Kraft Foods Gets Tastier

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With a portfolio of iconic brands and a culture of innovation and collaboration, Kraft Foods (KRFT, Financial) has the spirit of a startup and the soul of a powerhouse.

An unrivaled brand portfolio includes North America’s favorite food and beverages – including Planters, Philadelphia, Kool-Aid, Oscar Mayer, Cracker Barrel, Maxwell House, Jell-O, Kraft Macaroni & Cheese – and many more, including nine with annual net revenues of $500+ million.

One of the largest consumer packaged goods companies in North America, Kraft has 22,500 employees across the U.S. and Canada and $18 billion in annual sales.

Fourth quarter financial summary

  • Net revenues grew 2.2 percent and Organic Net Revenues were up 3.4 percent. Organic growth was driven by positive net pricing of 1.9 percentage points to offset higher input costs, as well as volume/mix gains of 1.5 percentage points from growth in the Refrigerated Meals, Exports and Canada businesses.
  • An operating loss of $614 million and an EPS loss of $0.68 was driven by a non-cash loss of $1,364 million, or $1.43 per diluted share, from market-based impacts to post-employment benefit plans. The loss from market-based impacts to post-employment benefit plans was driven by a combination of lower discount rates and updated published mortality assumptions, partially offset by favorable asset returns.
  • Excluding market-based impacts to post-employment benefit plans in both years, operating income grew at a low single-digit rate and EPS grew at a double-digit rate. Operating income growth was primarily driven by lower advertising and overhead costs, as well as the absence of recall costs versus the prior year quarter. A net benefit was also realized from a combination of lower manufacturing costs, primarily driven by productivity gains, and higher net pricing that more than offset higher commodity costs. EPS growth was further enhanced by a lower tax rate versus the prior year quarter.
  • Fourth quarter 2014 results also included $92 million, or $0.10 per diluted share, of unrealized losses from commodity hedging activities.

2014 financial summary

  • Net revenues decreased 0.1 percent and Organic Net Revenues were up 0.9 percent versus the prior year. Net pricing contributed 1.2 percentage points of growth and reflected significant price increases in response to rising commodity costs that were partially offset by higher promotional spending in the Meals & Desserts and Beverages businesses. Volume/mix declined 0.3 percentage points due to volume losses associated with certain pricing actions, primarily in cheese, as well as category weakness in meals and market share losses in desserts.
  • Operating income of $1.9 billion and EPS of $1.74 included a non-cash loss of $1,341 million, or $1.41 per diluted share, from market-based impacts to post-employment benefit plans.
  • Excluding market-based impacts to post-employment benefit plans in both 2014 and 2013, operating income grew at a mid-single-digit rate while EPS advanced at a double-digit rate. Operating income growth was primarily driven by a reduction in spending on cost savings initiatives,2 reduced marketing expenditures and favorable retirement-related benefit adjustments primarily resulting from lower-than-expected claims experience in 2014. A net benefit was also realized from a combination of manufacturing productivity gains and higher net pricing that more than offset higher commodity costs. EPS growth was further enhanced by a lower tax rate versus the prior year.
  • 2014 results were also tempered by $79 million, or $0.09 per diluted share, of unrealized losses from commodity hedging activities.
  • Free Cash Flow of $1.5 billion was in line with the prior year as the current year reflected the benefit of lower pension plan contributions while the prior year included significant working capital improvements.

Business segment highlights

Cheese:

  • Fourth quarter net revenues of $1,170 million increased 8.4 percent reflecting price increases related to higher input costs and a recovery in string cheese volumes from a prior year recall. These gains were partially offset by the negative impact to volumes from price increases.
  • Fourth quarter operating income increased 31.2 percent due to higher net pricing, the absence of prior year recall costs, lower manufacturing costs primarily driven by productivity gains, lower overhead costs and lower advertising spending. These gains more than offset significantly higher commodity costs.
  • Full year net revenues of $4.1 billion increased 3.6 percent, driven by higher commodity cost-driven pricing that was partially offset by unfavorable volume/mix. Unfavorable volume/mix reflected volume losses from price increases that were tempered by an increase in shipments of string cheese following a 2013 recall.
  • Full year operating income increased 3.5 percent from a combination of higher net pricing and lower spending on both cost savings initiatives and marketing activities. This favorability was partially offset by record high dairy costs, unfavorable volume/mix and higher manufacturing costs.

Refrigerated meals:

  • Fourth quarter net revenues of $793 million increased 6.3 percent from a combination of volume/mix gains and higher net pricing to offset higher input costs. Balanced growth was achieved through continued momentum in the Lunchables franchise, as well as gains from innovation, including Oscar Mayer Deli Fresh BOLD cold cuts and the P3 Portable Protein Pack.
  • Fourth quarter operating income grew 42.0 percent driven by manufacturing productivity, higher net pricing and volume/mix gains that were partially offset by higher commodity costs, higher spending on cost savings initiatives and investments in advertising.
  • Full year net revenues of $3.4 billion increased 3.0 percent, reflecting both higher net pricing and improved volume/mix. Higher net pricing reflected commodity cost-driven pricing in both cold cuts and hot dogs that was partially offset by lower net pricing in bacon. Favorable volume/mix was driven by growth in the Lunchables franchise and the introduction of the P3 Portable Protein Pack, as well as ongoing growth in bacon.
  • Full year operating income growth of 14.9 percent was driven by lower manufacturing costs reflecting net productivity gains as well as higher net pricing. Income growth was tempered by higher commodity costs and increased marketing investments primarily behind the introduction of the P3 Portable Protein Pack and incremental support of the Lunchables franchise.

