Kraft's

(KFT)

second-quarter earnings slid 32% from a year ago, weighed down by a $297 million loss on the sale of its discontinued sugar confectionary business.

The publicly traded

Altria

(MO) - Get Report

unit earned $472 million, or 28 cents a share, in the quarter, compared with $698 million, or 41 cents a share, last year. Sales rose 3% from a year ago to $8.33 billion.

Stripping out discontinued operations, Kraft's per-share earnings rose 12.5% from a year ago to 45 cents a share. The number included a restructuring charge of 2 cents a share. Analysts had been forecasting earnings of 47 cents a share on sales of $8.48 billion.

For all of 2005, Kraft affirmed prior earnings guidance of $1.73 to $1.78 a share, including restructuring and asset-impairment charges of 22 cents a share and a gain of 4 cents a share from asset sales. Analysts surveyed by Thomson First Call were forecasting $1.93 a share before items.

Kraft continued to cite high commodity costs as its major challenge, particularly in coffee, nuts, energy and packaging. The company said commodity costs rose $150 million in the second quarter from a year ago, and are expected to rise $600 million in the full year.

To counteract the costs, the company has raised prices in most of its product categories over the last year. The higher prices led to a 1.1% volume decrease in the second quarter (as measured by product weight) and left growth in dollar terms up 2.4% in the quarter, compared with a rate of 3.8% in the first quarter.

"This softening of category dollar growth was a key driver of the slowdown in top-line growth in North America, as ongoing constant currency revenues grew 2.3% in the second quarter versus 4.4% in the first quarter," Kraft said.