Kraft Foods Profit Falls as Sales Edge Lower

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The FINANCIAL — Kraft Foods Inc.’s profit fell in the first quarter as sales edged down despite price increases last year, underlining the packaged-food giant’s challenges ahead of its pending merger with H.J. Heinz Co., according to Nasdaq.

Kraft–home to supermarket mainstay brands such as Oscar Mayer, Maxwell House, and Velveeta–last year raised prices on some products, such as cheese and ground coffee, to offset higher commodities costs.

The Northfield, Ill., company was spun off in 2012 from Mondelez International Inc.

Its merger with Heinz is expected to close in the second half of 2015 and would create the third-largest food and beverage company in North America, with about $28 billion in revenue, and is expected to result in about $1.5 billion in annual savings by the end of 2017.

For the most recent period, Kraft reported net profit of $429 million, or 72 cents a share, down from $513 million, or 85 cents a share, a year earlier. The latest period included a 14-cent-a-share impact tied to benefit plans, cost- cutting initiatives and the pending merger with Heinz.

Revenue edged down 0.2% to $4.35 billion. Organic net revenue–which excludes the impact of transactions with Mondelez, acquisitions, divestitures and currency impacts–rose 1.1%.

Analysts surveyed by Thomson Reuters expected a profit of 81 cents and revenue of $4.43 billion.

Revenue at the beverages segment rose 4.2% to $702 million, benefiting from higher prices and the recent launch of McCafé coffee, while operating income fell 6% on higher commodity costs.

Cheese segment revenue rose 1.3% to $1.02 billion, benefiting from the higher prices and timing of Easter-related shipments along with higher sales of last year’s relaunched Philadelphia soft cream cheese to remove artificial ingredients. Operating income rose nearly 20%, largely due to the higher prices offsetting input costs.

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Refrigerated-meals business revenue improved 2.1% to $833 million, while operating income improved 1%.

Revenue at the meals and desserts unit fell 2% to $488 million, reflecting market share losses in desserts despite higher marketing expenses, while operating income decreased 7%.

 

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