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- Q2 net revenues increased 21.4% to $11.2 billion; organic net
revenues(1) grew 6.9%
- Q2 diluted EPS of $0.48 increased 9.1%; $0.58 excluding items(1), 16.0%
above prior year
- 2008 organic revenue growth guidance raised to at least 6%, up from at
least 5%
- 2008 EPS guidance excluding items raised to at least $1.92
NORTHFIELD, Ill., July 28 /PRNewswire-FirstCall/ -- Kraft Foods Inc.
(NYSE: KFT) today reported strong second quarter 2008 results that reflect
continued momentum as it reached the midpoint of its three-year turnaround
plan. Organic top-line growth was strong, driven by pricing actions to offset
significantly higher input costs. Reported earnings per share increased in
the second quarter due to gains from operations and certain commodity hedging
activities, partially offset by a one-time loss on divestitures. Earnings per
share excluding items grew at a double-digit rate.
"Our business continues to strengthen in a challenging operating
environment, and performance is exceeding our expectations," said Irene
Rosenfeld, Chairman and Chief Executive Officer. "Our investments are driving
stronger top-line growth and we are now seeing that play through in improved
profitability. I expect our year-over-year results to improve further in the
back half of 2008 as we continue to reinvest in our brands and reduce our
costs."
- Net revenues: Second quarter net revenues increased 21.4 percent to
$11.2 billion. Net revenue growth included a favorable impact of
9.6 percentage points from the LU biscuit acquisition and a 5.6
percent gain from currency that was partially offset by an
unfavorable impact of 0.7 percentage points from divestitures.
Excluding these factors, organic net revenues grew 6.9 percent.
Higher pricing contributed 7.2 percentage points, while favorable
mix added 0.7 percentage points. Volume was down only 1.0 percent
despite the impact of significant cost-driven pricing actions taken
during the quarter.
- Operating income: Reported operating income in the quarter increased
27.1 percent from the prior year to $1.5 billion. Operating income
excluding items(1) increased 27.6 percent versus the prior year.
Operating income margin excluding items(1) increased to 15.3 percent
in second quarter 2008 from 14.5 percent in second quarter 2007.
The benefits of strong revenue growth and associated overhead cost
leverage, as well as a commodity hedging favorability, more than
offset significantly higher input costs and investments in product
quality, marketing and new products. Results include approximately
$150 million in gains from certain commodity hedging activities(1),
which will be offset in the second half of 2008.
- Tax rate: Kraft's reported tax rate in second quarter 2008 was
37.9 percent. Excluding items(1), the second quarter rate was
36.1 percent compared to 32.5 percent in second quarter 2007. The
second quarter rate is consistent with the company's full-year
guidance of 33.5 percent excluding items but reflected quarterly
timing of certain discrete items.
- Earnings per share: Second quarter 2008 reported earnings per share
were $0.48, up 9.1 percent from $0.44 in second quarter 2007.
During the quarter, the company incurred $0.05 per share in asset
impairment, exit, implementation and other costs, compared to $0.06
in the same quarter a year ago. The company also incurred $0.04 in
losses on the divestiture of certain biscuit assets that was
required as part of the company's LU biscuit acquisition.
Items(1) Affecting EPS Comparability
------------------------------------
Second Quarter
---------------------------------------
2008 2007 Growth (%)
------ ------- -----------
Reported EPS $0.48 $0.44 9.1%
Asset Impairment,
Exit, Implementation
And Other Costs 0.05 0.06
Loss on divestitures (0.04) (0.00)
------ --------
EPS excluding items $0.58* $0.50 16.0%
* Does not add due to rounding.
Second quarter 2008 earnings per share excluding items were $0.58, an
increase of 16.0 percent versus second quarter 2007. Compared to the prior
year, earnings per share excluding items reflected a $0.06 contribution from
operational gains, a $0.06 timing benefit from certain commodity hedging
activities, a $0.03 benefit from currency and a $0.03 contribution from lower
shares outstanding. These were partially offset by a $0.07 negative impact
from higher interest expense and a $0.03 negative impact from a higher tax
rate.
