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Kraft boosts profits 5% in Q2, reaffirms outlook

By Caroline Scott-Thomas , 03-Aug-2012

Kraft Foods reported a 5.4% rise in second quarter net profit, more than offsetting higher raw material costs and adverse effects of currency exchange rates, the company said on Thursday.

Net revenue fell 4.3% in the quarter to $13.3bn, while higher pricing that took effect in Q2 helped boost profit to $1.03bn, up from $976m in the prior year period.

"Our second quarter and first half results reflect the success of our brand-building investments over the past few years and the resilience of our businesses," said chairman and CEO Irene Rosenfeld.

Kraft’s revenues were hit by a stronger US dollar taking its toll on earnings from overseas markets, and the timing of Easter in the first quarter this year, which affected Q2 chocolate sales.

The company also reiterated its full-year outlook, which predicted organic net revenue growth of about 5% and operating earnings per share growth of at least 9% on a constant currency basis.

Split timing

The company also announced that it intends to split into two separate companies on October 1, after which date its global snacks group will take on the name Mondelez International and trade on NASDAQ as ‘MDLZ’, while the North American grocery business will become Kraft Foods Group, and trade as ‘KRFT’.

Mondelez International will seek to capture the momentum the company has built up with a number of strategic acquisitions in the global snacking sector over the past several years, including that of Danone’s LU biscuit brand and UK-based confectionery maker Cadbury. It estimated that as an independent company its global snacks business would generate annual revenue of about $32bn.

Meanwhile, its Kraft Foods Group North American grocery business will look to consolidate its position as an industry leader in the region with powerhouse brands such as Kraft macaroni and cheese, Oscar Mayer meats, Philadelphia cream cheese, and Maxwell House coffee. The company has estimated that its grocery company would generate annual revenue of about $16bn.

"As we embark on our journey as two industry-leading, independent companies, I'm confident that both companies have the brands, the executional capability, and the leadership teams to succeed in their respective missions,” Rosenfeld said.

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