Beverages:

  • Fourth quarter net revenues of $577 million decreased 3.4 percent from a combination of lower pricing and unfavorable product mix. Lower pricing was due to increased promotional activity in refreshment beverages. Unfavorable product mix reflected a combination of strong volume growth in Capri Sun ready-to-drink beverages and lower volumes of roast and ground coffee and powdered beverages. These impacts were partially offset by the benefit of launch-related shipments of McCafe coffee.
  • Fourth quarter operating income declined 41.7 percent as higher commodity costs, lower net pricing due to an increase in promotional spending, and unfavorable product mix more than offset lower advertising spending versus the prior year.
  • Full year net revenues of $2.6 billion decreased 2.0 percent as lower net pricing was partially offset by favorable volume/mix. Lower net pricing reflected increased promotional spending in refreshment beverage categories and lower net pricing in roast and ground coffee. Favorable volume/mix was driven by growth in on-demand coffee products and Capri Sun ready-to-drink beverages that were partially offset by lower shipments of roast and ground coffee, reflecting a shift in consumer preference to on-demand coffee, and lower sales of liquid concentrates that reflected market share losses.
  • Full year operating income increased 10.0 percent due primarily to lower commodity costs, a reduction in marketing spending, lower spending on cost savings initiatives and manufacturing cost improvements driven by net productivity. This increase was partially offset by lower net pricing that reflected an increase in promotional spending.

Meals and desserts:

  • Fourth quarter net revenues of $627 million declined 6.6 percent reflecting a combination of category declines in both the meals and desserts categories, market share losses in desserts, as well as increased promotional spending.
  • Fourth quarter operating income decreased 10.1 percent due to lower net pricing and a significant increase in spending on cost savings initiatives that more than offset reductions in advertising and overhead costs.
  • Full year net revenues of $2.2 billion decreased 6.5 percent due to a decline in volume/mix and lower net pricing. The volume/mix decline was primarily due to lower shipments of meals and desserts that reflected a combination of changes in consumer preferences and market share losses in desserts. Lower net pricing was primarily due to increased promotional activity.
  • Full year operating income decreased 8.1 percent from lower net pricing, unfavorable volume/mix and higher commodity costs that were partially offset by lower marketing spending.

Enhancers and snack nuts:

  • Fourth quarter net revenues of $488 million declined 1.2 percent as lower net pricing from increased promotional activity in the enhancers categories versus prior year levels more than offset volume/mix gains inPlanters snack nuts.
  • Fourth quarter operating income growth of 14.1 percent reflected lower advertising expenses, spending on cost savings initiatives and manufacturing costs versus the prior year. These gains were partially offset by unfavorable commodity costs and lower net pricing.
  • Full year net revenues of $2.1 billion decreased 1.9 percent, including the impact of lower sales to Mondelez International (MDLZ, Financial). Organic net revenues decreased 1.5 percent as lower net pricing was partially offset by favorable volume/mix. Lower net pricing was due primarily to increased promotional activity across the enhancers categories. Favorable volume/mix was driven by growth in snack nuts, partially offset by lower shipments of peanut butter.
  • Full year operating income increased 9.1 percent as lower manufacturing costs driven by net productivity and lower spending on both marketing and cost savings initiatives were partially offset by lower net pricing.

Canada:

  • Fourth quarter net revenues of $533 million declined 1.5 percent due to an unfavorable currency impact. Organic net revenue growth of 6.5 percent primarily reflected strong volume/mix gains from incremental in-store activity versus the prior year quarter as well as the successful launch of McCafe coffee. Net pricing gains were driven by significant price increases taken to offset higher input costs, particularly in cheese and coffee.
  • Fourth quarter operating income increased 14.1 percent despite an unfavorable currency impact of 9.3 percentage points. Excluding currency, the increase in operating income reflected significant manufacturing productivity improvements, higher net pricing, lower spending on cost savings initiatives and volume/mix gains that were partially offset by higher commodity costs.
  • Full year net revenues of $1.9 billion decreased 4.9 percent, including a 6.8 percentage point unfavorable impact from foreign currency. Organic net revenues increased 1.9 percent from a combination of higher net pricing and favorable volume/mix. Higher net pricing in cheese and coffee was partially offset by lower net pricing in refreshment beverages. Favorable volume/mix was driven by higher shipments of natural cheese and the launch of McCafe coffee, partially offset by lower shipments of processed cheese.
  • Full year operating income decreased 0.8 percent, including an unfavorable currency impact of approximately 7.5 percentage points. Excluding currency, lower marketing spending, higher net pricing and lower manufacturing costs driven by net productivity were partially offset by the impact of higher commodity costs.

Other businesses:

  • Fourth quarter net revenues of $508 million increased 8.8 percent. Organic net revenue growth was 11.9 percent reflecting a combination of strong volume/mix growth in both the Exports and Foodservice businesses as well as significant price increases to offset higher input costs in foodservice product lines.
  • Fourth quarter operating income increased 19.4 percent as significant manufacturing productivity, higher net pricing and volume/mix gains more than offset higher commodity costs.
  • Full year net revenues of $1.9 billion grew 4.9 percent despite the impact of unfavorable foreign currency. Organic net revenues increased 6.0 percent, driven by higher net pricing and favorable volume/mix. Higher net pricing realized in Foodservice and higher shipments in Exports were partially offset by the unfavorable impact of planned foodservice product line exits.
  • Full year operating income increased 15.9 percent as higher net pricing, lower manufacturing costs driven by net productivity and lower spending on cost savings initiatives were partially offset by increased commodity costs.

To end

It focuses on North America, so naturally it doesn’t have to deal with fluctuating European currencies. Kraft Foods is all set to provide a yummy menu to its valued investors. With its current momentum KRFT is expected to create greater shareholder returns.

(Source: Company’s Website)