Kraft Misses but Reaffirms Guidance - Analyst Blog

Kraft Foods Inc. delivered third quarter results with earnings of 43 cents per share, which were below the Zacks Consensus Estimate of 48 cents by 10.4% and year-ago earnings of 55 cents by 21.8%. Lower profits were primarily attributable to lower tax rate in 2009 and acquisition-related costs.

However, on a reported basis, earnings for the quarter plunged 11.3% to 47 per share compared with 53 cents per share in the year-ago quarter.

Revenue and Operating Income

Quarterly net revenue spiked 26.2% to $11.9 billion, boosted completely by the Cadbury acquisition which was partially offset by 2.3% due to unfavorable currency translation and 0.2% by divestitures. However, combined organic net revenues grew 2.1%, driven by 2.0% and 0.1% organic net revenue growth at Kraft Foods' base business and Cadbury, respectively.

Operating income advanced 13.4% to $1519 million in the quarter, including a 22.5% benefit from Cadbury's operations, partially offset by a negative 6.1% impact from integration and acquisition costs and 2.9% due to unfavorable currency. Excluding these factors, operating income at Kraft Foods' base business was flat year-over-year.

Segment Details

In the North American segment, quarterly net revenues jumped 9.3% to $5.8 billion, powered by a 7.8% impact from the Cadbury acquisition and 0.7% from favorable currency translation, which was partially offset by 0.3% impact from divestitures. However, combined organic net revenues grew 1.0% in the quarter.

European net revenues rose 29.0% to $2.9 billion in the quarter, reflecting a 36.0% benefit from the Cadbury acquisition and a negative 2.6% impact from currency translation. Combined organic net revenues grew 1.7%.

Developing Markets net revenues shot up 69.8% to $3.3 billion in the quarter, portraying a 66.1% impact from the Cadbury acquisition and an unfavorable impact of 3.7% from currency translation. However, combined organic net revenues grew 7.4%.

Other Financial Updates

Kraft exited the quarter with cash and cash equivalent of $2,288 million, long-term debt of $29,571 million and inventory of $5,735 million.

Guidance

Kraft reaffirmed its fiscal 2010 combined organic net revenues growth target to 3%–4% annually, reflecting the regularizing of Cadbury's trade inventory practices and aggressive advertising expenditure.

Kraft has re-affirmed fiscal 2010 earnings guidance (excluding one-time items) of at least $2.00 per share.