Kraft Foods Group Reports Revenue Growth In Q1

Kraft Foods Group Reports Revenue Growth In Q1
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Kraft Foods Group Inc. has reported solid first quarter 2013 results driven by significant productivity gains and overhead cost savings as well as top-line growth fueled by new products and increased investments in marketing.

“We’re off to a solid start,” said Tony Vernon, CEO of Kraft. “Our first quarter results reflect strong returns on our new product innovations to date, as well as the fact that our cost savings outpaced our plans to reinvest in our brands. In the months to come, we’ll execute our marketing playbook more broadly across our portfolio and we expect to see good progress in both top- and bottom-line performance for the full year.”

Q1 financial summary

Net revenues in the first quarter grew 2.1 percent to $4.5 billion.

• Organic net revenues increased 2.1 percent from volume/mix gains of 2.4 percentage points that were partly offset by a 0.3 percentage point impact from lower pricing.

• The timing of Easter shipments added between 0.5 and 1.0 percentage points of net revenue growth vs. the prior year quarter while product line pruning negatively impacted first quarter growth by approximately 0.7 percentage points.

Operating income in the first quarter increased 9.2 percent to $809 million.

• Results reflected gains from productivity, overhead cost savings, improved product mix and volume growth.

• Restructuring program costs increased $64 million to $119 million in the first quarter and negatively impacted operating income growth by 7.4 percentage points.

Earnings per share in the first quarter were $0.76.

• Earnings reflected strong gains from operations and puts the company on pace to deliver its full year earnings guidance.

• Interest expense in the quarter was $123 million or approximately $0.13 per share, reflecting the company’s capital structure as an independent company.

• First quarter results also included $0.12 per share of restructuring program charges.

Free cash flow in the first quarter was $147 million.

• Strong operating performance and improved working capital management led to positive free cash flow for the first quarter; a quarter that typically results in a use of cash.

Highlights by reporting segment

Beverages:

• The Kool-Aid and Capri Sun franchises delivered strong volume/mix in the quarter. Top-line growth was tempered, however, by lower pricing in coffee as green coffee costs declined.

• Strong operating income growth was led by improved volume/mix, lower manufacturing costs driven by net productivity gains and overhead cost savings, partly offset by higher restructuring program costs and the negative impact of pricing net of commodity costs.

Cheese:

• Strong volume and improved product mix were driven by significant consumption growth in Kraft natural cheeses and Velveeta.

• Operating income growth reflected solid volume/mix, overhead cost savings and lower manufacturing costs driven by net productivity that were partly offset by the negative impact of pricing net of commodity costs and higher restructuring program costs.

Refrigerated meals:

• Revenue growth reflected the benefits of pricing to offset higher commodity costs, ongoing gains from Lunchables innovation and higher year-over-year bacon sales from the timing of Easter. However, product line pruning tempered growth in the quarter.

• Operating income growth reflected overhead cost savings and the positive impact of pricing net of commodity costs that more than offset higher restructuring program costs and investments in marketing.

Grocery:

• Top-line gains from investments in innovation behind brands such as Velveeta dinners and Kraft Macaroni & Cheese were offset by weakness in JELL-O ready-to-eat desserts, Kraft dressings and Planters snack nuts.

• Operating income declined as a combination of marketing investments, lower volumes and higher restructuring program costs more than offset significant overhead cost savings.

International and foodservice:

• Strong revenue growth in Canada from Cracker Barrel cheese, Philadelphia cream cheese and MiO liquid water enhancers was partially offset by product line pruning in foodservice.

• Double-digit operating income growth was driven by improved product mix, and lower overhead costs, partly offset by a significant increase in marketing.

Outlook

“Our cash generation in the first quarter was very encouraging and, overall, we’re on track to deliver every element of our 2013 financial guidance,” said Tim McLevish, CFO of Kraft.

Kraft reaffirmed its guidance for 2013, including:

• Organic net revenue growth in line with growth of the North American food and beverage market;

• EPS of approximately $2.75; and

• Free cash flow of approximately $1 billion.

 

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