The New Kraft Foods Group Delivers Strong Q3 Results
(Logo: http://photos.prnewswire.com/prnh/20090420/KRAFTLOGO)
"Our third quarter results demonstrate the power of our brands, our people and our innovation," said
Q3 FINANCIAL SUMMARY
Net revenues in the third quarter grew 3.0 percent to
- 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
- Operating income growth reflected volume/mix gains, improved productivity and increased investments in advertising and consumer spending.
- Restructuring Program[2] 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
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 versus 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 versus 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 versus 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 versus 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 versus the year-ago quarter and favorable productivity.
International & 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
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
CONFERENCE CALL
Kraft will host a conference call to discuss its third-quarter 2012 results today, at
The call will be hosted by:
Tony Vernon , CEOTim McLevish , EVP and CFOChris Jakubik , VP, Investor Relations
A webcast of the call will be available to the general public in real-time and archived for playback on Kraft's Web site, http://ir.kraftfoodsgroup.com.
U.S. Dial-In: 1-888-350-0137
International Dial-In: 1-970-315-0478
Access code: 41933758
To ensure timely access, participants should dial in approximately 10 minutes before the call starts. A listen-only webcast will be provided at http://ir.kraftfoodsgroup.com.
A replay of the conference call will be available until
ABOUT
FORWARD-LOOKING STATEMENTS
This press release contains a number of forward-looking statements. The words "deliver," "continue," "believe," "can," "will," "expect" and similar expressions are intended to identify the forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements regarding Kraft's growth, continued progress and outlook, including Organic Net Revenue growth, EPS and free cash flow. These forward-looking statements involve risks and uncertainties, many of which are beyond Kraft's control, and important factors that could cause actual results to differ materially from those indicated in the forward-looking statements include, but are not limited to, increased competition; continued consumer weakness and weakness in economic conditions; Kraft's ability to differentiate its products from retailer and economy
brands; Kraft's ability to maintain its reputation and brand image; continued volatility and increases in commodity and other input costs; pricing actions; increased costs of sales; regulatory or legal changes, restrictions or actions; unanticipated expenses and business disruptions; product recalls and product liability claims; unexpected safety or manufacturing issues; Kraft's indebtedness and its ability to pay its indebtedness; Kraft's inability to protect its intellectual property rights; tax law changes; Kraft's ability to achieve the benefits it expects to achieve from the spin-off and to do so in a timely and cost-effective manner; and its lack of operating history as an independent, publicly traded company. For additional information on these and other factors that could affect Kraft's forward-looking statements, see Kraft's risk factors, as they may be amended from time to
time, set forth in its filings with the
BASIS OF PRESENTATION
The condensed combined financial statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of Kraft's former parent company,
Kraft manufactures and markets food and beverage products, including refrigerated meals, refreshment beverages and coffee, cheese and other grocery products, primarily in
NON-GAAP FINANCIAL MEASURES
Kraft reports its financial results in accordance with accounting principles generally accepted in
Kraft's top-line measure is Organic Net Revenues, which is defined as net revenues excluding the impact of acquisitions, divestitures (including for reporting purposes, the cessation of the Starbucks packaged coffee business), accounting calendar changes (including a 53rd week in 2011) and foreign currency rate fluctuations. Kraft uses Organic Net Revenues and corresponding metrics as non-GAAP financial measures. Management believes Organic Net Revenues better reflect the underlying growth from the ongoing activities of Kraft's business and provide improved comparability of results.
See the attached schedules for supplemental financial data and corresponding reconciliations of the non-GAAP financial measures referred to above to the most comparable GAAP financial measures for the three and nine months ended
[1] Please see discussion of Non-GAAP Financial Measures at the end of this press release.
