Kraft Foods profit falls 13 percent in first quarter

Kraft Foods Inc. reported a 13 percent drop in first-quarter profits Wednesday, but the results were better than expected and sales improved despite economic pressures and rising outlays for commodities and other manufacturing costs.

The maker of Oscar Mayer hot dogs, Maxwell House coffee and Oreo cookies raised prices on 90 percent of its products, which contributed to a 21 percent jump in sales. The weak dollar and the acquisition of Group Danone's global biscuits business last year also boosted revenue.

Higher costs for wheat and oils contributed to persistently weak results in some areas, notably Kraft's cheese business and U.S. snacks and cereals. Overall, though, the company said the quarter's $608 million profit and other results demonstrated that its three-year turnaround plan is on track as it enters its second year.

"Our turnaround is clearly gaining momentum," Chairman and CEO Irene Rosenfeld said in an interview. "We've delivered another year of sequential top-line growth."

She also said Kraft appears to be benefiting from the tightened economy in one regard, with people eating at home more often.

The profit decline occurred largely because a year earlier, first-quarter earnings were helped by a one-time benefit related to Kraft's spinoff from the Altria Group Inc.

The Northfield-based company's earnings for the January-March period amounted to 40 cents per share, down from $702 million, or 43 cents per share, a year earlier. Excluding certain items, adjusted earnings were 44 cents per share, topping analysts' estimate of 40 cents a share based on a survey by Thomson Financial.

Revenue rose to $10.37 billion from $8.59 billion, with an 8 percent boost from acquisitions and 5 percent from currencies. That was $600 million better than analysts' consensus estimate.

Kraft shares rose $1.04, or 3.4 percent, to $31.81.

Citigroup analyst David Driscoll said it was a quarter of inconsistent results, with some divisions continuing to struggle and others such as its developing markets area performing very well.

"We still see Kraft as a troubled company but perhaps taking a step to repairing itself, with still a very long way to go," he said in a note to investors.

Rosenfeld said on a conference call that the company's heavy marketing spending is paying off in increased market share. She said Kraft has kept on raising prices in the second quarter, and as a result now expects organic revenue growth this year of at least 5 percent, up a percentage point from its last estimate.

Kraft reaffirmed its full-year adjusted earnings guidance of $1.90 per share.

Until recently, the company had refrained from raising prices on its products to offset higher input costs, instead spending heavily in its major categories in order to improve brand recognition.

U.S. snacks and cereals saw revenue rise a lackluster 2.7 percent despite the price increases, with operating income tumbling 23 percent. Kraft's cheese business also remained under pressure from high dairy costs and marketing spending, with margins down for a fifth consecutive quarter.

Convenient meals were a highlight of its U.S. business in the quarter, however, with 7.5 percent organic sales growth overall as everything from frozen pizza to Oscar Mayer sold well.