U.S. News

Kraft Profit Falls 19%; To Issue 2007 Forecast In February Ahead of Spinoff


Kraft Foods , which is about to be spun off from its parent Altria
this spring, said fourth-quarter earnings fell 19%.

The world's second-largest food company behind Nestle said progress from its turnaround effort is not yet sufficient, but it will still be some time before investors learn of its strategy. Kraft, which is operating under a new management team, will issue its 2007 forecast on February 20, when it presents its business plan at an industry conference.

Analysts, however, are already painting a bleak picture for this year, with some suggesting this year will show little or no growth from 2006.

Kraft's fourth-quarter earnings report came as Altria announced long-awaited plans to spin off in March its 89% stake in Kraft, whose products include Kraft cheese, Oscar Mayer hot dogs, and Oreo cookies.

Net income in the latest quarter fell to $624 million, or 38 cents a share, from $773 million, or 46 cents a share, a year earlier.

Excluding certain items, the Northfield, Ill.-based company said earnings were 51 cents a share, matching the consensus estimate of analysts surveyed by Thomson Financial.

Revenue fell 3% to $9.4 billion.

"It appears that adjusted organic volume growth rose a still very modest 0.6%, despite a significant step up in brand building," said Lehman Brothers analyst Andrew Lazar. He expects Kraft will have to continue to make significant investments in its marketing and research and development.

In the latest period, Maxwell House coffee, Kraft salad dressings and Planters snack nuts all lost market share. These market share losses were partially offset by stronger sales for Oscar Mayer meats and Nabisco cookies and snack crackers in North America.

At the moment, Kraft investors are in limbo of sorts, awaiting further details of Kraft's strategy. In 2006, Kraft went through a number of changes, most notably a shake-up of its management team and continued efforts to streamline the company's business.

Analysts expect the company will need to shed further assets and spend heavily on advertising and product development. A large acquisition also could be ahead.

Irene Rosenfeld, who was named the company's chief executive last year, said the upcoming spinoff will provide Kraft with "additional tools to enhance our growth."

"While we've made progress in 2006 on both the top and the bottom lines, the overall turnaround is not broad-based enough and the foundation for sustainable top-tier performance is not yet in place," Rosenfeld said, in a statement. "This is likely to continue into the first half of 2007 as we get the business on a path to predictable growth."

In 2007, Kraft will be facing several headwinds, including a higher tax rate, a higher share count and a reduction in its earnings from the sale of its Cream of Wheat business.

Kraft will hold a webcast to discuss results at 4 pm New York time.