Bloomberg News

Kraft Profit Tops Estimates as Sales Gain Internationally

May 03, 2012

Photographer: Brent Murray/Bloomberg

Photographer: Brent Murray/Bloomberg

Kraft Foods Inc. (KFT:US), the foodmaker splitting in two this year, reported first-quarter profit rose 1.8 percent, topping analysts’ estimates, as sales gained in developing markets and Europe.

Net income in the quarter climbed to $813 million, or 46 cents a share, from $799 million, or 45 cents, a year earlier, the Northfield, Illinois-based company said today in a statement. Excluding some items, profit was 57 cents a share. The average estimate (KFT:US) of 18 analysts was 56 cents.

Kraft is benefiting from faster growth in developing markets, where net sales gained 8.5 percent. The company is separating to help the snacks business push products into markets such as Brazil and China while the slower-growing, higher-margin grocery business returns cash (KFT:US) to shareholders. The company also increased sales 4.5 percent in Europe, where some economies have slipped back into recession.

“They did a nice job of navigating the challenges in Europe,” Matt Arnold, an analyst for Edward Jones & Co. in Des Peres, Missouri, said in an interview. “They generated some growth, which is admirable.”

The shares declined 0.5 percent to $39.39 at 6:47 p.m. in New York. Kraft had gained 6 percent this year through the close of regular trading today.

Gross Margin Narrows

Kraft’s gross margin (KFT:US), or the percentage of sales left after cost of goods sold, narrowed 1.3 percentage points to 35.6 percent. Analysts projected 35.9 percent, the average of eight estimates. Gross margin has declined for four straight quarters.

First-quarter organic revenue, which excludes acquisitions, divestitures and foreign-currency fluctuations, increased 6.5 percent, fueled by higher prices. Organic sales increased 3 percent in North America, 12 percent in developing markets and 7.2 percent in Europe.

In Europe, Kraft drove growth by investing in its most popular brands and getting more production out of the sales force it inherited from its acquisition of Uxbridge, England- based Cadbury Plc, according to Chief Executive Officer Irene Rosenfeld.

“That’s allowing us to get much greater reach for our products,” Rosenfeld said in an interview.

The spinoff will leave a global snacks and candy business led by Rosenfeld. The business, which will be renamed Mondelez International Inc., will have about $31 billion in annual revenue from brands including Cadbury chocolate and Oreo cookies.

The grocery company, which may have about $18 billion in revenue, will be led by Tony Vernon, who’s currently president of the North American foods division.

To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net; David Welch in Detroit at dwelch12@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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