SECOND QUARTER 2008 RESULTS, DISCUSSION BY SEGMENT(2)
Q2 2008
(percent growth)
---------------------------------------------------
Operating
Organic Income
Net Net Operating Excluding
Revenues Revenues(1) Income Items(1)
--------- ------------- ---------- ------------
Total Kraft 21.4% 6.9% 27.1% 27.6%
North America 6.7 5.8 15.9 11.5
U.S. Beverages 0.1 3.4 6.8 5.7
U.S. Cheese 10.0 10.0 50.6 7.3
U.S. Convenient Meals 7.6 7.6 8.0 3.4
U.S. Grocery 4.5 4.5 10.1 5.2
U.S. Snacks & Cereals 5.1 5.1 16.3 13.9
Canada & N.A.
Foodservice 12.4 4.4 21.7 40.8
International 49.7 9.2 37.9 54.2
European Union 58.3 3.4 31.2 50.8
Developing Markets 37.5 17.1 44.1 58.7
U.S. Beverages
Organic net revenues grew 3.4 percent driven by solid growth in
ready-to-drink beverages, coffee and powdered beverages. Ready-to-drink
beverage growth in the quarter was driven by trade spending efficiency efforts
that were partially offset by a mid-single-digit volume decline. Growth in
coffee was attributable to the continued success of the Maxwell House restage
along with double-digit Tassimo growth, partially offset by weakness in
Gevalia premium coffee. Powdered beverage revenue grew in the quarter
primarily due to successful value-oriented consumer programs behind Kool-Aid.
Operating income excluding items increased 5.7 percent from the benefits of
price increases and trade spending efficiencies, lower marketing spending and
favorable product mix, partly offset by higher input costs and the impact of
lower volume.
U.S. Cheese
Organic net revenues grew 10.0 percent reflecting significant, cost-driven
price increases that were partially offset by lower volume. Volume and
product mix gains from new products such as Bagel-fuls, Singles Select
processed cheese slices and LiveActive cheeses were more than offset by volume
weakness related to pricing actions, particularly in the natural cheese
category. Operating income excluding items increased 7.3 percent in the
second quarter. Pricing and lower marketing and overhead expenses more than
offset the impact of higher input costs and lower volume.
U.S. Convenient Meals
Organic net revenues grew 7.6 percent driven by broad-based innovation and
marketing success that enabled volume growth, favorable product mix and price
increases. Key growth drivers in the quarter included DiGiorno Ultimate
pizza, Oscar Mayer Deli Fresh meats, Oscar Mayer Deli Creations sandwiches and
Oscar Mayer fully cooked bacon. Operating income excluding items increased
3.4 percent as the contribution from pricing, favorable product mix, and
volume growth more than offset input cost inflation.
U.S. Grocery
Organic net revenues grew 4.5 percent as price increases in several
categories more than offset lower volume and unfavorable product mix. Double
digit revenue growth from the relaunch of Kraft pourable salad dressings and
continued momentum of Kraft macaroni and cheese, as well as strong growth in
Jell-O dry packaged desserts, was partially offset by pricing-related volume
weakness in spoonable dressings such as Kraft mayonnaise and Miracle Whip.
Operating income excluding items increased 5.2 percent as pricing and overhead
savings more than offset higher input costs.
U.S. Snacks & Cereals
Organic net revenues grew 5.1 percent as pricing more than offset
unfavorable product mix and lower volume. Solid growth in biscuits and
pricing in snack nuts were partially offset by weakness in the snack bar
business. Within biscuits, innovation and higher marketing support led to
strong revenue gains in core brands such as Oreo, Chips Ahoy! and Ritz.
Biscuits revenue also benefited from the successful launch of Nilla Cakesters
as the company builds on its Cakesters snack cake platform. Revenue growth in
ready-to-eat cereal was driven by higher pricing and the continued strength of
Honey Bunches of Oats. Operating income excluding items increased 13.9
percent as the benefits of price increases and lower trade spending more than
offset the impact of higher input costs, including approximately $50 million
in realized gains from certain commodity hedging activities which will be
offset in the second half of 2008; lower volume; unfavorable product mix; and
higher marketing and overhead costs.
Canada & North America Foodservice
Organic net revenues grew 4.4 percent behind solid volume growth. Volume
gains were primarily driven by new product innovation and improved
go-to-market plans with key customers in Canada. In Foodservice, volume was
up slightly as successful customer programs offset the impact of slower
restaurant traffic. Operating income excluding items grew 40.8 percent from
favorable currency, volume growth and higher pricing which more than offset
higher input costs and marketing investments.
