From: Reuters
Published April 30, 2008 12:52 PM

Kraft, Kellogg, Dean beat estimates despite costs

By Brad Dorfman

CHICAGO (Reuters) - Two of the largest U.S. food makers, Kraft Foods Inc <KFT.N> and Kellogg Co <K.N>, posted higher-than-expected quarterly profit on Wednesday, showing that price increases and cost-cutting measures continue to offset soaring costs for wheat and energy.

The largest U.S. dairy company, Dean Foods Co <DF.N>, whose products include Horizon Organic milk and Silk soymilk, also beat estimates, though higher dairy costs caused first-quarter profit to fall by more than half.

Kellogg and Kraft have both invested in marketing, new products and other efforts to be able to raise prices to cope with soaring commodity costs that are expected to get even worse this year.

ADVERTISEMENT

"The pricing environment continues to be very strong," Matt Arnold, food industry analyst at Edward Jones, said of food makers' ability to keep raising their prices.

Branded food companies like Kraft and Kellogg have also generally been able to maintain or increase market share, even while raising prices, because all food companies, including lower-cost private-label manufacturers, have had to raise prices to cover commodity costs.

"Nobody is playing the short-term market share game," Arnold said. "Everybody is passing through as much (of the commodity price increase) as possible."

Kraft shares rose 3.5 percent on Wednesday and Dean shares were up more than 4 percent, while Kellogg shares edged lower.

KRAFT TURNAROUND

Kraft, which makes products 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.

But excluding one-time items, earnings were 44 cents a share, compared with the average analyst estimate of 41 cents a share, according to Reuters Estimates.

Earnings before items were also unchanged from a year earlier, the first time in six quarters that that measure did not fall.

Since taking over as Kraft's chief executive in 2006, Irene Rosenfeld has focused on increasing marketing and new product development to put the company in position to command higher prices.

"We continue to gain market share in categories where we increased prices, which is a testament to the improved strengths of our brands," Rosenfeld 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 U.S. dollar, which boosts the dollar value of overseas sales. Organic revenue -- which excludes currency, acquisitions and divestitures -- was up 8 percent.

Kellogg, the maker of Frosted Flakes and Keebler cookies, said profit was $315 million, or 81 cents a share, compared with $321 million, or 80 cents a share, a year earlier. The company had an average of 12 million fewer shares outstanding during the 2008 quarter.

Analysts on average had forecast 76 cents a share, according to Reuters Estimates.

Sales rose 10 percent to $3.3 billion, helped by price increases and the weaker dollar, which boosts the dollar value of sales overseas.

Internal sales, which exclude the effects of currency fluctuations and acquisitions, rose 5 percent.

Dean Foods, which has been hammered by higher dairy costs, said first-quarter profit fell to $30.8 million, or 21 cents a share, from $63.8 million, or 47 cents a share, a year earlier.

Excluding special items, Dean said it earned 23 cents a share for the quarter. On that basis, analysts on average were expecting it to earn 18 cents a share on about $3.2 billion in sales for the quarter, according to Reuters Estimates.

Sales rose 17 percent to $3.1 billion as the company passed on higher dairy commodity costs to consumers.

(Reporting by Brad Dorfman; editing by Gunna Dickson)

Terms of Use | Privacy Policy

2014©. Copyright Environmental News Network