Kraft Rises After Second-Quarter Profit Tops Estimates

Kraft Foods Inc., the food producer that will split in two later this year, surged the most in almost a year after reporting second-quarter profit that topped analysts’ estimates.

The shares rose 4.3 percent to $40.60 at 11:05 a.m. and earlier climbed as much as 5 percent for the biggest intraday gain since Aug. 4, 2011. The Northfield, Illinois-based company’s stock added 4.2 percent this year through yesterday.

Second-quarter net income climbed 5.4 percent to $1.03 billion, or 58 cents a share, from $976 million, or 55 cents, a year earlier, the company said yesterday in a statement. Profit excluding some items was 68 cents a share, topping the 66-cent average estimate 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 reported stronger operating margins even in the face of rising ingredient prices.

“The positive that they have is some pricing gains and savings from the Cadbury acquisition that has offset commodities increases,” Matt Arnold, an analyst at St. Louis-based Edward Jones & Co., said in a telephone interview.

Kraft acquired Cadbury Plc in 2010 and has used the candy company’s distribution channels in emerging markets to help increase sales of other brands.

Kraft Split

The company will split its snacks business from its U.S. grocery unit on Oct. 1. The snack division, which sells products including Oreo cookies and Newtons overseas, will be renamed Mondelez International Inc. after the split.

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.

The company has invested in its 20 “power brands,” including Oreo cookies, Trident gum, Cadbury chocolate and Newtons snacks. Those brands have been gaining strength behind new product and marketing entries, giving Kraft more pricing power, Chief Executive Officer Irene Rosenfeld said in a telephone interview yesterday.

“We’re investing in the brands where we can get the best returns,” Rosenfeld said. “It’s a virtuous cycle for growth.”

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.

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.


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