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Kraft Reports Strong Earnings; Raises Guidance
By: Reuters | 28 Jul 2008 | 09:55 AM ET
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Kraft Foods posted higher-than-expected quarterly profit Monday as price increases and gains on hedging positions offset rising costs for energy and commodities like wheat.

AP

The largest North American food maker also raised its full-year earnings and sales forecast and its shares rose 3.2 percent in premarket trading.

The maker of Oreo cookies, Kraft cheese and Oscar Mayer lunch meat said second-quarter profit rose to $732 million, or 48 cents a share, from $707 million, or 44 cents a share, a year earlier.

Excluding one-time items, Kraft earned 58 cents a share, up from 50 cents a share a year earlier.

Analysts on average forecast 50 cents a share on that basis, according to Reuters Estimates.

Kraft [KFT  Loading...      ()   ] , like most food companies, has been hit by soaring commodity costs as it pushes to develop new products and take other steps to boost sales.

Kraft said it now expects commodity costs to rise $2 billion, or 13 percent, in 2008 over 2007.

The company has raised prices to offset some of the costs, just as other food companies have, though Kraft lost market share in some categories as its price increases occurred before those of some competitors.

The company said its competitors are catching up with price increases of their own and that Kraft's market shares improved during June, though Kraft is increasing some prices again in the third quarter.

"Everybody is dealing with the same input costs and I think they are all coming to understand that this isn't going away anytime soon," Irene Rosenfeld, Kraft chief executive, said during a conference call with analysts.

During the call, Rosenfeld also said the company has emphasized the value of brands like Kool-Aid drink mixes and Jell-O powdered gelatin for consumers looking to stretch their dollar.

"As a result, we've seen renewed growth of these high-margin business," Rosenfeld said.

Sales rose 21.4 percent to $11.2 billion, with 9.6 percentage points of the increase coming from an acquisition and 5.6 percentage points due to the weaker dollar, which boosts the dollar value of overseas sales.

Organic sales, which excludes the effects of currency changes, acquisitions and divestitures, rose 6.9 percent due to higher prices.

But volume, a measure of products shipped, fell 1 percent as some customers were pushed away by the price increases.

For the year, the company now expects earnings before one-time items to be at least $1.92 a share, up from its previous forecast of $1.90.

It also forecast an organic sales increase of at least 6 percent, up from its previous forecast of 5 percent.

Kraft shares traded at $30.31 on Monday in premarket electronic trading, up from Friday's new York Stock Exchange close of $29.38.

Copyright 2009 Reuters. Click for restrictions.
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