Kraft Foods has lowered its earnings outlook for 2011, despite expectation-beating first-quarter profits, due to the loss of a contract to manufacture Starbucks-branded products.

The US group said yesterday (5 May) that its net income in the three months to the end of March dropped to US$802m, or $0.45 cents per share, from $1.88bn, or $1.16 per share, in the previous year, when the sale of its frozen pizza business boosted earnings. Excluding exceptional items, net earnings totalled $0.52 per share, beating consensus expectations of $0.47 a share.

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Net sales rose 11% to $12.6bn, the company revealed. Excluding the impact of acquisitions, sales were up 4.6%, Kraft added.

The maker of Cadbury’s chocolate and Philadelphia cream cheese said that it had taken a number of pricing actions in the first quarter to offset higher input costs. Pricing contributed 3.7% to the group’s sales gain while volume and mix improvements added 0.9%, Kraft revealed.

Commenting on the results, Kraft CEO Irene Rosenfeld said: “We continue to benefit from brand-building investments which allowed us to successfully deliver net pricing to offset commodities increases and drive top-tier growth.”

Looking to the full year, Kraft said that it expects revenue growth of “at least” 4%.

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The company added that it anticipates full-year profit, excluding items, to total at least $2.20 a share.

However, this excludes the negative impact of the company’s loss of a contract to supply Starbucks RTD coffee and other branded products to supermarkets.

In February, before the loss of this contract, Kraft had predicted EPS growth of 11-13%, up from the $2.02 per share earned in fiscal 2010. This forecast would have given Kraft targeted earnings of approximately $2.24-2.28 per share.

For the full earnings release from Kraft click here.

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