Kraft Foods: reports strong second quarter 2009

Northfield / IL. (kf) Kraft Foods Inc. reported strong second quarter 2009 results fueled by solid performance across all geographies. Organic net revenue growth reflected the impact of cost-driven pricing actions taken in 2008, positive volume/mix and the benefits of incremental investments in brand building. Income growth and margin expansion were driven by lower costs due to the completion of the 2004-2008 Restructuring Program, improved product mix and lower fixed manufacturing costs.

«The investments we have made over the past three years are driving solid business momentum in a challenging economic environment», said Irene Rosenfeld, Chairman and CEO. «We are on track to deliver strong top- and bottom-line results, restore our profit margins to industry averages and consistently deliver against our long-term earnings growth target of seven to nine percent».

• Net revenues declined 5,9 percent to 10,2 billion USD, including the unfavourable impact of 8,1 percentage points from currency and 0,7 percentage points from divestitures.
• Organic net revenues grew 2,9 percent, driven by 2,7 percentage points from pricing and 0,2 percentage points from volume/mix. The favourable impact from the shift of Easter-related shipments into the second quarter this year was more than offset by the cumulative effect of the planned discontinuation of less-profitable product lines over the past year.
• Operating income increased 7,6 percent from the prior year to 1’531 million USD. Lower costs due to the completion of the Restructuring Program accounted for ten percentage points of growth, partially offset by a negative 8,2 percentage point impact due to currency translation.
• The company delivered this strong increase in operating income despite an unfavourable impact of about nine percentage points from gains in second quarter 2008. Specifically, second quarter 2008 benefited from approximately 90 million USD more of gains due to certain commodity hedging activities and a 40 million USD value added tax credit in Brazil.
• Operating income margin increased 190 basis points year-over-year to 15,1 percent. Approximately 130 basis points of the improvement were attributable to lower costs due to the completion of the Restructuring Program, while approximately 50 basis points were attributable to favourable product mix.
• The tax rate of 32,0 percent was down from 37,9 percent in the prior year period due to the timing of discrete items in both years.
• Earnings per share were 0,56 USD, up from 0,49 USD in second quarter 2008.

U.S. Snacks

Organic net revenues increased 1,3 percent driven by both higher price levels and improved volume/mix. Biscuits grew about five percent, driven by strong performance in the top five brands: Oreo, Chips Ahoy!, Ritz, Wheat Thins and Triscuit. Organic net revenue for both nuts and bars declined. The favourable impact of the Easter shift was offset by the unfavourable carryover impact of recalling certain products containing pistachios during the first quarter.

Operating income decreased 7,7 percent due to approximately 40 million USD in lower realized gains on certain commodity hedging activities. Excluding these prior year gains, operating income increased as lower overhead and marketing costs, favourable volume/mix and higher price levels more than offset higher input costs.

Canada + North America Foodservice

Organic net revenues declined 0,5 percent as growth in Canada was more than offset by lower revenues in North America Foodservice. Growth in Canada was driven by higher price levels and continued volume/mix improvements from marketing investments and more effective customer programs. North America Foodservice declined due to unfavourable volume/mix, reflecting an industry-wide decrease in casual dining traffic and the planned discontinuation of a less-profitable product line.

Operating income increased 10,7 percent despite an unfavourable currency impact of approximately 13 percentage points. The increase was driven by lower costs due to the completion of the Restructuring Program, higher price levels, lower overhead and marketing costs and solid operating performance in Canada. These gains were partially offset by higher input costs as well as lower volumes in North America Foodservice.

Kraft Foods Europe

Organic net revenues increased 0,4 percent reflecting higher price levels, partially offset by lower volume/mix that was due, in part, to management´s decision to forego unprofitable volume. Strong growth of Milka and Freia Marabou as well as higher price levels drove the increase in chocolate. Double-digit growth of Kenco, Gevalia and Tassimo drove growth in coffee. Biscuits declined as the impact of weakening economic conditions was partially offset by solid growth in regional priority brands and share gains in the United Kingdom and Belgium.

Operating income nearly doubled despite an approximately 28 percentage point unfavourable impact from currency. The increase was largely driven by higher price levels and lower input and manufacturing costs, lower costs due to the completion of the Restructuring Program and lower net losses on divestitures. These gains more than offset higher investments in cost-savings initiatives and marketing.

Info: Kraft Foods Reports Q2 EPS From Continuing Operations Up 27 percent to 0,56 USD; fueled by Broad-Based Operating Gains (complete press release).