Kraft Foods Q2 profit rises on improved products

Kraft Foods Q2 profit rises on improved products
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First Published: Wed, Aug 05 2009. 12 31 PM IST
Updated: Wed, Aug 05 2009. 12 31 PM IST
Milwaukee: Kraft Foods Inc. said on Tuesday its second-quarter profit rose 11% even though its revenue slipped as the dollar’s strength weighed down international sales.
The earnings beat analyst expectations, and the company boosted its profit guidance for fiscal 2009, saying it expects to see benefits from its recently completed restructuring, cost cutting and a focus on improving its products.
CEO Irene Rosenfeld said the company is “hitting our stride” from its three-year turnaround plan as profits rise and products _ even at higher prices _ continue to woo shoppers.
She said the company aims to grow its business through sales volume and mix the type of products people buy rather than raising prices.
Food companies raised prices last year to keep up with ingredient costs as they reached record highs. Even as those costs came down, the higher pricing has stuck at Kraft because the company also improved its brands, which helps justify higher prices, Rosenfeld said. She said the company will continue to tout low-cost foods like macaroni and cheese and Kool-Aid.
“We’ve made great progress in rebuilding our brand equities and improving our pricing power and strengthening our innovation pipeline,” she told The Associated Press in an interview.
Kraft has shed costs as it streamlined production and cut unprofitable brands. The company plans still more cost cutting and said Tuesday it will announce efforts that will trim an additional $50 million.
Kraft, known for brands like Velveeta and Maxwell House coffee, also plans to invest more on branding to build its brands’ value in the eyes of consumers. Rosenfeld said the company’s voice in the market place also will increase because it can buy more ads as rates fall.
Investing its profits from the turnaround in additional savings and marketing is a smart move, one many food companies make if they can, said Matt Arnold, an analyst with Edward Jones.
The Northfield, Illinois-based company said after the market closed that it earned $827 million, or 56 cents per share, in the three-month period that ended in June. That compares with earnings of $745 million, or 49 cents per share, a year earlier.
Revenue fell 5.9% to $10.16 billion, below analysts’ predictions of $10.37 billion. The drag of foreign currency exchanges hurt results by 8.1 percentage points, the company said. As the US dollar gains strength, that weighs on international sales once they are converted back to US dollars.
Kraft said consumers continued to support its top brands, with DiGiorno pizza and Oscar Mayer Deli Fresh meats each growing 20 percent or more in the quarter. Its namesake macaroni and cheese also saw double-digit volume growth, and sales of cookies and crackers saw strong growth.
The cheese business posted an 8.7% drop due to an 8% price reduction because of lower dairy costs, though brands like Philadelphia cream cheese and Kraft Singles saw solid volume growth.
The food service business, which serves retail establishments like restaurants, continued to hurt as consumers cut back on eating out.
European revenue rose 0.4%, though it was dragged down by currency translation.
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First Published: Wed, Aug 05 2009. 12 31 PM IST