Kraft Earnings Advance, but Miss Consensus - Analyst Blog
Kraft Foods Inc. (KFT) reported first-quarter earnings of 49 cents per share, below the Zacks Consensus Estimate of 55 cents. However, quarterly earnings were up 19.5% year over year.
Net revenues for the quarter increased 26.0% year over year to $11.3 billion, primarily due to the favorable 18.9% impact from the Cadbury acquisition and a 4.2% impact from foreign currency, partially offset by a negative 0.4% impact from divestitures. However, organic revenues increased 3.9%, driven by 3.3% organic growth from Kraft foods base business and an 8.2% organic growth of Cadbury.
In the North American segment (KNAC), sales increased 7.3% year over year as gains in U.S. Beverages (4.9%), U.S. Convenient Meals (4.8%), U.S. Grocery (0.2%), Canada & North American Foodservice (19.7%) and U.S. Snacks (16.3%) were partially offset by declines in U.S. Beverages (1.9%) and U.S. Cheese (5.8%).
In the International segment, net revenues in the European Union increased 40.5% while the top line in the developing markets expanded 66.7%.
Gross margins for the quarter expanded 160 basis points (bps) to 36.1% versus 34.5% in the comparable prior-year quarter. However, operating margin contracted 230 bps to 10.7% versus 13.1% year over year.
Cash and cash equivalents for the first quarter amounted to $3.8 billion, compared with $2.1 billion in the prior-year quarter. Long term debt for the quarter was $29.5 billion and shareholders’ equity was $34.4 billion.
Based on the results for the first quarter, Kraft Foods provided guidance for full fiscal 2010 and fiscal 2011. The company expects organic net revenue growth of at least 4% in 2010, driven by approximately 4% organic net revenue growth of Kraft Foods' base business and approximately 5% organic net revenue growth of Cadbury. Earnings are expected to be at least $2.35 in fiscal 2010. This guidance includes an operating EPS of 2 cents, integration costs of approximately 30 cents, acquisition-related costs and financing fees of approximately 22 cents, U.S. health care legislation charge of 8 cents and earnings and gain on the sale of 95 cents.
Operating earnings reflects strong growth of Kraft Foods' base business at the high end of the company's 7% to 9% long-term EPS growth target.
For 2011, the company expects to deliver its long-term target of at least 5% organic net revenue growth and growth in operating EPS in the mid-teens range.
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