To contact the reporter on this story: Matthew Boyle in New York at mboyle20@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net.

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