Kraft fourth-quarter profit hurt by costs; shares fall

By Emily Bryson York
Posted Feb. 10 at 5:42 p.m.

Northfield-based Kraft Foods Inc. reported fourth-quarter earnings down 24 percent to $540 million. The company’s operating earnings, at 46 cents per share was in line with Wall Street expectations, but full-year earnings per share of $2.02 missed expectations by a penny.

The company’s shares fell 2.1 percent to $30.45 in after-hours trading.

Kraft’s fourth-quarter sales increased 30 percent to $13.8 billion, ahead of analyst expectations of $13.47 billion. For the full year, sales grew 27 percent to $49.2 billion.

During the after-market call with investors, chairman and CEO Irene Rosenfeld acknowledged that the “operating environment continues to be challenging.”

“Unemployment rates remain high consumer confidence is weak and government austerity programs are planned in some markets,” she said. “In the face of this consumer weakness input costs continue to rise and that will require additional pricing.”

Kraft, which boasts a number-one or number-two market share position in most of its categories, raised prices on the majority of its products in North America and Europe. Costs have skyrocketed in several key commodities for Kraft, including coffee and cocoa.

Rosenfeld said that during 2010, Kraft’s sales growth was fueled by sales volume, rather than price increases, which accounted for about 30 percent of growth. In 2011, she said, those numbers are likely to be inverted, with higher prices accounting for about two-thirds of the company’s sales gains.

However, Rosenfeld said the company remains “cautiously optimistic.” “[We're] cautious about what we can’t control, but optimistic about what we can,” she said. “Cautious about the consumer environment but highly optimistic about Kraft’s market position and strong momentum.”

Rising food costs have taken a bite out of many packaged-food company earnings, including Downers Grove-based Sara Lee.

In North America, where Kraft does about half of its business, sales grew 12.2 percent, thanks in large part to the Cadbury acquisition. Sales for the heritage Kraft business grew 4 percent. The company pointed to its “Huddle to Fight Hunger” marketing campaign as a big reason for the sales increase.

Kraft has been focusing its marketing firepower on select “power brands” in each of its regions. In North America, the company said that strategy resulted in double-digit sales gains for Maxwell House coffee, Planters nuts and Macaroni & Cheese dinners.

The company did point to unexpectedly weak sales of its Stride and Trident gums, which fell 6 percent. Sales for Dentyne, however, increased double digits. All three gum brands were acquired as part of the Cadbury deal.

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