Financial briefs: Northern Foods, Kraft, Weston Foods

By Laura Crowley

- Last updated on GMT

Related tags: Northern foods, Cent, Revenue

Northern Foods and Kraft have successfully offset high commodity costs by focusing on core brands, while Weston Foods suffered an operating income decline of 30 per cent.

Biscuit business drives Northern Foods’ sales

Northern Foods reported strong revenue increases for Q1, ending 28 June, helped by its move away from private label business in frozen pizza and biscuits and its focus on remarketing its leading brands.

The UK group’s bakery sector saw a revenue rise of 8 per cent as it reaped the benefits from the relaunch of Fox’s biscuits, with a 1.1 million shoppers purchasing the brand.

Northern Foods’ biscuit business will now focus on improving operating costs by moving its three current manufacturing sites to two new or updated facilities. The company aims to complete this investment by 2011.

Commodity costs have continued to soar, but the company dealt with these through pricing negotiations and efficiency improvements, helping it to achieve an overall revenue growth of 7.6 per cent compared to the previous year.

Meanwhile, overall volume of production dropped by 2 per cent in line with its shift from unprofitable private label products.

“The market environment remains challenging but we continue to invest in our brands and own label business, and at the same time drive greater efficiencies,”​ said Stefan Barden, chief executive.

Early last year, Northern Foods decided to sell off the faltering chilled pastry, cakes, specialty bread and flour milling businesses, in a bid to stabilise revenue. The company now focuses on five key markets; ready meals, sandwiches and salads, pizza, biscuits and Christmas puddings.

Snacks division key driver for Kraft revenue growth

Innovation and strong marketing in Kraft’s US biscuits division led to revenue growth for core brands in Q2 results, but gains were offset by weakness in the snack bar business.

Kraft Foods’ second quarter results showed that overall net revenues increased by 21.4 per cent to $11.2bn (€7bn.2) and operating income went up by 27.1 per cent. In the European Union, net revenues rose by 49.7 percent, while growth in North America was slower, at 6.7 per cent.

In the US snacks and cereals sector, organic net revenues rose 5.1 per cent compared to the same point last year, with pricing compensating for “unfavourable product mix and lower volume”​.

Revenue growth included the positive impact of 9.6 percentage points from last year’s acquisition of French food company Groupe Danone, the maker of LU, Tuc and Prince biscuits.

Leading snacks and ready-to-eat cereal products such as Oreo, Chips Ahoy! And Ritz continued to prove successful, and new launches meant further financial gain.

Kraft continued to deal with high raw material and energy costs by enforcing price increases and lower trade spending.

However, the disappointing performance for Kraft’s snack bars is surprising, given that health and organic trends have pushed up the popularity of these healthier snack foods, with many companies, such as Kellogg’s and General Mills, extending their snack bars portfolios.

“Our business continues to strengthen in a challenging operating environment,”​ Irene Rosenfeld, chairman and CEO said. “Our investments are driving stronger top-line growth and we are now seeing that play through in improved profitability.”

Weston Foods’ income crumbles

Canadian baking and dairy group Weston Foods has reported an operating income drop of 30 per cent in its Q2 results, down to $79m (€51m) from $112m (€72m), saying it suffered from price increases for flour and fuel.

It was able to increase prices though, while focusing on cost reduction initiatives to somewhat offset such problems. It also managed to adapt its sales mix towards higher margin products, which had a positive impact on operating income.

Fresh bakery sales increased by more than 11.5 per cent while ​sales of fresh-baked sweet goods increased by approximately over 3 per cent. Frozen bakery sales increased by about 8.6 per cent.

Overall sales increased by 2 per cent compared to the second quarter of 2007, to $1bn (€642m). However the company said unfavourable exchange rates effected growth by about 6 per cent.

The company said: “Sales growth in whole grain and whole wheat products exceeded the sales growth of white flour based products. The introduction of new and expanded products… contributed positively to branded sales growth during the second quarter of 2008 and year-to-date.”

Related topics: Markets, Kraft Foods, Ingredients

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