European Union
Organic net revenues grew 3.4 percent due to pricing actions combined with
favorable product mix, partially offset by a modest volume decline. Chocolate
grew at a double-digit rate due to strong volume growth from our focus on core
brands, as well as pricing actions to offset higher input costs. Coffee
declined due to volume softness resulting from pricing actions taken to offset
higher input costs. Cheese grew at a double-digit rate in the quarter driven
by pricing gains in the Philadelphia and Kraft brands. Operating income
excluding items grew 50.8 percent, or 7.9 percent excluding the contribution
from the addition of the LU biscuit business. The benefits of higher pricing,
favorable product mix and currency, net of higher input costs, also
contributed to operating income growth in the quarter.
Developing Markets
Organic net revenues grew 17.1 percent driven by strong gains in pricing
and product mix with modest volume growth. Every region delivered
double-digit organic net revenue growth in the quarter. Successful brand
investments and pricing drove growth across all key markets in the Eastern
Europe, Middle East & Africa region, particularly in the Ukraine. Growth in
the Latin America region was driven by pricing and favorable product mix,
particularly in the biscuits category in Argentina and Venezuela, and a one-
time value added tax credit in Brazil. Revenues in the Asia Pacific region
grew due to pricing gains and favorable product mix, particularly in biscuits
in China and Southeast Asia. Operating income excluding items increased 58.7
percent, including a 4.2 percentage point benefit from the acquisition of the
LU biscuit business. The primary drivers of the strong increase in operating
income in the quarter were volume gains, favorable product mix and pricing
that more than offset higher input costs and increased marketing investment.
Results also benefited from a one-time value added tax credit in Brazil.
2008 OUTLOOK(1)
Kraft has raised its outlook for 2008 organic net revenue growth to at
least 6 percent, up from a previous expectation of at least 5 percent as a
result of further pricing actions to offset rising input costs.
Additionally, the company now expects 2008 EPS of at least $1.54 per share
versus a previous expectation of at least $1.56 per share, reflecting
better-than-expected growth from operations, offset by the $0.04 loss on the
divestiture of certain biscuit assets.
Excluding items, the company raised its EPS guidance to at least $1.92
versus at least $1.90 previously to reflect better-than-expected growth from
operations.
The company continues to expect cumulative annualized savings from the
restructuring program to reach approximately $1.0 billion by year-end and $1.2
billion by the end of 2009. To date, cumulative annualized savings from this
cost restructuring program totaled approximately $927 million, up from
approximately $785 million at the end of 2007.
Also reflected in its guidance, the company reaffirmed that its 2008
full-year effective tax rate excluding items is expected to be 33.5 percent.
Company guidance does not reflect the impact of the pending split-off
transaction to merge the company's Post cereals business into Ralcorp
Holdings, Inc. The company expects to update its guidance following the
completion of this transaction.
CONFERENCE CALL
Kraft Foods will host a conference call for investors with accompanying
slides to review its results at 8 a.m. EDT on July 28, 2008. Access to a live
audio webcast with accompanying slides is available at http://www.kraft.com
and a replay of the event will be available on the company's web site.
ABOUT KRAFT FOODS INC.
For more than a century, Kraft (http://www.kraft.com) has offered
delicious foods and beverages that fit the way consumers live. Today, we are
turning the brands that consumers have lived with for years into brands they
can't live without. Millions of times a day in more than 150 countries,
consumers reach for their favorite Kraft brands, including nine with revenues
exceeding $1 billion: Kraft cheeses, dinners and dressings; Oscar Mayer meats;
Philadelphia cream cheese; Maxwell House coffee; Nabisco cookies and crackers
and its Oreo brand; Jacobs coffees; Milka chocolates; and LU biscuits. Kraft
is one of the world's largest food and beverage companies with annual revenues
exceeding $37 billion, more than 100,000 employees and more than 180
manufacturing and processing facilities globally. The company (NYSE: KFT) is a
member of the Standard & Poor's 500 index as well as the Dow Jones
Sustainability Index and Ethibel Sustainability Index.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements regarding our 2008
guidance, in particular, expected organic revenue growth and EPS; our
expectation that our business will continue to strengthen; that our
performance is exceeding our expectations; our belief that our investments are
driving stronger top-line growth; our expectation that our results will
improve year-over-year in the back half of 2008; our intent to continue to
reinvest in our brands and reduce our costs; our expectation that gains from
commodity hedging activity will be offset in the second half of 2008; and with
regard to our 2008 outlook, our expectation for cumulative annualized savings
related to our restructuring program, our full-year effective tax rate, our
expectation to split-off our Post cereals business and merge it and our
expectation to update guidance following completion of the transaction.
These forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially from those predicted in any such
forward-looking statements. Such factors, include, but are not limited to,
continued higher input costs, pricing actions, increased competition,
increased costs of sales, our ability to realize the expected cost savings and
spending from our planned restructuring program, unexpected safety or
manufacturing issues, unanticipated expenses such as litigation or legal
settlement expenses, our failure to consummate the Post merger, a shift in our
product mix to lower margin offerings, risks from operating internationally,
and tax law changes. For additional information on these and other factors
that could affect our forward-looking statements, see our filings with the
SEC, including our most recently filed Annual Report on Form 10-K/A and
subsequent reports on Forms 10-Q and 8-K. We disclaim and do not undertake
any obligation to update or revise any forward-looking statement in this press
release.
NON-GAAP FINANCIAL MEASURES
The company reports its financial results in accordance with generally
accepted accounting principles (GAAP). The company is presenting various
operating results, such as operating income, operating income margin,
effective tax rate, net earnings and EPS on both a reported basis and on a
basis excluding items that affect comparability of results. When the company
uses operating results, such as operating income, operating income margin,
effective tax rate, net earnings and EPS, excluding items, they are considered
non-GAAP financial measures. The term "items" includes asset impairment, exit
and implementation costs primarily related to a restructuring program that
began in the first quarter of 2004 (the "Restructuring Program"). These
restructuring charges include separation-related costs, asset write-downs, and
other costs related to the implementation of the Restructuring Program. Other
excluded items pertain to asset impairment charges on certain long-lived
assets, gains and losses on divestitures, interest from tax reserve transfers
from Altria Group, Inc., the favorable resolution of Altria Group, Inc.'s
1996-1999 IRS Tax Audit in 2006, and other one-time costs related to the
company's European Union segment reorganization.
Management believes that certain non-GAAP financial measures and
corresponding ratios provide additional meaningful comparisons between current
results and results in prior operating periods. More specifically, management
believes these non-GAAP financial measures reflect fundamental business
performance because they exclude certain items that affect comparability of
results.
The company's top-line guidance measure is organic net revenues, which
excludes the impact of acquisitions, divestitures and currency. The company
uses organic net revenues and corresponding growth ratios as non-GAAP
financial measures. Management believes this measure better reflects revenues
on a going-forward basis and provides improved comparability of results.
Management uses segment operating income and segment operating income
excluding items to evaluate segment performance and allocate resources.
Beginning in the second quarter of 2008, we began excluding unrealized gains
and losses on hedging activity from segment operating income in order to
provide better transparency of our segment operating results. Segment
operating income now excludes unrealized gains and losses on hedging activity
(which is a component of cost of sales), general corporate expenses and
amortization of intangibles for all periods presented. Management believes it
is appropriate to disclose this measure to help investors analyze segment
performance and trends.
See the attached schedules for supplemental financial data and
corresponding reconciliations to certain GAAP financial measures for the
quarters ended June 30, 2008, and June 30, 2007. Because GAAP financial
measures on a forward-looking basis are neither accessible nor deemed to be
significantly different, and reconciling information is not available without
unreasonable effort, with regard to the non-GAAP financial measures in our
2008 Outlook, we have not provided that information. Non-GAAP financial
measures should be viewed in addition to, and not as an alternative for, the
company's results prepared in accordance with GAAP. In addition, the non-GAAP
measures the company is using may differ from non-GAAP measures that other
companies use. A reconciliation of all non-GAAP measures to the nearest
comparable GAAP used in this earnings release can be found on the company's
web site, http://www.kraft.com.
(1) Please see discussion of Non-GAAP Financial Measures.
(2) Please refer to the company's Form 8-K filed April 11, 2008 for
discussion of changes to reportable business segments.
Schedule 1
----------
Kraft Foods Inc.
