Dairy Costs Sour Kraft's Profit

Earnings slide 6% from a year earlier, but meet estimates. Revenue climbs.
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Kraft Foods' (KFT) fourth-quarter profit slid 6.3% as higher dairy costs and investments in its turnaround plan offset volume and revenue gains.

The packaged-food giant reported earnings of $585 million, down from $624 million a year earlier. Earnings per share were flat at 38 cents, helped by fewer shares outstanding.

Excluding charges in both periods, earnings per share dropped to 44 cents from 51 cents a year earlier. That was in line with analysts' average estimate, according to Thomson Financial.

Revenue jumped 11% to $10.4 billion from $9.37 billion a year earlier, narrowly topping Wall Street's forecast of $10.05 billion. Organic revenue, which excludes the effects of acquisitions, divestitures and currency changes, rose 6.2%.

Kraft -- whose products include Nabisco crackers, Oscar Mayer meats and Maxwell House coffee -- said investments in product quality, new products and marketing contributed to volume gains of 2.7 percentage points.

The company's bottom line was hit, however, by its investments in product quality and a jump in commodity costs, particularly in dairy. Kraft's operating margin dropped to 11.4% from 14.2% the prior year amid what the company called an "unprecedented" input cost environment.

Soaring commodity prices, which lift the cost of feeding animals, have slammed profits for food companies ranging from candy maker

Hershey

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to meat producer

Tyson

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. Most of these companies have increased prices on their goods to offset the expenses, but those hikes have failed to fully offset the profit damage.

For 2008, Kraft forecast earnings of at least $1.90 a share, excluding costs tied to the company's multiyear restructuring program. The projection is below analysts' target for earnings of $1.94 a share.

Kraft expects organic revenue growth of at least 4%, up from an earlier target of 3% to 4%.

This article was written by a staff member of TheStreet.com.