Kraft’s profit grows as Mondelez is hit by rising prices
BY SANDRA GUY Business Reporter firstname.lastname@example.org November 7, 2012 9:02AM
Updated: November 7, 2012 6:18PM
The two companies split off from Kraft Foods — a new Kraft and Mondelez International — revealed how an old-line grocery firm, Kraft, can achieve growth by putting new spins on old products, and how fast-charging snacks company Mondelez International can trip up over slumping chewing-gum sales and missteps in developing countries such as Brazil and Russia.
Kraft Foods Group, the $19 billion, Northfield-based North American grocery business with brands such as Velveeta, Jell-O, Oscar Mayer and Kraft Macaroni & Cheese, has halved its executive staff and cut operating costs and is plowing money into improving products that make money. New products include Philadelphia Cooking Cream, a spread that can be spooned onto foods to add flavor; Oscar Mayer carving board thinly sliced meats, and MiO water flavoring drops.
Indeed, Kraft CEO Tony Vernon said the atmosphere is like a startup company’s, with a focus on reinventing well-known foods. Kraft’s third-quarter earnings jumped 13 percent, partly because retailers hoarded inventory before the company split, Kraft announced Wednesday. The company does 80 percent of its business in North America.
Its net income rose 13 percent in the third quarter. For the period ended Sept. 30, Kraft said it earned $470 million, or 79 cents per share. Revenue rose 3 percent to $4.6 billion, as volume from new products offset the discontinuation of less-profitable items, such as certain package sizes of Planters and Oscar Mayer. Retailers also stocked up on inventories before the split, which took place on Oct. 1.
Meanwhile, Deerfield-based Mondelez International, home to brands such as Oreo, Cadbury chocolate and Trident chewing gum, reported later Wednesday it was hit by plunging coffee prices, reacted too slowly to diminishing chewing-gum sales in Brazil, and failed to cut its chewing-gum prices in Russia after rivals had cut theirs.
Net income fell to $652 million, or 36 cents per share, in the three months ended Sept. 30. That compares with $922 million, or 52 cents per share, in the prior-year quarter.
Revenue fell 2 percent to $12.9 billion from $13.3 billion. The stronger dollar, which lessens the value of overseas sales, hurt revenue by 4.5 percentage points.
On an adjusted basis, which reflects the spinoff, operating income rose 2.2 percent to $1.1 billion, or 37 cents per share. Revenue fell 5.1 percent to $8.3 billion. The stronger dollar hurt revenue by 6.6 percentage points. Analysts expected income of 36 cents per share on revenue of $8.65 billion, according to FactSet.
“We did it to ourselves,” said CEO Irene Rosenfeld, who sought to assure analysts that the mistakes have been corrected and the company maintained its forecast. Modelez does 80 percent of its business outside of North America.