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Kraft Foods Inc.

Posted On: 8/25/2002

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Reflecting the successful integration of the Nabisco business and the volume growth of core brands, Kraft Foods Inc. reported strong second quarter results, with net earnings increasing 17.1% to $960 million and diluted earnings per share up 17% to $0.55.

On a reported basis, worldwide volume increased 7.0% during the quarter and net revenues increased 0.5% to $7.5 billion. Operating companies income increased 1.0% to $1.7 billion, reflecting volume gains, productivity and synergy savings, partially offset by one-time costs associated with the previously communicated charges to integrate Kraft and Nabisco. Net earnings increased 78.4% to $901 million and diluted earnings per share increased 57.6% to $0.52 as a result of lower interest expense, resulting primarily from debt retirement following Kraft's June 13, 2001 IPO.

Included in reported results for the second quarter of 2002 are pre-tax charges of $92 million related to the closing of a Kraft facility and other consolidation programs, which are part of the previously communicated charges to be recorded as Kraft and Nabisco are integrated. Cumulative integration-related charges total $314 million, slightly above the $200 million to $300 million estimate originally provided.

"Kraft delivered strong earnings growth in the quarter, keeping us in line with our earnings projections for the full year," said Betsy D. Holden, co-chief executive officer of Kraft Foods. "The Nabisco integration, our productivity programs and new product initiatives are all tracking well, and we are benefiting from lower interest expense. We continue to expect pro forma diluted earnings per share for the year in the range of $2.00 to $2.05, representing a 14% to 16% increase versus 2001."

"Pro forma volume grew 2.1% in the quarter, reflecting positive trends in many categories and most international markets," said Roger K. Deromedi, co-chief executive officer of Kraft Foods. "We expect volume growth to accelerate in the second half driven by new product introductions, increased marketing investment and gains in developing markets. For the year, we expect volume growth to be around 3%."

Volume for Kraft Foods North America (KFNA) increased 2.0% due primarily to strong results in the Biscuits, Snacks and Confectionery segment and the Beverages, Desserts and Cereals segment, including contributions from new products.

Biscuits, Snacks and Confectionery volume was up 2.9%. In Biscuits, cracker volume and share were up, including gains from the co-branded "Kraft Cheese Nips" line and new products including "Ritz Bits Peanut Butter Fudge" and "Honey Maid Sticks." Cookie volumes and shares also increased, driven by momentum in the core cookie business and successful new products, including "Chips Ahoy! Cremewiches" and "Double Delight Oreo." In Snacks, momentum continued to build driven by higher volumes of "Planters" snacking nuts. Confections volume was also up aided by the launch of "Creme Savers Soft Candy" and "Altoids Sours."

Beverages, Desserts and Cereals recorded strong volume growth of 7.5%. Double-digit volume gains in ready-to-drink beverages were fueled by continued momentum in "Capri Sun Big Pouch" and "Kool-Aid Jammers." In coffee, shipments increased as strong merchandising programs and packaging innovation drove share gains in "Maxwell House."

Volume in Desserts was up in all major categories including "Jell-O" ready-to-eat desserts and "Balance Bar" nutrition/energy bars, which were aided by new products.

Oscar Mayer and Pizza volume increased 1.4%. Volume in processed meats increased driven by gains in "Oscar Mayer" hot dogs, "Lunchables" lunch combinations and "Boca" meat alternatives, fueled by new product introductions.

Frozen pizza growth was driven by continued momentum in "DiGiorno" stuffed crust pizza and expanded distribution of the "California Pizza Kitchen" product line.

Volume for Kraft Foods International (KFI) increased 2.4% driven by gains in both the Europe, Middle East and African segments and the Latin American and Asia Pacific segments, benefiting from acquisitions, growth in developing markets and new products.