Kraft Foods (KFT) reported strong second-quarter results with earnings of 56 cents per share, above the Zacks Consensus Estimate of 54 cents. Quarterly earnings were also up 14.3% year-over-year.
Net revenues declined 5.9% year-over-year to $10.2 billion, primarily due to the unfavorable negative 8.1% impact of foreign currency and a negative 0.7% impact from divestitures. However, organic revenues increased 2.9%, driven by a 2.7% benefit from pricing and a 0.2% gain from volume and mix.
In the North American segment (KNAC) sales were flat year-over-year as gains in U.S. Convenient Meals (7.1%), U.S. Grocery (6.7%), U.S. Beverages (6.0%) and U.S. Snacks (1.3%) were offset by the declines in U.S. Cheese 8.7% and Canada & North American Foodservice 10.0%.
In the International segment, net revenues in the European Union decreased 17.4% while the top-line in developing markets contracted 9.8%.
Year-to-date, free cash flow was $1.4 billion, which was almost double compared to the prior-year quarter. The increase was primarily attributable to efficient working capital management and lower capital expenditures.
Recently, the company took some measures to strengthen its business model. These included investments in promotion and marketing that would help Kraft enjoy pricing power and improve product positioning versus lower-priced private label brands. The stronger prices, coupled with lower production costs, are expected to have a positive impact on margins.
Based on the strong year-to-date performance, management has raised guidance for 2009. The company now expects earnings of at least $1.93 per share compared to $1.88 guided earlier. The organic net revenue growth expectation is reiterated at approximately 3%.
General Mills (GIS) and Kellogg’s (K), the company’s primary competitors also posted strong second quarter results with earnings of $0.86 and $0.92 respectively.
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