Kraft profits down on input costs

By staff reporter

- Last updated on GMT

Related tags Cent Revenue Kraft

Global food giant Kraft yesterday posted fourth quarter profit
losses of six per cent, despite higher volume sales of chocolate,
biscuit and beverage brands.

The company said overall input costs for 2007 had increased by $1.3bn, with dairy costs in particular increasing 40 per cent. Prices for wheat, soyabean oil and cocoa now at "significantly higher levels than the 2007 costs",​ Kraft added. Net revenues for the quarter hit $10.4bn, a 10.9 per cent increase compared to the year before, but the cost pressure resulted in a 10 per cent decline in operating income. For the full year, Kraft's operating profit fell 15 per cent to $2.6bn, down from $3.06bn in 2006. Full-year revenue climbed 8.4 percent to $37.2bn from $34.4bn in 2006. Quarterly results by region Europe:​ Net revenues in the European division grew 4.4 per cent, attributed by the company to strong sales of coffee, cheese and chocolate brands such as Milka, Toblerone and Cote D'Or.​ New products under the Jacobs brand and the Tassimo hot beverage line had also been successful, driving coffee growth along with successful marketing, the company said. Higher input costs in the area, however, meant that operating income for the quarter remined flat. North America:​ Some Kraft divisions in the US managed to beat the commodity squeeze, as the beverages, convenient meals and snacks and cereals divisions all reported an increase in operating income.​ Beverages sold particular well during the quarter, and sales of powdered beverages, Capri Sun and premium brands pushed operating income for this division into double figures. Nevertheless, poorer performances from Cheese & Foodsevice and Grocery dragged US operating income down by 11.1 per cent. The North America Cheese & Foodservice had a particularly poor year, as profit for this division declined 53.3 per cent. According to Kraft, the decline in popularity of salad dressing also played a role in the US results. Developing markets:​ The developing markets also experienced a decrease in profits - by 19.5 per cent - despite a 12.4 per cent increase in sales.​ In Eastern Europe, Middle East and Africa, coffee and chocolate remained popular, while Oreo cookies and Kraft cheese were the leading sellers in Asia Pacific. ​Despite profit losses, Kraft has raised its outlook for organic net revenue growth to at least four per cent, up from a previous expectation of three to four per cent, in anticipation of "higher pricing, favourable product mix and improved market share". ​In a statement, chairman and chief executive officer Irene Rosenfeld said that the company had already started to make the moves necessary for future growth. "While we face an unprecedented input cost environment, we enter 2008 with good momentum and remain confident that we will deliver reliable growth over the long term,"​ she added. Kraft Foods is currently one of the world's largest food and beverage companies, with global revenues of $34bn (€25bn). Last year, the European Commission approved Kraft's acquisition of France-based Danone​ biscuits, one of the biggest snack companies operating in the EU. With the acquisition, Kraft will also gain access to critical emerging markets such as China, Russia, Poland, Indonesia and Malaysia, which will account for 25 per cent of business. Last November, the company also sold the Post Cereal brand to Ralcorp Holdings for $2.6bn of stock and cash. In morning trading Wednesday, Kraft shares fell 33 cents to $29.86 in the US.

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