--Kraft second-quarter earnings up 5.4% as margins improve from
cost-cutting
--Kraft sets Oct. 1 date for split up into snacks, grocery
companies
--Company backs guidance for the full year
(Adds details on earnings, updates shares, throughout.)
By Paul Ziobro
In its final earnings report before its planned break up, Kraft
Foods Inc. (KFT) reported a 5.4% increase in second-quarter
earnings on better margins as the company kept costs in check,
despite a surprise drop in revenue due to a stronger dollar.
The company on Thursday set an Oct. 1 date for its separation
into a global snacks company called Mondelez International and its
legacy North American grocery business, which will retain the Kraft
Foods name. It also named board members for each company.
With the company's second-quarter results behind it, Kraft Foods
investors will likely begin to focus on the prospects of each
company, though both will face questions.
Mondelez, whose snack brands such as Oreo cookies and Cadbury
chocolates enjoy more-rosy growth prospects in emerging markets,
will have to navigate a treacherous economic environment in Europe,
and worries that developing markets may slow somewhat. The grocery
business, meanwhile, will be faced with operating in a slow-growth
packaged-food sector where consumers remain frugal, although it
will be charged primarily with widening margins and returning cash
to shareholders through fat dividends.
Kraft's second-quarter results showed it can navigate the
current environment ably. It posted organic sales growth, which
exclude currency translation, acquisitions, divestitures and other
adjustments to make results more comparable, of 3.4%, with the
metric up in each region. Organic growth was up 1.7% in North
America, 1.4% in Europe and 7.6% in emerging markets.
While adjusted earnings beat analysts' estimates, net sales fell
4.3%, more than expected, as foreign exchange hurt the top line by
five percentage points while changes to its accounting calendar
stole another 2.7 percentage points from sales.
The maker of Kraft cheese, Oscar Mayer lunch meats and Planters
nuts has been able to pass along price increases with greater
success than most packaged-food companies, as its plowed savings
into increasing marketing behind its top brands. That has allowed
it to post improving profits in recent periods despite rising
commodity costs and broader economic uncertainty.
For the full year, Kraft continued to back its guidance, which
calls for organic sales growth of about 5% and adjusted per-share
earnings growth of at least 9%. In late trading, Kraft shares were
up 0.8% to $39.26.
Kraft reported a profit of $1.03 billion, or 58 cents a share,
up from $976 million, or 55 cents a share, a year earlier.
Excluding spinoff costs, integration costs and other items,
operating earnings rose to 70 cents from 62 cents.
Revenue fell 4.3% to $13.29 billion, due to currency-exchange
headwinds and the impact of accounting calendar changes in the
year-earlier period. On an organic basis, excluding divestitures,
acquisitions and foreign-exchange impacts, revenue increased 3.4%,
driven by growth from its Power Brands.
Analysts polled by Thomson Reuters had most recently predicted
earnings of 66 cents a share and revenue of $13.96 billion.
Gross margin widened to 36.7% from 35.1%, though input costs
rose 6.6%.
Operating profit at Kraft's North American business was up 3.1%
as organic revenue improved 1.7%. European operating profit slipped
4.6%, though organic revenue was up 1.4%.
--Nathalie Tadena contributed to this article.
Write to Paul Ziobro at paul.ziobro@dowjones.com.
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