Kraft Foods Inc. wrapped up its third quarter on an upbeat note, with pro forma net earnings increasing 14.5% to $869 million and diluted earnings per share increasing 13.6% to $0.50.
"Kraft delivered strong earnings growth in the quarter, driven by higher volume, productivity and synergy savings, and lower interest expense," said Roger K. Deromedi, co-chief executive officer of Kraft Foods. "We remain on track to deliver our previously disclosed full-year pro forma diluted earnings per share projection of $2.00 to $2.05, a 14% to 16% increase over 2001."
"With added momentum from new products, increased marketing investment and gains in developing markets partially fueled by acquisitions, pro forma volume grew 3.3%," said Betsy D. Holden, co-chief executive officer of Kraft Foods. "We continue to expect full year volume growth of around 3%."
During the quarter, Kraft increased its quarterly dividend by 15.4% to $0.15 per common share and repurchased approximately 2.2 million shares of Class A common stock for $85 million to offset any potential dilution arising from the exercise of employee stock options.
Kraft acquired Kar Gida, a $35 million revenue salted snacks company in Turkey, at the end of the quarter. Kraft also announced on October 15 the finalization of the sale of the Fleischmann's yeast and industrial bakery ingredient business in Latin America to Burns Philp for $110 million. The sale is expected to close prior to the end of November.
Volume for Kraft Foods North America increased 3% due primarily to strong results in the Beverages, Desserts and Cereals segment and new products across all segments.
Biscuits, Snacks and Confectionery volume was slightly below prior year, down 0.3%. In Biscuits, the cookie and cracker business in the U.S. had one of its best quarters since the Nabisco acquisition with strong volume, revenue and share growth. Biscuit growth was led by many successful new products including "Double Delight Oreo," "Chips Ahoy!," "Cremewiches," "Oreo Cookie Barz," "Chips Ahoy! Cookie Barz," "Honey Maid Sticks" and "Wheat Thins Crispy Thins."
In Confectionery, volume declined due to trade inventory reductions, and intense competitive activity in the breath freshening segment, partially offset by the success of "Altoids Sours" and "Creme Savers Soft Candy" new products.
Beverages, Desserts and Cereals recorded strong volume growth of 10.2%. In Beverages, volume was up in coffee, as strong promotional programs and packaging innovation drove share gains in "Maxwell House." Double-digit volume gains in ready-to-drink products were fueled by continued momentum in "Kool-Aid Jammers."
Oscar Mayer and Pizza volume increased 0.5%. In Pizza, volume and share were led by momentum in "DiGiorno" stuffed crust pizza. Volume in meats was down slightly, as gains in Boca meat alternatives and Oscar Mayer hot dogs and bacon were offset by consumption declines in luncheon meats.
Cheese, Meals and Enhancers volume was up 0.7%. In Enhancers, volume was up, driven by strong performance in Kraft salad dressings, mayonnaise and barbecue sauce. Foodservice volume also increased led by higher shipments of salad dressings, snacks and ingredients.
Volume for Kraft Foods International increased 4.2% with growth in both the Europe, Middle East and Africa segment and the Latin America and Asia Pacific segment, benefiting from acquisitions, new products and strengthened marketing programs. Volume in developing markets grew 5.1% despite weak economies in a number of countries, driven by acquisitions.
Pro forma results assume that shares issued following the Kraft IPO on June 13, 2001 were outstanding since January 1, 2002 and that the net proceeds of the IPO were used to retire debt incurred to finance the Nabisco acquisition. The results also adjust for certain items, including charges associated with reconfigurations and consolidations as Kraft and Nabisco are integrated.
Kraft Foods' parent, Philip Morris Cos. Inc., hailed Kraft's contribution to strong results for the organization. "Philip Morris Cos. Inc. achieved good results during the third quarter, especially in light of the weakness in the world economy," said Louis C. Camilleri, chairman and chief executive officer. He reported that Kraft Foods enjoyed pro forma worldwide volume growth of 3.3%.
"As previously disclosed, we anticipate that Philip Morris Cos. Inc.'s full-year 2002 underlying diluted earnings per share growth will be in a range of 3% to 5%, due to lower volume and additional promotional spending at PM USA," Camilleri added. "For the full year 2002, we are projecting underlying diluted earnings per share growth of Philip Morris Cos. Inc. of 8% to 10%." Philip Morris Cos. Inc., the world's largest producer and marketer of consumer packaged goods, owns approximately 84% of the outstanding common shares of Kraft.