Last updated on August 25th, 2022 at 10:50 am
Newly independent Kraft Foods Group Inc. has reported strong third quarter 2012 results with top- and bottom-line growth fueled by new products, increased investments in advertising and consumer spending, and significant productivity gains.
“Our third quarter results demonstrate the power of our brands, our people and our innovation,” said Tony Vernon, CEO of Kraft. “We have an excellent foundation as a new and independent Kraft, and we’re confident we have what it takes to fulfill our mission of becoming the best food and beverage company in North America.”
Net revenues in the third quarter grew 3 percent to $4.6 billion.
• Organic net revenues increased 3.2 percent from volume/mix gains of 2.6 percentage points and favorable pricing of 0.6 percentage points, reflecting significant gains from new products.
• Customer inventory shifts in the third quarter, largely related to the spin-off, benefited volume/mix by 2.6 percentage points. These gains were partly offset by 1.3 percentage points from product pruning.
Operating income in the third quarter increased 7.6 percent to $762 million.
• Operating income growth reflected volume/mix gains, improved productivity and increased investments in advertising and consumer spending.
• Restructuring program costs of $54 million negatively impacted operating income growth by 7.7 percentage points while the year-over-year change in unrealized gains/losses from hedging activities added 10.2 percentage points of growth.
The spin-off of Kraft by Mondelez International Inc. was completed Oct. 1. Kraft’s financial statements for the third quarter ended Sept. 30 were prepared on a “carve-out” basis, reflecting an allocation of costs incurred by its former parent company. The carve-out financials are not indicative of the complete future cost structure or expected future financial results of Kraft as an independent company, particularly in the areas of interest, taxes, overhead and pension costs.
Highlights by reporting segment
Beverages
• Maxwell House and Gevalia retail coffees, Kool-Aid Jammers and MiO delivered strong consumption gains. However, top-line growth was tempered by lower merchandising levels of Capri Sun and lower pricing in coffee as green coffee costs declined.
• Operating income declined vs. the prior year due to restructuring costs.
Cheese
• Kraft natural cheese, Philadelphia and Velveeta drove strong volume/mix gains.
• Strong operating income growth reflected improved volume/mix driven by a significant increase in advertising and consumer spending, better alignment of prices and input costs vs. the year-ago quarter, and productivity gains.
Refrigerated meals
• Innovation behind Lunchables and Oscar Mayer cold cuts and bacon continued to deliver profitable growth.
• Double-digit operating income growth reflected a significant increase in advertising, productivity gains, better alignment of prices and input costs vs. the year-ago quarter, and improved product mix.
Grocery
• Brand-building investments and innovation continued to drive strong gains in Kraft Macaroni & Cheese, Velveeta dinners and Cool Whip.
• Volume/mix gains from retail inventory increases were more than offset by lower volumes in Jell-O desserts and Planters nuts. Planters volume declines related to significantly higher price levels vs. the prior year.
• Operating income declined as brand-building investments, restructuring costs and higher overheads more than offset significant gains from better alignment of prices and input costs vs. the year-ago quarter and favorable productivity.
International and foodservice
• Significant volume/mix gains were led by a combination of strong growth in Cracker Barrel cheese and Tassimo and MiO beverages in Canada and customer inventory buildups.
• Double-digit operating income growth was driven by volume/mix gains in the quarter.
Outlook
“Our results demonstrate the extraordinary efforts and commitment of our people who continued to grow our businesses while enabling a seamless spin-off,” said Tim McLevish, EVP and CFO. “As we look forward, we believe we’re well-positioned to continue our progress and deliver 2013 results consistent with what we’ve previously outlined.”
Kraft confirmed its guidance for 2013, including:
• Organic net revenue growth in line with growth of the North American food and beverage market
• GAAP EPS of approximately $2.60
• Free cash flow equal to approximately 70 percent of GAAP net income.
