From: Reuters
Published April 30, 2008 11:03 AM

Kraft profit beats estimates, new products help

By Brad Dorfman

CHICAGO (Reuters) - Kraft Foods Inc <KFT.N> on Wednesday posted better-than-expected quarterly profit as price increases and new products lifted sales even as costs for oil and ingredients such as wheat continued to soar.

Earnings were also flat, excluding one-time items, as the company's efforts to improve its new product pipeline helped it garner higher prices and increased marketing spending paid off.

The largest North American food maker, with brands that include Oreo cookies and Oscar Mayer lunch meat, said profit was $608 million, or 40 cents a share, compared with $702 million, or 43 cents a share, a year earlier.

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Excluding one-time items, earnings were 44 cents a share, unchanged from a year earlier. Analysts on average forecast 41 cents a share, according to Reuters Estimates.

Like most food companies, Kraft has faced soaring costs for ingredients such as wheat and cocoa. But at the same time, Kraft is in the midst of efforts to boost sales and has been spending more on new products and marketing.

"We continue to gain market share in categories where we increased prices, which is a testament to the improved strengths of our brands," Irene Rosenfeld, chief executive officer, said during a conference call.

Sales rose 20.8 percent to $10.37 billion, helped by price increases, the acquisition of Groupe Danone's <DANO.PA> cookie business and the weaker dollar, which boosts the dollar value of overseas sales.

But sales were strong even without the benefit of the weak dollar. Organic revenue, which excludes currency, acquisitions and divestitures, was up 8 percent.

Higher prices on store shelves and consumers who are shifting their spending to more expensive items accounted for most of the organic revenue increase.

One of Rosenfeld's priorities since taking over as CEO in 2006 was to develop more new products and improve existing lines -- moves that appear to be paying off.

"The company is succeeding on having innovation drive mix," Pablo Zuanic, an analyst at J.P. Morgan Securities, said in a research note.

But volume, a measure of products shipped, was up only slightly as price increases cut into ready-to-drink beverage volume.

For the year, the company said it now expects organic revenue to rise at least 5 percent, up from its previous forecast of at least 4 percent, due to more price increases.

The company also stood by its full-year earnings-per-share forecast of at least $1.90, excluding items, even though it sees commodity costs rising 12 percent for the year.

Kraft shares rose 2.4 percent to $31.51 in early New York Stock Exchange trading. Through Tuesday, the stock is down 5.7 percent, while the Standard & Poor's U.S. packaged foods index was about flat.

(Editing by Maureen Bavdek)

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