US: Kraft Foods Group benefits from "leaner" structure in Q3

By Katy Askew | 7 November 2012

  •  Q3 earnings up 13%
  •  Net revenue up 3%
  •  Q4 sales expected to be flat to down
Kraft books Q3 gains

Kraft books Q3 gains

Kraft Foods Group booked a 13% rise in earnings during the third-quarter, as the group benefited from its "leaner" post-spin structure and spent more on advertising.

Reporting its first set of results following its spin-off from global snacks giant Mondelez International, the US grocery business said profit totalled US$470m, up from $417m a year earlier.

Net revenue in the period rose 3% to $4.6bn, while organic net revenue was up 3.2%.

Kraft said the gain was led by the contribution from newly-launched products. However, the company conceded that a significant proportion of the increase was also driven by retailers stocking up on product prior to the spin. As a result, as retailers work through their inventories, Kraft said sales would be flat to down in the fourth quarter.

Kraft backed its outlook for fiscal 2013, which includes revenue growth "in line" with the North American grocery market.

"Our third quarter results demonstrate the power of our brands, our people and our innovation," said Tony Vernon, CEO. "We have an excellent foundation as a new and independent Kraft, and we're confident we have what it takes to fulfil our mission of becoming the best food and beverage company in North America."

Show the press release


THE NEW KRAFT FOODS GROUP DELIVERS STRONG Q3 RESULTS

- Q3 Net Revenues grew 3.0% and Organic Net Revenues[1] grew 3.2% from strong new product performance

- Q3 Operating Income increased 7.6% driven by significant productivity gains

- Company successfully completed spin-off from parent on October 1

NORTHFIELD, Ill., Nov. 7, 2012 /PRNewswire/ -- Newly independent Kraft Foods Group, Inc. (NASDAQ: KRFT) today reported strong third quarter 2012 results with top- and bottom-line growth fueled by new products, increased investments in advertising and consumer spending, and significant productivity gains.

(Logo: http://photos.prnewswire.com/prnh/20090420/KRAFTLOGO)

"Our third quarter results demonstrate the power of our brands, our people and our innovation," said Tony Vernon, CEO of Kraft.  "We have an excellent foundation as a new and independent Kraft, and we're confident we have what it takes to fulfill our mission of becoming the best food and beverage company in North America."

Q3 FINANCIAL SUMMARY

Net revenues in the third quarter grew 3.0 percent to $4.6 billion.


    --  Organic Net Revenues increased 3.2 percent from volume/mix gains of 2.6
        percentage points and favorable pricing of 0.6 percentage points,
        reflecting significant gains from new products.
    --  Customer inventory shifts in the third quarter, largely related to the
        spin-off, benefited volume/mix by 2.6 percentage points. These gains
        were partly offset by 1.3 percentage points from product pruning.


Operating income in the third quarter increased 7.6 percent to $762 million.


    --  Operating income growth reflected volume/mix gains, improved
        productivity and increased investments in advertising and consumer
        spending.
    --  Restructuring Program(([2])) costs of $54 million negatively impacted
        operating income growth by 7.7 percentage points while the
        year-over-year change in unrealized gains/losses from hedging activities
        added 10.2 percentage points of growth.
The spin-off of Kraft by Mondelez International, Inc. was completed on Oct. 1, 2012.  Kraft's financial statements for the third quarter ended Sept. 30, 2012 were prepared on a "carve-out" basis, reflecting an allocation of costs incurred by its former parent company.  The carve-out financials are not indicative of the complete future cost structure or expected future financial results of Kraft as an independent company, particularly in the areas of interest, taxes, overhead and pension costs.

HIGHLIGHTS BY REPORTING SEGMENT

Beverages:


    --  Maxwell House and Gevalia retail coffees, Kool-Aid Jammers and MiO
        delivered strong consumption gains.  However, top-line growth was
        tempered by lower merchandising levels of Capri Sun and lower pricing in
        coffee as green coffee costs declined.
    --  Operating income declined versus the prior year due to restructuring
        costs.
Cheese:


    --  Kraft natural cheese, Philadelphia and Velveeta drove strong volume/mix
        gains.
    --  Strong operating income growth reflected improved volume/mix driven by a
        significant increase in advertising and consumer spending, better
        alignment of prices and input costs versus the year-ago quarter, and
        productivity gains.
Refrigerated Meals:


    --  Innovation behind Lunchables and Oscar Mayer cold cuts and bacon
        continued to deliver profitable growth.
    --  Double-digit operating income growth reflected a significant increase in
        advertising, productivity gains, better alignment of prices and input
        costs versus the year-ago quarter, and improved product mix.
Grocery:


    --  Brand-building investments and innovation continued to drive strong
        gains in Kraft Macaroni & Cheese, Velveeta dinners and Cool Whip.
    --  Volume/mix gains from retail inventory increases were more than offset
        by lower volumes in JELL-O desserts and Planters nuts.  Planters volume
        declines related to significantly higher price levels versus the prior
        year.
    --  Operating income declined as brand-building investments, restructuring
        costs and higher overheads more than offset significant gains from
        better alignment of prices and input costs versus the year-ago quarter
        and favorable productivity.
International & Foodservice:


    --  Significant volume/mix gains were led by a combination of strong growth
        in Cracker Barrel cheese and Tassimo and MiO beverages in Canada and
        customer inventory buildups.
    --  Double-digit operating income growth was driven by volume/mix gains in
        the quarter.
OUTLOOK
"Our results demonstrate the extraordinary efforts and commitment of our people who continued to grow our businesses while enabling a seamless spin-off," said Tim McLevish, EVP and CFO.  "As we look forward, we believe we're well-positioned to continue our progress and deliver 2013 results consistent with what we've previously outlined."

Kraft confirmed its guidance for 2013, including:


    --  Organic Net Revenue growth in line with growth of the North American
        food and beverage market
    --  GAAP EPS of approximately $2.60
    --  Free Cash Flow equal to approximately 70 percent of GAAP Net Income

Original source: Kraft Foods Group

Sectors: Chilled foods, Condiments, dressings & sauces, Dairy, Dried foods, Financials, Frozen, Meat & poultry, Snacks

Companies: Kraft Foods Group, Mondelez International

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