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Kraft Foods' Second-Quarter Profits Fall 32 Percent

Posted on: Wednesday, 20 July 2005, 15:01 CDT

Jul. 20--Kraft Foods Inc., the nation's largest food maker, on Tuesday reported that its second quarter profits fell 32 percent mainly due to a $297 million loss from the sale of its Altoids and Life Savers business.

The Northfield-based company said net income fell to $472 million, or 28 cents a share, from $698 million, or 41 cents a share, in the same period a year ago.

Kraft's operating income, excluding a 2 cent cost for its ongoing restructuring program, was $1.25 billion, or 47 cents a share. That matched the consensus estimate of analysts surveyed by Thomson Financial.

Kraft said the one-time loss on the sale of Altoids and Life Savers business was due to the taxes that it would pay. Kraft sold the confectionery business to the Wm. Wrigley Jr. Co. for $1.4 billion. Without the loss, Kraft said it would have recorded a 10 percent increase in net income.

Shares of Kraft fell 14 cents to close at $31.76 on the New York Stock Exchange and dipped another 1.3 percent in after hours trading.

In a conference call with Wall Street analysts, Kraft Chief Executive Roger Deromedi remained upbeat about the prospects for the maker of Oscar Mayer hotdogs, Tombstone pizza and Oreo cookies.

"We are doing the right things in the business that will benefit us for the remainder of this year and the future," he said saying he was confident the company would achieve the earnings it has targeted. "Clearly the environment is more challenging to be sure, but we do feel good about our plan."

Wall Street analysts repeatedly questioned whether Kraft would be able to achieve the earnings it reaffirmed in the conference call. The company's earnings forecast for fiscal 2005 is $1.73 to $1.78 a share, including 22 cents in restructuring costs and 4 cents in gains from the sale of businesses.

John McMillin, an analyst with Prudential Equity Group, told Deromedi he has doubts the company will be able to achieve the projected earnings.

"It just seems to me that whenever you try to get the margins up, your volumes go down and vice versa," he said. "You can't walk and chew gum at the same time."

It is a situation that has plagued Kraft for the past several years as it has tried to raise prices to cover its cost without hurting sales. Overall, Kraft said it raised retail prices an average of 5.1 percent from the year-ago quarter in an effort to limit the effect of higher commodity costs.

Despite the increasing costs of commodities, Kraft said its sales grew 3 percent, to $8.3 billion from $8.1 billion, slightly short of the $8.4 billion analysts expected.

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KFT, MO, WWY,

Source: Chicago Tribune

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