Kraft Foods is increasing its EPS guidance for 2006 by US$0.17 per diluted share, from $1.55 to $1.60, following a favourable tax resolution and the sale of a pet food division. The EPS includes $0.50 per diluted share of charges from Kraft’s restructuring programme.

The company said today that it had benefited from Altria Group’s resolution of an Internal Revenue Service tax audit covering 1996-1999.

Kraft files US federal taxes as part of the consolidated federal income tax return of Altria, and pays all federal tax liabilities to Altria in cash. This week, the Internal Revenue Service concluded its examination of Altria’s consolidated tax returns for the years 1996-1999 and issued a final Revenue Agent’s Report.

Consequently, Altria will reimburse Kraft in cash federal tax reserves of $337m and pre-tax interest of $46m ($29m after tax). Kraft will also recognise net state tax reversals of $39m, resulting in a total net earnings benefit of $405m or $0.24 per diluted share.

Kraft said it was able to increase its EPS guidance as a consequence of the audit resolution and the earlier announcement today (17 March) regarding the agreement to divest the Milk-Bone pet snacks brand and assets.

Kraft’s discretionary cash flow guidance (operating cash less capital expenditures), including divestiture proceeds, has also been increased to $3.4 billion, up from the previous estimate of $2.7bn, to reflect the cash reimbursement from the audit resolution and the pet snacks divestiture proceeds.