Kraft's profit slips 16%

by Monica Watrous
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The company announced the removal of artificial ingredients in some of its products.

NORTHFIELD, Ill. — Kraft Foods Group, Inc. reported a 16 percent drop in earnings for the recent quarter, as price increases implemented last year failed to improve revenue for the maker of Jell-O, Velveeta and Oscar Mayer.

Kraft’s net earnings for the first quarter ended March 28 were $429 million, equal to 73 cents per share on the common stock, which compared with $513 million, or 86 cents per share, in the prior-year period. Excluding market-based impacts to post-employment plans, unrealized gains from hedging activities, spending on cost-savings initiatives and costs related to the proposed merger with H.J. Heinz, Kraft said its earnings per share grew at a high single-digit rate over the first quarter of fiscal 2014.

Net revenues for the quarter slipped 0.2 percent to $4,352 million from $4,362 million the year before, reflecting a negative impact from currency. The company said organic net revenues grew 1.1 percent.

“Our first-quarter results reflected a solid start to 2015,” said John Cahill, chairman and CEO. “We’ve stepped up our focus on execution, our pricing actions over the past year are coming through, and we’re benefiting from a disciplined approach to marketing. There is clearly more work ahead of us, but we will continue to build on this momentum to delight our consumers and customers, and prepare us for the next chapter ahead.”

For the Refrigerated Meals segment, net revenues climbed 2 percent to $833 million as a result of higher pricing taken in previous quarters in cold cuts and hot dogs, which was partially offset by unfavorable volume/mix. The volume loss related to price increases more than offset timing gains of Easter-related shipments, particularly in bacon, the company noted. Operating income grew 1 percent to $97 million, tempered by higher spending on cost savings initiatives.

Net revenues in Canada declined nearly 11 percent to $382 million, and operating income decreased 6 percent to $62 million on unfavorable currency exchange.

Kraft’s Other Businesses segment sustained a 0.7 percent decline in net revenues to $434 million and a nearly 19 percent decline in operating income to $48 million, reflecting lower net pricing and investments to grow the exports business that more than offset favorable volume/mix.

In March, Kraft entered into an agreement with Pittsburgh-based H.J. Heinz Co. to merge the two companies. Once the transaction is complete, the Kraft Heinz Co. will be the third largest food company in North America with estimated sales of $28 billion. Together the new company will have eight brands with sales in excess of $1 billion and five brands with sales between $500 million and $1 billion. The deal is expected to close in the second half of 2015.

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