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MILWAUKEE — Kraft Foods Inc. said Tuesday its second-quarter profit rose 11 percent even though its revenue slipped as the dollar's strength weighed down international sales.
The earnings beat analyst expectations, and the company boosted its profit guidance for fiscal 2009, saying it expects to see benefits from its recently completed restructuring, cost cutting and a focus on improving its products.
CEO Irene Rosenfeld said the company is "hitting our stride" from its three-year turnaround plan as profits rise and products — even at higher prices — continue to woo shoppers.
She said the company aims to grow its business through sales volume and mix — the type of products people buy — rather than raising prices.
Food companies raised prices last year to keep up with ingredient costs as they reached record highs. Even as those costs came down, the higher pricing has stuck at Kraft because the company also improved its brands, which helps justify higher prices, Rosenfeld said. She said the company will continue to tout low-cost foods like macaroni and cheese and Kool-Aid.
"We've made great progress in rebuilding our brand equities and improving our pricing power and strengthening our innovation pipeline," she told The Associated Press in an interview.
Kraft has shed costs as it streamlined production and cut unprofitable brands. The company plans still more cost cutting and said Tuesday it will announce efforts that will trim an additional $50 million.
Kraft, known for brands like Velveeta and Maxwell House coffee, also plans to invest more on branding to build its brands' value in the eyes of consumers. Rosenfeld said the company's voice in the market place also will increase because it can buy more ads as rates fall.
Investing its profits from the turnaround in additional savings and marketing is a smart move, one many food companies make if they can, said Matt Arnold, an analyst with Edward Jones.
"Frequently, you will see the better food companies reinvest some of the upside they just experienced right back in, in order to set this table for next year in terms of cost savings," he said.
The Northfield, Ill.-based company said after the market closed that it earned $827 million, or 56 cents per share, in the three-month period that ended in June. That compares with earnings of $745 million, or 49 cents per share, a year earlier.
Revenue fell 5.9 percent to $10.16 billion, below analysts' predictions of $10.37 billion. The drag of foreign currency exchanges hurt results by 8.1 percentage points, the company said. As the U.S. dollar gains strength, that weighs on international sales once they are converted back to U.S. dollars.
Kraft said consumers continued to support its top brands, with DiGiorno pizza and Oscar Mayer Deli Fresh meats each growing 20 percent or more in the quarter. Its namesake macaroni and cheese also saw double-digit volume growth, and sales of cookies and crackers saw strong growth.
The cheese business posted an 8.7 percent drop due to an 8 percent price reduction because of lower dairy costs, though brands like Philadelphia cream cheese and Kraft Singles saw solid volume growth.
The food service business, which serves retail establishments like restaurants, continued to hurt as consumers cut back on eating out.
European revenue rose 0.4 percent, though it was dragged down by currency translation.
Net revenue in developing markets rose 9.3 percent on double-digit gains of drink brand Tang in markets like Latin America, Asia Pacific and Central and Eastern Europe.
"The Asian economy remains challenging, and yes, growth is slowing in some categories," Sanjay Khosla, chief executive of Kraft Foods International, said in e-mailed comments. "But we are delighted by our performance so far this year and remain optimistic about our growth prospects in Asia."
The company expects to earn at least $1.93 per share in 2009, in line with current analyst expectations, according to Thomson Reuters. That is up from previous guidance of $1.88.
Shares of Kraft rose 14 cents to close at $28.34 on Tuesday before the results were released but slipped 59 cents, or 2 percent, to $27.75 after hours.
Associated Press Writer Alex Kennedy in Singapore contributed to this report.