[2] As previously disclosed, on
|
|||||||
Condensed Combined Statements of Earnings |
|||||||
For the Three Months Ended |
Schedule 1 | ||||||
(in millions of dollars, except per share data) (Unaudited) |
|||||||
As Reported (GAAP) | |||||||
2012 |
2011 |
% Change | |||||
Net revenues |
|
|
3.0% | ||||
Cost of sales |
3,018 |
3,110 |
3.0% | ||||
Gross profit |
1,588 |
1,364 |
16.4% | ||||
Selling, general and administrative expenses |
782 |
658 |
(18.8)% | ||||
Asset impairment and exit costs |
44 |
(2) |
(100.0+)% | ||||
Operating income |
762 |
708 |
7.6% | ||||
Interest and other expense, net |
106 |
3 |
(100.0+)% | ||||
Royalty income from affiliates |
(13) |
(14) |
(7.1)% | ||||
Earnings before income taxes |
669 |
719 |
(7.0)% | ||||
Provision for income taxes |
199 |
302 |
34.1% | ||||
Effective tax rate |
29.7% |
42.0% |
|||||
Net earnings |
$ 470 |
$ 417 |
12.7% | ||||
Per share data1: |
|||||||
Basic and diluted earnings per share |
$ 0.79 |
$ 0.70 |
12.9% | ||||
Shares outstanding |
592 |
592 |
1 |
On |
|
||||||||||||||||
Reconciliation of GAAP to Non-GAAP Information |
||||||||||||||||
Net Revenues |
Schedule 2 | |||||||||||||||
For the Three Months Ended September 30, |
||||||||||||||||
($ in millions) (Unaudited) |
||||||||||||||||
% Change |
Organic Growth Drivers | |||||||||||||||
As Reported |
Impact of |
Organic |
As Reported |
Organic |
Vol / Mix |
Price | ||||||||||
2012 |
||||||||||||||||
Beverages |
$ 688 |
$ - |
$ 688 |
0.1% |
0.1% |
0.7pp |
(0.6)pp | |||||||||
Cheese |
921 |
- |
921 |
1.4% |
1.4% |
5.7pp |
(4.3)pp | |||||||||
Refrigerated Meals |
895 |
- |
895 |
3.5% |
3.5% |
1.1pp |
2.4pp | |||||||||
Grocery |
1,134 |
- |
1,134 |
4.6% |
4.6% |
(0.5)pp |
5.1pp | |||||||||
International & Foodservice |
968 |
9 |
977 |
4.1% |
5.1% |
5.4pp |
(0.3)pp | |||||||||
|
$ 4,606 |
$ 9 |
$ 4,615 |
3.0% |
3.2% |
2.6pp |
0.6pp | |||||||||
2011 |
||||||||||||||||
Beverages |
$ 687 |
$ - |
$ 687 |
|||||||||||||
Cheese |
908 |
- |
908 |
|||||||||||||
Refrigerated Meals |
865 |
- |
865 |
|||||||||||||
Grocery |
1,084 |
- |
1,084 |
|||||||||||||
International & Foodservice |
930 |
- |
930 |
|||||||||||||
|
$ 4,474 |
$ - |
$ 4,474 |
|
|||||
Operating Income |
|||||
For the Three Months Ended |
Schedule 3 | ||||
($ in millions) (Unaudited) |
|||||
As Reported (GAAP) |
|||||
2012 |
2011 |
% Change | |||
Operating Income: |
|||||
Beverages |
$ 76 |
|
(24.8)% | ||
Cheese |
159 |
145 |
9.7% | ||
Refrigerated Meals |
116 |
105 |
10.5% | ||
Grocery |
302 |
315 |
(4.1)% | ||
International & Foodservice |
134 |
117 |
14.5% | ||
Unrealized gains / (losses) on hedging activities |
52 |
(20) |
|||
Certain U.S. pension plan costs |
(64) |
(42) |
|||
General corporate expenses |
(13) |
(13) |
|||
|
|
|
7.6% |
Note: Kraft recorded Restructuring Program costs for the three months ended |
| |||||||
Condensed Combined Statements of Earnings | |||||||
For the Nine Months Ended September 30, |
Schedule 4 | ||||||
(in millions of dollars, except per share data) (Unaudited) | |||||||
