Kraft net falls 19 percent

Kraft net falls 19 percent

	Published : Wed, 31 Jan 2007 23:38 By : Agencies Print this Story

CHICAGO (AFX) - Kraft Foods Inc. posted a 19 percent fourth-quarter earnings decline Friday as a sales slump for its products continued, underscoring the big challenges ahead as the world's second-largest food and beverage maker is sprung free by its parent company.

Kraft's report of a $624 million profit, limited by lower sales, came as Altria Group Inc. announced long-awaited plans to spin off its majority stake in March. The Northfield, Ill.-based company has operated and traded separately from Altria since going public in June 2001 but remains 89 percent owned by Altria.

Chief Executive Irene Rosenfeld said the spinoff will provide Kraft with 'additional tools to enhance our growth.' But she acknowledged that the company's turnaround effort is not yet producing acceptable results, nor are they imminent.

'Once again, our results are mixed,' Rosenfeld said on a conference call. 'Frankly, I'm tired of the word 'mixed,' but I'm afraid we are going to have to live with it for awhile until we get back to predictable growth.'

The maker of Kraft cheese, Oscar Mayer hot dogs, Oreo cookies and Jell-O desserts is under pressure to dispense with some of its under-performing businesses as it scrambles to come up with more innovative products to combat discount-price competitors and other challenges. It already has been investing more in marketing and research and development, which hurt fourth-quarter profit margins.

Rosenfeld, who was named Wednesday to succeed Altria CEO Louis Camilleri as Kraft's chairman once the spinoff is complete, is expected to outline more specific plans in a presentation at a food industry conference on Feb. 20.

'The plan I'll share with you ... is about building shareholder value through a few sound strategies, better execution and a consumer-based approach to accelerated growth that can have a demonstrable impact on our business,' she told analysts.

Kraft's net income for the October-through-December period amounted to 38 cents per share and was down from $773 million, or 46 cents per share, a year earlier. Excluding certain items, it said earnings were 51 cents per share, matching the consensus estimate of analysts surveyed by Thomson Financial.

Revenue fell 3 percent to $9.4 billion.

Sales also were up just 0.3 percent for all of 2006, a year in which Kraft shook up management and reduced costs but continued struggling in the face of steep commodity costs, tough competition from private-label brands and an inability to come up with enough hot-selling new products.

Rosenfeld, the former Frito-Lay chief who replaced CEO Roger Deromedi last June, said the recent trends are likely to continue into the first half of 2007 as the company strives to return to predictable growth. The company did not provide an outlook for the year, however.

'I want to remind you that this is a long road we are on,' she said. 'While it's the right road and we have already covered a lot of ground, we have many more miles to go.'

Kraft's business units produced disappointing sales across most categories, although not all of its well-known products fared poorly.

In its large North America market, sales of Maxwell House coffee, Kraft salad dressings, Planters snack nuts, Velveeta process cheese, Kraft Cheese Nips, Ritz Bits sandwiches, Jell-O dry packaged desserts, frozen pizza and childrens' cereals all sagged.

Those offset good showings, the company said, by Oscar Mayer meats; Oreo, Chips Ahoy, Nilla and Newtons cookies; powdered beverages; Kraft natural snack cheeses; the California Pizza Kitchen line of pizza; Jell-O sugar-free pudding; sugar-free Cool Whip topping; Triscuit and Honey Maid crackers; and Grape Nuts Trail Mix Crunch and Post Honey Bunches of Oats cereals.

Analysts took largely a wait-and-see attitude toward Kraft's prospects while awaiting more specific plans.

'We expect financial flexibility will be a long-term benefit to Kraft's business, but that these benefits are offset by what we see as near-term operating disruption,' said Steven Kron of Goldman Sachs in a note to investors.

For the full year, net earnings were $3.1 billion,or $1.85 per share, up from $2.6 billion, or $1.55 per share, in 2005. Revenue edged up to $34.4 billion from $34.1 billion a year earlier.

Shares in the company rose 9 cents to close at $34.92 on the New York Stock Exchange, just 13 percent above the $31 initial public offering price of 5 1/2 years ago.