Kraft Foods Profit Tops Estimates on Higher Pricing

Kraft Foods Inc. (KFT), the food producer that will split in two later this year, reported second-quarter profit that topped analysts’ estimates after boosting prices.

Net income in the quarter climbed 5.4 percent to $1.03 billion, or 58 cents a share, from $976 million, or 55 cents, a year earlier, the Northfield, Illinois-based company said today in a statement. Excluding some items, operating profit was 68 cents a share, ahead of the 66-cent average of 18 analysts.

Kraft, the producer of its self-named macaroni and cheese and Cadbury chocolates, boosted prices to help recoup higher costs for commodities and mitigate the effect of the stronger dollar that reduced the value of sales overseas. The company is splitting up to help the snacks business push products into emerging markets while the slower-growing, higher-margin grocery business returns cash to shareholders.

Kraft’s revenue fell 4.3 percent to $13.3 billion in the three months ended June 30 as currency exchange rates and accounting calendar changes hurt sales growth. Excluding those factors, sales rose 3.4 percent, Kraft said.

The company raised prices in the quarter, which helped push operating income up 4 percent to $1.88 billion. Its operating income margin rose to 14.1 percent from 13 percent.

Cadbury Acquisition

Kraft is also generating savings by getting better distribution in overseas markets using channels established by Cadbury, which Kraft acquired in 2010, said Matt Arnold, an analyst at St. Louis-based Edward Jones & Co., in a telephone interview.

“That’s the story,” Arnold said, who has a hold rating on the stock. “All in, the positive that they have is some pricing gains and savings from the Cadbury acquisition that has offset commodities increases.”

Excluding currency and other items, Kraft’s developing markets business increased sales 7.6 percent to $4.24 billion. Currency movements lowered sales in the unit to $3.89 billion from $4.04 billion.

The division, which sells products including Oreo cookies and Newtons snacks in overseas developing markets, will be the core of Mondelez International Inc. when Kraft splits on Oct. 1.

Kraft’s North American business lifted sales by 1.2 percent to $6.39 billion. That business will be the core of the new Kraft Foods Group Inc., which will begin trading under the ticker symbol KRFT on Oct. 2 of this year.

The shares rose as much 1.7 percent to $39.60 in extended trading, after closing down 1.1 percent to $38.94 in New York. They’ve gained 4.2 percent this year through the close of regular trading today.

To contact the reporter on this story: David Welch in Detroit at dwelch12@bloomberg.net

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

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