Condensed Statements of Earnings
For the Quarters Ended June 30,
(in millions, except per share data) (Unaudited)
As Reported Excluding Items
(GAAP) (1) (Non-GAAP) (1)
-------------------------- -------------------------
2008 2007 % Change 2008 2007 % Change
------ ------ ---------- ------ ------ ---------
Net revenues $11,176 $9,205 21.4% $11,176 $9,205 21.4%
Cost of sales 7,132 5,945 (20.0)% 7,137 5,920 (20.6)%
Gross profit 4,044 3,260 24.0% 4,039 3,285 23.0%
Marketing,
administration &
research costs 2,305 1,926 (19.7)% 2,281 1,901 (20.0)%
Asset impairment and
exit costs 103 107 3.7% - - -
(Gains) / losses on
divestitures, net 74 (8) (100.0+)% - - -
Amortization of
intangibles 4 4 - 4 4 -
General corporate
expenses 48 43 (11.6)% 48 43 (11.6)%
Operating income 1,510 1,188 27.1% 1,706 1,337 27.6%
Interest & other debt
expense, net 331 149 (100.0+)% 331 149 (100.0+)%
Earnings before income
taxes 1,179 1,039 13.5% 1,375 1,188 15.7%
Provision for income
taxes 447 332 (34.6)% 496 386 (28.5)%
Effective tax rate 37.9% 32.0% 36.1% 32.5%
Net earnings $732 $707 3.5% $879 $802 9.6%
Earnings per share:
Basic $0.49 $0.45 8.9% $0.58 $0.51 13.7%
Diluted $0.48 $0.44 9.1% $0.58 $0.50 16.0%
Average shares
outstanding:
Basic 1,508 1,587 1,508 1,587
Diluted 1,524 1,606 1,524 1,606
Gross margin 36.2% 35.4% 36.1% 35.7%
Operating income
margin 13.5% 12.9% 15.3% 14.5%
(1) Reconciliation of GAAP to Non-GAAP Condensed Statement of Earnings is
available at http://www.kraft.com.
Schedule 2
----------
Kraft Foods Inc.
Reconciliation of GAAP and Non-GAAP Information
Net Revenues
For the Quarters Ended June 30,
($ in millions) (Unaudited)
Impact
of
As Divest- Impact Impact Organic
Reported itures of of (Non-
(GAAP) /Other Acquisitions Currency (GAAP)
------ ------- ------------ -------- ------
2008 Reconciliation
--------------------
U.S. Beverages $789 $- $- $- $789
U.S. Cheese 972 - - - 972
U.S. Convenient Meals 1,089 - - - 1,089
U.S. Grocery 912 - - - 912
U.S. Snacks & Cereals 1,539 - (1) - 1,538
Canada & N.A. Foodservice 1,170 - - (87) 1,083
------ ------- ------------ -------- ------
North America $6,471 $- $(1) $(87) $6,383
------ ------- ------------ -------- ------
European Union 2,915 (28) (731) (298) 1,858
Developing Markets 1,790 - (137) (128) 1,525
------ ------- ------------ -------- ------
International $4,705 $(28) $(868) $(426) $3,383
------ ------- ------------ -------- ------
Kraft Foods $11,176 $(28) $(869) $(513) $9,766
====== ======= ============ ======== ======
2007 Reconciliation (as Restated)
--------------------------------
U.S. Beverages $788 $(25) $- $- $763
U.S. Cheese 884 - - - 884
U.S. Convenient Meals 1,012 - - - 1,012
U.S. Grocery 873 - - - 873
U.S. Snacks & Cereals 1,464 - - - 1,464
Canada & N.A. Foodservice 1,041 (4) - - 1,037
------ ------- ------------ -------- ------
North America $6,062 $(29) $- $- $6,033
------ ------- ------------ -------- ------
European Union 1,841 (44) - - 1,797
Developing Markets 1,302 - - - 1,302
------ ------- ------------ -------- ------
International $3,143 $(44) $- $- $3,099
------ ------- ------------ -------- ------
Kraft Foods $9,205 $(73) $- $- $9,132
====== ======= ============ ======== ======
% Change Organic Growth Drivers
----------------- --------------------------
As Organic
Reported (Non-
(GAAP) GAAP) Volume Mix Price
-------- ------- --------------------------
2008 Reconciliation
-------------------
U.S. Beverages 0.1% 3.4% (4.6)pp 2.0pp 6.0pp
U.S. Cheese 10.0% 10.0% (5.1) (0.3) 15.4
U.S. Convenient Meals 7.6% 7.6% 1.7 3.4 2.5
U.S. Grocery 4.5% 4.5% (1.8) (1.0) 7.3
U.S. Snacks & Cereals 5.1% 5.1% (1.7) (1.5) 8.3
Canada & N.A. Foodservice 12.4% 4.4% 4.4 (2.4) 2.4
-------- ------- ---------- ------- -----
North America 6.7% 5.8% (1.3) 0.2 6.9
-------- ------- ---------- ------- -----
European Union 58.3% 3.4% (2.2) 1.5 4.1
Developing Markets 37.5% 17.1% 1.1 3.6 12.4
-------- ------- ---------- ------- -----
International 49.7% 9.2% (0.4) 2.0 7.6
-------- ------- ---------- ------- -----
Kraft Foods 21.4% 6.9% (1.0)pp 0.7pp 7.2pp
======== ======= ========== ======= =====
Schedule 3
----------
Kraft Foods Inc.