As Reported (GAAP) | |||||||
2012 |
2011 |
% Change | |||||
Net revenues |
$ 13,845 |
$ 13,620 |
1.7% | ||||
Cost of sales |
9,139 |
9,193 |
0.6% | ||||
Gross profit |
4,706 |
4,427 |
6.3% | ||||
Selling, general and administrative expenses |
2,158 |
2,131 |
(1.3)% | ||||
Asset impairment and exit costs |
156 |
(2) |
(100.0+)% | ||||
Operating income |
2,392 |
2,298 |
4.1% | ||||
Interest and other expense, net |
129 |
6 |
(100.0+)% | ||||
Royalty income from affiliates |
(41) |
(37) |
10.8% | ||||
Earnings before income taxes |
2,304 |
2,329 |
(1.1)% | ||||
Provision for income taxes |
763 |
891 |
14.4% | ||||
Effective tax rate |
33.1% |
38.3% |
|||||
Net earnings |
$ 1,541 |
$ 1,438 |
7.2% | ||||
Per share data1: |
|||||||
Basic and diluted earnings per share |
$ 2.60 |
$ 2.43 |
7.0% | ||||
Shares outstanding |
592 |
592 |
1 |
On |
|
|||||||||||||||||
Reconciliation of GAAP to Non-GAAP Information |
|||||||||||||||||
Net Revenues |
Schedule 5 | ||||||||||||||||
For the Nine Months Ended |
|||||||||||||||||
($ in millions) (Unaudited) |
|||||||||||||||||
% Change |
Organic Growth Drivers | ||||||||||||||||
As Reported (GAAP) |
Impact of Divestitures1 |
Impact of Currency |
Organic |
As Reported (GAAP) |
Organic |
Vol / Mix |
Price | ||||||||||
2012 |
|||||||||||||||||
Beverages |
$ 2,182 |
$ - |
$ - |
$ 2,182 |
(5.0)% |
(1.3)% |
(2.3)pp |
1.0pp | |||||||||
Cheese |
2,766 |
- |
- |
2,766 |
3.7% |
3.7% |
- |
3.7pp | |||||||||
Refrigerated Meals |
2,609 |
- |
- |
2,609 |
2.6% |
2.6% |
0.4pp |
2.2pp | |||||||||
Grocery |
3,449 |
- |
- |
3,449 |
4.1% |
4.1% |
(2.2)pp |
6.3pp | |||||||||
International & Foodservice |
2,839 |
- |
40 |
2,879 |
1.4% |
2.9% |
0.6pp |
2.3pp | |||||||||
|
$ 13,845 |
$ - |
$ 40 |
$ 13,885 |
1.7% |
2.6% |
(0.7)pp |
3.3pp | |||||||||
2011 |
|||||||||||||||||
Beverages |
$ 2,297 |
$ (87) |
$ - |
$ 2,210 |
|||||||||||||
Cheese |
2,667 |
- |
- |
2,667 |
|||||||||||||
Refrigerated Meals |
2,542 |
- |
- |
2,542 |
|||||||||||||
Grocery |
3,313 |
- |
- |
3,313 |
|||||||||||||
International & Foodservice |
2,801 |
(4) |
- |
2,797 |
|||||||||||||
|
$ 13,620 |
$ (91) |
$ - |
$ 13,529 |
|||||||||||||
1 |
Impact of divestitures includes for reporting purposes the Starbucks packaged coffee business. |
|
|||||
Operating Income |
|||||
For the Nine Months Ended |
Schedule 6 | ||||
($ in millions) (Unaudited) |
|||||
As Reported (GAAP) |
|||||
2012 |
2011 |
% Change | |||
Operating Income: |
|||||
Beverages |
$ 308 |
$ 400 |
(23.0)% | ||
Cheese |
482 |
422 |
14.2% | ||
Refrigerated Meals |
338 |
309 |
9.4% | ||
Grocery |
1,048 |
998 |
5.0% | ||
International & Foodservice |
349 |
365 |
(4.4)% | ||
Unrealized gains / (losses) on hedging activities |
58 |
(51) |
|||
Certain U.S. pension plan costs |
(169) |
(108) |
|||
General corporate expenses |
(22) |
(37) |
|||
|
|
|
4.1% |
Note: Kraft recorded Restructuring Program costs for the nine months ended |
SOURCE
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