US food giant Kraft Foods has reported a fall in quarterly earnings, due in part to higher dairy costs, which the company said have moderated since the record highs reached in April.

The company reported net earnings of US$698m, or 41 cents per share, for the second quarter to 30 June, compared to earnings of $949m, or 55 cents per share, in the year-ago period.

Net revenues increased 4.6% to $8.2bn, boosted by favourable currency shifts, higher volume and pricing, new products and the impact of increased marketing spend.

Kraft said the lower earnings reflected increased commodity costs, higher marketing spending, and asset impairment and exit costs for the company’s restructuring programme, partially offset by the impact of pricing actions. Kraft also said volume in its international business was softer than expected due to increased price competition in a few key markets.

“Significantly higher costs for our key commodities, especially dairy, drove both the earnings decline in the quarter and the need to revise our 2004 full year earnings guidance,” said CEO Roger Deromedi.

The company lowered its full year 2004 diluted earnings per share guidance range to $1.55-$1.62, due primarily to higher commodity costs that the company does not expect to fully recover through pricing actions in 2004. Kraft said the lower guidance also reflects the impact of first half volume softness in Kraft International Commercial, which was offset by favourable currency.