Kraft Foods Group Reports First Quarter 2014 Results

NORTHFIELD, Ill., May 1, 2014 /PRNewswire/ -- Kraft Foods Group, Inc. (NASDAQ: KRFT) today announced financial results for the first quarter of 2014 that reflected the timing of several factors, including an expected shift in Easter-related product shipments to the second quarter of 2014.

"We continued to make steady progress during the first quarter of this year," said Kraft CEO Tony Vernon.  "We still have more work to do, but we're confident that our focus on brand renovation, marketing excellence and total cost management will drive the profitable growth that both we and our shareholders expect."

Q1 2014 FINANCIAL SUMMARY

Net revenues in the first quarter declined 3.3 percent to $4.4 billion.

• Organic Net Revenues declined 2.4 percent from lower volume/mix of 2.8 percentage points that was partially offset by 0.4 percentage points of higher pricing.
• Volume/mix was negatively impacted by approximately three percentage points from a combination of Easter-related shipments shifting to the second quarter of this year and a normalization of retail customer inventories from higher-than-average levels at the end of 2013.

Operating income in the first quarter increased 11.7 percent to $0.9 billion.

• First quarter operating income this year included a $49 million benefit from market-based impacts to post-employment benefit plans as well as a $47 million favorable change in unrealized gains/losses from hedging activities.
• Excluding these factors, operating income was flat as lower spending on cost savings initiatives,(2) favorable pricing net of commodity costs and gains from productivity were offset by the negative impacts of lower volume/mix and the timing of marketing expenses versus the prior year.

Earnings per share in the first quarter increased 11.8 percent to $0.85.

• The $0.09 increase in EPS versus the prior year included a $0.02 benefit from market-based impacts to post-employment benefit plans as well as a $0.05 favorable change in unrealized gains/losses from hedging activities.
• Excluding these factors, EPS growth reflected the favorable net impact of discrete tax items versus the prior year.

Free Cash Flow was up 19.0 percent to $175 million.

• Higher earnings and lower pension contributions drove the improvement in Free Cash Flow versus the first quarter last year.

FIRST QUARTER BUSINESS SEGMENT HIGHLIGHTS

Cheese:

• Net revenues of $1 billion increased from the prior year primarily due to price increases that more than offset a volume/mix decline caused by later Easter-related shipments versus the prior year.
• Operating income growth reflected lower spending on cost savings initiatives and favorable pricing net of commodity cost increases that were partially offset by unfavorable manufacturing costs, lower volumes and higher marketing expense versus the prior year.

Refrigerated Meals:

• Net revenues of $816 million were flat versus the prior year as continued momentum in Lunchables offset volume softness in cold cuts and bacon due to the shift in Easter-related shipments and retail customer inventory reductions versus year-end levels.
• Operating income was flat as higher marketing spending versus the prior year were offset by lower spending on cost savings initiatives.

Beverages:

• Net revenues of $674 million declined primarily due to lower pricing reflecting lower green coffee costs versus last year as well as increased merchandising activity behind Capri Sun ready-to-drink beverages.
• Operating income growth was driven by lower spending on cost savings initiatives and productivity gains that more than offset an increase in marketing spending and unfavorable volume/mix versus the prior year.

Meals & Desserts:

• Net revenues of $498 million were down from last year due to a combination of the shift in Easter-related shipments, retail customer inventory reductions versus year-end levels and continued weakness in ready-to-eat JELL-O desserts.
• Operating income declined significantly as a combination of unfavorable volume/mix and higher marketing spending more than offset the benefit of lower spending on cost savings initiatives versus the prior year.

Enhancers & Snack Nuts:

• Net revenues of $503 million were lower, primarily driven by comparisons with Easter-related shipments in the prior year as well as a reduction in retail customer inventory levels during the first quarter this year.
• Operating income declined reflecting higher marketing spending that more than offset lower spending on cost savings initiatives and productivity gains.

Canada:

• Net revenues of $427 million declined versus last year primarily due to a combination of an unfavorable currency impact, comparisons with Easter-related shipments in the prior year and retail customer inventory reductions versus year-end levels.
• Operating income declined as lower volume/mix and the unfavorable currency impact more than offset productivity gains.

Other Businesses:

• Net revenues of $437 million were slightly lower than the prior year as the exit of certain product lines in the company's Foodservice business led to lower volumes. This impact was partially offset by price increases to offset higher commodity costs.
• Strong double-digit growth in operating income was driven by lower spending on cost savings initiatives and productivity gains that more than offset the impact of the volume/mix decline.

CONFERENCE CALL
Kraft will host a conference call to discuss its first quarter 2014 results today at 4 p.m. Central time.

The call will be hosted by:

• Tony Vernon, CEO
• Teri List-Stoll, EVP and CFO
• Chris Jakubik, VP, Investor Relations

Live Event Dial-in Details:
United States Dial-In: 1-888-350-0137
International Dial-In: 1-970-315-0478
Access code: 21157420

To ensure timely access, participants should dial in approximately 10 minutes before the call starts.  A listen-only webcast with accompanying presentation will be available in the Investor Center section of Kraft's Web site at ir.kraftfoodsgroup.com, under "Events & Presentations."

