Kraft 2Q Profits Rise
Maker of Maxwell House Coffee, Oscar Mayer Meats Says 2Q Profit Rises, Revenue Improves
CHICAGO (AP) -- Kraft Foods Inc. said its second-quarter profit rose 3.7 percent Wednesday thanks to higher sales and lower restructuring charges, but warned that its profit margins could slip during the second half of the year.
Chief Executive Irene Rosenfeld said the world's No. 2 food company would spend up to $400 million this year on new products, packages and advertising campaigns as it tries to revitalize sales of the company's brands, which include household names such as Maxwell House, Kool-Aid, Oscar Mayer and cheeses.
"The fact of the matter is that we need to continue to invest in adding value to our portfolio," Rosenfeld said.
Despite Rosenfeld's initial efforts, the company is still struggling to boost market share among its U.S. products.
"With margins continuing to decline, continuing market share losses in more than half of Kraft's U.S. categories, and a worsening commodity cost environment, we see (Kraft) as a troubled company that has not yet turned the corner," Citigroup analyst David Driscoll wrote in a research note.
Adding pressure is the cost of commodities including dairy products, which are on track to reach record highs this year. That could spell trouble for Kraft's cheeses, of the company's most iconic product lines.
"We expect cheese will remain a tough competitive environment," said Jim Dollive, Kraft's chief financial officer.
Still, the Northfield-based company said its profit rose to $707 million, or 44 cents per share, for the April-through-June period and managed to top Wall Street forecasts. Kraft earned $682 million, or 41 cents per share during the same period last year.
The latest quarter included 6 cents per share in asset impairment, exit and implementation costs, down from the 10 cents-per-share charge last year.
Excluding such items, Kraft's income fell to $802 million, or 50 cents per share, from $852 million, or 51 cents per share.
Revenue climbed 6.8 percent to $9.21 billion from $8.62 billion, beating Wall Street forecasts thanks in part to the United Biscuits Iberia acquisition and a currency benefit.
On average, analysts surveyed by Thomson Financial forecast a quarterly profit of 47 cents per share on revenue of $8.97 billion. Analyst estimates typically exclude one-time charges.
The company said a lower tax rate and share buybacks also lifted results in the latest quarter.
Meanwhile, Kraft executives said they were raising fiscal year guidance.
Kraft said it now expects to earn $1.55 to $1.60 per share, up from its previous estimates of $1.50 to $1.55 per share. The new guidance includes 23 cents per share in costs related to the company's restructuring plan and 3 cents per share to recognize interest income-related tax reserve transfers from Altria Group Inc., the company's former parent.
The company maintained its guidance for net income per share including charges of $1.75 to $1.80.
Kraft shares fell 32 cents, or 1 percent, to $32.43 in trading Wednesday.
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