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Kraft Fourth-Quarter Profit Falls on Dairy Costs

Kraft Foods on Wednesday posted a lower quarterly profit as higher costs for dairy products and other ingredients offset an 11 percent increase in sales.

The increase was a sign Kraft is having some success with new products like Oscar Mayer packaged sandwich kits and Crystal Light drink powder sticks and improved marketing. But the company still continues to battle higher costs for ingredients and energy.

Kraft, which gets almost one-fifth of its revenue from cheese, has been particularly hard hit by rising dairy costs, which the company said were up more than 40 percent.

The maker of foods ranging from Oreo cookies to Crystal Light drink mix said profit was $585 million, or 38 cents a share, in the fourth quarter compared with $624 million, or 38 cents a share, a year earlier when the company had roughly 100 million more shares outstanding.

Earnings were 44 cents a share excluding restructuring costs, matching the average analyst estimate compiled by Reuters Estimates.

Revenue rose to $10.40 billion from $9.37 billion. Excluding divestitures and the benefit from the weaker dollar, "organic" revenue rose 6.2 percent, the
company said.

The company has been making changes in its portfolio, purchasing Groupe Danone's global cookie business in November while separately agreeing to sell its Post Cereals business to Ralcorp Holdings .

Kraft has spent $2.1 billion since 2004 on a major restructuring program.

Kraft forecast 2008 earnings of at least $1.90 cents a share excluding restructuring items. Analysts on average forecast $1.95 a share, according to Reuters Estimates. It also forecast an increase of at least 4 percent in organic revenue, up from its previous forecast of 3 percent to 4 percent.

Fourth-quarter operating profit from the North America cheese and foodservice business fell 53.5 percent excluding items due to record-high ingredient costs, the company said.

North America beverages operating profit doubled before one-time items, helped by Crystal Light sales and premium coffee brands like Starbucks and Tassimo hot drinks.

Operating profit in the North American grocery business fell 12.4 percent excluding one-time items as the company spent money to try to fix its salad
dressing business, which has been a drag on results for some time.

Kraft shares closed at $30.19 on Tuesday on the New York Stock Exchange. The stock is down 13 percent in the past year, compared with a 7 percent decline in
the Standard & Poor's packaged foods index.

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