Kraft Profit Eaten by Cadbury Costs
(Kraft Foods earnings report updated with additional detail about the effect of food cost inflation.)
NORTHFIELD, Ill. (
) --
Kraft Foods
(KFT)
fell Friday amid heavy trading after the processed-food maker posted a sharp decline in year-over-year profitability.
|
After the closing bell Thursday Kraft Foods said fourth-quarter earnings plummeted 23.9%, attributable to its acquisition of Cadbury.
Kraft shares fell 1.5% to $30.63 in morning trading Friday. More than 9.2 million shares were in play two hours in the trading session, compared with their average daily volume of just 8.2 million.
Kraft, the maker of Velveeta cheese and Maxwell House coffee, forecast organic net revenue growth of at least 5% and operating earnings-per-share growth of 11% to 13% in 2011. Kraft said its outlook reflected in part "significant
food cost inflation."
The company said revenue growth this year will be driven more by those price increases rather than by higher volume, as cash-strapped consumers are likely to trade down to cheaper brands as prices rise.
"There's no question that in the developed markets, both in North America as well as Europe, that consumer confidence remains weak," CEO Irene Rosenfeld told
Reuters
. "We expect it will remain weak for the foreseeable future."
Kraft earned $540 million, or 31 cents per share, in the recent quarter, compared with $710 million or 48 cents per share in the prior year. Not counting costs associated with Cadbury and other items, Kraft made 46 cents per share, compared with 47 cents a year ago, which was in line with analyst expectations.
Net revenue grew 30% to $13.8 billion, topping expectations for sales of $13.47 billion.
Just over 40% of Kraft's North American revenue last quarter came from higher volume and mix of products.
Morningstar analyst Erin Lash noted that volume came in better than she expected, and said it pointed to consumers' readiness to pay higher prices for Kraft's food items.
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"It's positive for the quarter, but the sustainability of it is what we need to pay attention to ... especially after they raise (more) prices," she said.
Processed-food maker
Sara Lee
(SLE)
missed quarterly expectations by a penny per share earlier this week due to higher food costs, though the company more than doubled its profits in the period.
>> Sara Lee Misses on Higher Food Costs
Sara Lee's net income rose 137% to $880 million, or $1.37 per share. Adjusted quarterly earnings fell to 24 cents per share. Top-line sales of $2.35 billion, down slightly year over year, also missed expectations even as Sara Lee saw strength in its core North American retail and international beverage units.
Sara Lee said its weaker-than-expected results in the recent quarter reflected higher food costs, which offset higher prices.
Kraft said higher input costs led its operating income margin to fall 240 basis points year over year. In its North America segment, where organic net revenue grew 4.1%, Kraft said price increases in response to rising input costs accounted for almost half the gain.
Coffee revenue in Kraft's European operations grew in the low-single digits, also driven by higher pricing in response to higher coffee bean prices.
In August of last year, Kraft raised prices on select products from its Maxwell House and Yuban ground coffee brands by more than 10%. It also raised prices on its instant coffee products.
In December, Kraft raised prices again -- by about 12% -- on its roast and ground coffee products under the Maxwell House and Yuban brands.
A number of consumer foods companies have also reported adverse effects from rising food costs in recent weeks.
Food products and supplies distributor
Sysco
(SYY) - Get Report
CEO Bill DeLaney said Monday that "accelerating and significant food cost inflation negatively impacted our customers' purchasing budgets, contributed to increased gross margin pressure and meaningfully increased our selling expense."
Hershey
(HSY) - Get Report
,
Kellogg
(K) - Get Report
,
Colgate-Palmolive
(CL) - Get Report
and
Procter & Gamble
(PG) - Get Report
each cautioned last week that their margins would remain under pressure as a still-weak economy will lead them to carry the higher costs, since raising prices could dissuade already-choosy consumers.
McDonald's
(MCD) - Get Report
,
J.M. Smucker
(SJM) - Get Report
,
Starbucks
(SBUX) - Get Report
and
PepsiCo
(PEP) - Get Report
have also reported that rising input costs pressured their results in the recent quarter and are likely to continue squeezing margins throughout 2011.
-- Written by Miriam Marcus Reimer in New York.
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