A replay of the conference call will be available until May 14, 2014, by calling 855-859-2056 from the United States and Canada or 404-537-3406 from other locations.  The access code for the replay is 21157420.  An archive of the webcast will be available for one year following the conference call on Kraft's Web site.

ABOUT KRAFT FOODS GROUP
Kraft Foods Group, Inc. (NASDAQ: KRFT) is one of North America's largest consumer packaged food and beverage companies, with annual revenues of more than $18 billion.  The company's iconic brands include Kraft, Oscar Mayer, Velveeta, Planters, Philadelphia, Maxwell House, Lunchables, Capri Sun, Kool-Aid and JELL-O.  Kraft's 22,500 employees in the U.S. and Canada have a passion for making the foods and beverages people love.  Kraft is a member of the Standard & Poor's 500 and the NASDAQ-100 indices.  For more information, visit www.kraftfoodsgroup.com and www.facebook.com/kraft.

FORWARD-LOOKING STATEMENTS
This press release contains a number of forward-looking statements.  Words such as "focus," "continue," "expect," "drive," "will," and variations of such words and similar expressions are intended to identify forward-looking statements.  Examples of forward-looking statements include, but are not limited to, statements regarding Kraft's growth, progress, total cost management and investments.  These forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties, many of which are beyond Kraft's control.  Important factors that affect Kraft's business and operations and that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, increased competition; Kraft's ability to maintain, extend and expand its reputation and brand image; Kraft's ability to differentiate its products from other brands; increasing consolidation of retail customers; changes in relationships with significant customers and suppliers; Kraft's ability to predict, identify and interpret changes in consumer preferences and demand; Kraft's ability to drive revenue growth in its key product categories, increase its market share, or add products; volatility in commodity, energy and other input costs; changes in Kraft's management team or other key personnel; Kraft's geographic focus in North America; changes in regulations; legal claims or other regulatory enforcement actions; product recalls or product liability claims; unanticipated business disruptions; Kraft's ability to complete or realize the benefits from potential acquisitions, alliances, divestitures or joint ventures; Kraft's indebtedness and ability to pay such indebtedness; disruptions in information technology networks and systems; Kraft's inability to protect intellectual property rights; weak economic conditions; tax law changes; the tax treatment of Kraft's spin-off from Mondelez International, Inc.; volatility of market-based impacts to post-employment benefit plans; pricing actions; and other factors.  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 Securities and Exchange Commission, including its most recently filed Annual Report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K.  Kraft disclaims and does not undertake any obligation to update or revise any forward-looking statement in this press release, except as required by applicable law or regulation.

NON-GAAP AND OTHER FINANCIAL MEASURES
To supplement Kraft's financial statements presented in accordance with generally accepted accounting principles in the United States of America ("GAAP"), Kraft presents Organic Net Revenues and Free Cash Flow, both of which are considered non-GAAP financial measures.  The presentations of Organic Net Revenues and Free Cash Flow are intended to supplement investors' understanding of Kraft's operating results and liquidity.  Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, Kraft's results prepared in accordance with GAAP.  In addition, the non-GAAP measures Kraft uses may differ from non-GAAP measures used by other companies, and other companies may not define the non-GAAP measures Kraft uses in the same way.

Kraft currently defines Organic Net Revenues as net revenues excluding the impact of transactions with Mondelez International, acquisitions, divestitures (including the termination of a full line of business due to the loss of a licensing or distribution arrangement, and the complete exit of business out of a foreign country), currency and the 53rd week of shipments when it occurs.  Management believes that presenting Organic Net Revenues is useful to investors because it (i) provides investors meaningful supplemental information regarding financial performance by excluding certain items, (ii) permits investors to view Kraft's performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate Kraft's historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating Kraft.

Kraft defines Free Cash Flow as cash flow from operations less capital expenditures.  Management believes that Free Cash Flow is useful to investors because it reflects Kraft's cash available for uses including investments in growth and product development and it reflects Kraft's ability to generate cash while maintaining its fixed assets.

See the attached schedules for supplemental financial data and corresponding reconciliations of Organic Net Revenues to net revenues and Free Cash Flow to operating cash flow for the three months ended Mar. 29, 2014 and Mar. 30, 2013.

As previously announced, beginning in 2013, Kraft adopted a mark-to-market accounting policy for Kraft's post-employment benefit obligations.  Kraft discloses market-based impacts in order to provide better transparency to investors in evaluating Kraft.  Management currently defines market-based impacts to post-employment benefit plans as the costs or benefits resulting from the change in discount rates, the difference between Kraft's estimated and actual return on trust assets, and other assumption changes driven by changes in the law or other external factors.

¹ Please see the discussion of non-GAAP and other financial measures and the reconciliation to GAAP at the end of this press release.

² Cost savings initiatives are related to reorganization activities including severance, asset disposals, and other activities that do not qualify for special accounting treatment as exit or disposal activities.  Included within cost savings initiatives are activities related to the previously disclosed multi-year $625 million restructuring program.

 

 

 

 

 

 

 

 

 

 

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SOURCE Kraft Foods Group, Inc.