Earnings: Kraft profit tops estimates, but revenue falls short of expectations

Nov 04, 2009 (Chicago Tribune - McClatchy-Tribune Information Services via COMTEX) -- KFT | Quote | Chart | News | PowerRating -- Kraft Foods Inc. posted third-quarter profit that handily beat Wall Street estimates Tuesday, but its revenue fell short of expectations, and the company reduced its sales forecast for the rest of the year.

The Northfield-based packaged-food giant recorded net income of $824 million, or 55 cents per share, down 40 percent from the same time last year when the company had a sizable one-time gain. Earnings from continuing operations increased significantly.

Still, the latest results surpassed analysts' estimates by 7 cents per share, though a few cents of that stemmed from a lower tax rate during the quarter, an "unsustainable" way of growing earnings, said Matt Arnold, a stock analyst at Edward Jones.

Kraft's revenue of $9.8 billion was down 5.7 percent from last year and below analysts' forecasts of $10.3 billion, as Kraft dealt with unfavorable currency trends and lower pricing because of falling commodity costs in some areas, including dairy.

The results were released after the markets closed. In after-hours trading Tuesday evening, Kraft's stock was trading at $26.73, down almost 3 percent.

The report comes as a Monday deadline approaches for Kraft to make a formal offer for Great Britain's Cadbury PLC. In September, Kraft made an informal, unsolicited bid of more than $16 billion, which Cadbury soundly rejected.

A falling share price could hamper Kraft's bid for Cadbury, because 60 percent of that deal would be financed by Kraft stock, or at least that was the stipulation in Kraft's informal offer. As Kraft's stock price falls, so does the value of the potential deal for Cadbury shareholders.

Still, one analyst said she doesn't expect Tuesday's results from Kraft to affect the quest for Cadbury.

"I really don't think it has an impact on Cadbury," said Erin Swanson, a stock analyst at Morningstar Inc. "I think they did what they needed to do -- post results that show they continue to gain traction," she said of Kraft's profitability.

In a conference call with stock analysts, Kraft Chief Executive Irene Rosenfeld said the company continues to assess financing options for the Cadbury deal and has been talking to both Kraft and Cadbury shareholders.

"Make no mistake, we will continue to follow a disciplined approach," she said, addressing concerns Kraft may overpay for Cadbury.

"Clearly, there has been a lot of speculation about what we can afford. But what we can afford is not relevant. What is relevant is what Cadbury is worth."

Although some stock analysts have said Kraft will need to increase its offer for Cadbury, the pressure on Kraft has lessened somewhat because no rival bids for Cadbury have materialized.

The strong third-quarter profit performance helped lead Kraft to increase its profit guidance for all of 2009 to at least $1.97 per share, from at least $1.93 per share. But Kraft lowered its 2009 forecast for organic revenue growth -- that is, not including currency swings or acquisitions or divestitures -- to 2 percent from 3 percent.

The lower revenue outlook primarily reflects lower-than-expected input costs, which have led to declining prices on some Kraft goods, the company said. Rosenfeld, in an interview with the Tribune, said that more than half of that expected decline stems from a "precipitous" decline in dairy prices.

The lowered sales outlook also reflects the company's decision to cut some unprofitable sales volume because of weakening economic conditions in parts of Europe, particularly Eastern Europe.

mhughlett@tribune.com

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