Kraft Foods posted a 19% decline in fourth quarter profits yesterday (31 January). The financial update was released shortly before the announcement that Kraft is to be spun off from its parent company, tobacco giant Altria, and highlights some of the challenges ahead for the world’s second-largest food group.

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Kraft posted profits of US$642m, limited by lower sales and increased investment in marketing and innovation. Net income for the October-through-December period amounted to $0.38 per share, down from $773m, or $0.46 per share, delivered during the comparable period of 2005. Revenue fell 3% to $9.4bn, the company said.


For the full year, net earnings were $3.1bn, or $1.85 per share, up from $2.6bn, or $1.55 per share, in 2005. Revenue increased marginally, rising to $34.4bn from $34.1bn a year earlier. During the year, Kraft made significant changes to its senior management team and reduced operating costs but struggled to cope with rising commodity costs and increased competition from private label.
 
“While we’ve made progress in 2006 on both the top and the bottom lines, the overall turnaround is not broad-based enough and the foundation for sustainable top-tier performance is not yet in place. This is likely to continue into the first half of 2007 as we get the business on a path to predictable growth,” said Irene Rosenfeld, chief executive officer.


With full year sales increasing just 0.3%, the maker of Kraft cheese, Oscar Mayer hot dogs and Oreo cookies has come under increasing pressure to divest in some of its under-performing businesses.


Kraft’s brands produced disappointing sales across a number of categories, the company revealed.

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In its largest market, North America, sales of Maxwell House coffee, Kraft salad dressings, Planters snack nuts, Velveeta process cheese, Kraft Cheese Nips, Ritz Bits sandwiches, Jell-O dry packaged desserts, frozen pizza and children’s cereals all dropped. This poor showing, Kraft said, offset gains by Oscar Mayer meats, Oreo, Chips Ahoy, Nilla and Newtons cookies, powdered beverages, Kraft natural snack cheeses, California Pizza Kitchen pizza, Jell-O sugar-free pudding, sugar-free Cool Whip topping, Triscuit and Honey Maid crackers, Grape Nuts Trail Mix Crunch and Post Honey Bunches of Oats cereals.


Commenting on Altria’s plans to distribute the Kraft shares it owns to Altria shareholders, Rosenfeld said: “The forthcoming spin-off from Altria will provide us with additional tools to enhance our growth. The new management team is ready for and looks forward to this exciting next stage in the history of Kraft Foods.”