Kraft's profit slips 16%

by Monica Watrous
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The company announced the removal of artificial ingredients from Capri Sun and Kraft Macaroni & Cheese products.

NORTHFIELD, ILL. — Kraft Foods Group, Inc. reported a 16% drop in earnings for the recent quarter, as price increases implemented last year failed to improve revenue for the maker of Jell-O, Velveeta and Oscar Mayer.

Kraft’s net earnings for the first quarter ended March 28 were $429 million, equal to 73c per share on the common stock, which compared with $513 million, or 86c per share, in the prior-year period. Excluding market-based impacts to post-employment plans, unrealized gains from hedging activities, spending on cost-savings initiatives and costs related to the proposed merger with H.J. Heinz, Kraft said its earnings per share grew at a high single-digit rate over the first quarter of fiscal 2014.

Net revenues for the quarter slipped 0.2% to $4,352 million from $4,362 million the year before, reflecting a negative impact from currency. The company said organic net revenues grew 1.1%.

John Cahill, Kraft chairman and c.e.o.

“Our first-quarter results reflected a solid start to 2015,” said John Cahill, chairman and chief executive officer. “We’ve stepped up our focus on execution, our pricing actions over the past year are coming through, and we’re benefiting from a disciplined approach to marketing.  There is clearly more work ahead of us, but we will continue to build on this momentum to delight our consumers and customers, and prepare us for the next chapter ahead.”

Net revenues for the Cheese segment rose 1% to $1,020 million, benefitting from price increases in previous quarters, the timing of Easter-related shipments and the success of last year’s Philadelphia soft cream cheese revamp. Operating income for the segment increased nearly 20% to $224 million on better alignment of prices and input costs compared with the year-ago quarter.

For the Refrigerated Meals segment, net revenues climbed 2% to $833 million as a result of higher pricing taken in previous quarters in cold cuts and hot dogs, which was partially offset by unfavorable volume/mix. The volume loss related to price increases more than offset timing gains of Easter-related shipments, particularly in bacon, the company noted. Operating income grew 1% to $97 million, tempered by higher spending on cost savings initiatives.

Net revenues for the Beverages segment grew 4% to $702 million, driven by higher net pricing of roast and ground coffee and favorable volume/mix from the launch of McCafe coffee and increased shipments of Capri Sun ahead of a planned price increase, which partially was offset by lower shipments of powdered beverages due to category declines. Operating income dropped 6% to $123 million on higher coffee commodity costs, which were partially offset by reductions in marketing spend and higher net pricing.

For Meals and Desserts, net revenues declined 2% to $488 million, reflecting the benefit from timing of Easter-related shipments of frozen dessert toppings and dry packaged desserts that was more than offset by category declines in both meals and desserts categories, market share losses in desserts and increased promotional activity over the prior year. Operating income fell 7% to $132 million, reflecting higher spending on cost savings initiatives.

Net revenues for Enhancers and Snack Nuts fell 2% to $493 million, as lower net pricing over the prior year more than offset volume/mix gains in Planters snack nuts. Operating income fell 4% to $142 million on lower net pricing and higher nut commodity costs that were partially offset by reduced marketing spend.

Net revenues in Canada declined nearly 11% to $382 million, and operating income decreased 6% to $62 million on unfavorable currency exchange.

Kraft’s Other Businesses segment sustained a 0.7% decline in net revenues to $434 million and a nearly 19% decline in operating income to $48 million, reflecting lower net pricing and investments to grow the exports business that more than offset favorable volume/mix.

New products launched during the quarter included Gevalia ready-to-drink iced coffee with almond milk, Kraft shredded cheese with jalapeño and habanero peppers, Country Time Lemonade Starter beverage enhancers, and Planters chili lime peanuts, among others. The company also announced the removal of artificial ingredients from Capri Sun and Kraft Macaroni & Cheese products.

In March, Kraft entered into an agreement with Pittsburgh-based H.J. Heinz Co. to merge the two companies. Once the transaction is complete, the Kraft Heinz Co. will be the third largest food company in North America with estimated sales of $28 billion. Together the new company will have eight brands with sales in excess of $1 billion and five brands with sales between $500 million and $1 billion. The deal is expected to close in the second half of 2015.
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