Reconciliation of GAAP and Non-GAAP Information
Operating Income(1)
For the Quarters Ended June 30,
($ in millions) (Unaudited)
Asset Asset
Impairment, Impairments /
Exit and Other
As Implementation Expenses -
Reported Costs - Non-
(GAAP) Restructuring Restructuring
--------- --------------- --------------
2008 Reconciliation
-------------------
U.S. Beverages $141 $7 $-
U.S. Cheese 125 7 -
U.S. Convenient Meals 122 (1) -
U.S. Grocery 304 2 -
U.S. Snacks & Cereals 292 3 -
Canada & N.A. Foodservice 140 29 -
--------- --------------- --------------
North America $1,124 $47 $-
--------- --------------- --------------
European Union 164 43 1
Developing Markets 196 31 -
--------- --------------- --------------
International $360 $74 $1
--------- --------------- --------------
Unrealized G/(L) on Hedging
Activity 78 - -
Corporate Items (52) - -
--------- --------------- --------------
Kraft Foods $1,510 $121 $1
========= =============== ==============
2007 Reconciliation (as Restated)
---------------------------------
U.S. Beverages $132 $8 $-
U.S. Cheese 83 40 -
U.S. Convenient Meals 113 4 -
U.S. Grocery 276 15 -
U.S. Snacks & Cereals 251 8 -
Canada & N.A. Foodservice 115 5 -
--------- --------------- --------------
North America $970 $80 $-
--------- --------------- --------------
European Union 125 62 -
Developing Markets 136 15 -
--------- --------------- --------------
International $261 $77 $-
--------- --------------- --------------
Unrealized G/(L) on Hedging
Activity 4 - -
Corporate Items (47) - -
--------- --------------- --------------
Kraft Foods $1,188 $157 $-
========= =============== ==============
% Change
------------------------
(Gains) / Excluding Excluding
Losses on Items As Items
Divestitures, (Non- Reported (Non-
net GAAP) (GAAP) GAAP)
------------- -------- ------------ --------
2008 Reconciliation
-------------------
U.S. Beverages $- $148 6.8% 5.7%
U.S. Cheese - 132 50.6% 7.3%
U.S. Convenient Meals - 121 8.0% 3.4%
U.S. Grocery - 306 10.1% 5.2%
U.S. Snacks & Cereals - 295 16.3% 13.9%
Canada & N.A. Foodservice - 169 21.7% 40.8%
------------- -------- ------------ --------
North America $- $1,171 15.9% 11.5%
------------- -------- ------------ --------
European Union 74 282 31.2% 50.8%
Developing Markets - 227 44.1% 58.7%
------------- -------- ------------ --------
International $74 $509 37.9% 54.2%
------------- -------- ------------ --------
Unrealized G/(L) on
Hedging Activity - 78 100.0%+ 100.0%+
Corporate Items - (52) (10.6)% ( 10.6)%
------------- -------- ------------ --------
Kraft Foods $74 $1,706 27.1% 27.6%
============= ======== ============ ========
2007 Reconciliation (as Restated)
---------------------------------
U.S. Beverages $- $140
U.S. Cheese - 123
U.S. Convenient Meals - 117
U.S. Grocery - 291
U.S. Snacks & Cereals - 259
Canada & N.A. Foodservice - 120
------------- --------
North America $- $1,050
------------- --------
European Union - 187
Developing Markets (8) 143
------------- --------
International $(8) $330
------------- --------
Unrealized G/(L) on
Hedging Activity - 4
Corporate Items - (47)
------------- --------
Kraft Foods $(8) $1,337
============= ========
(1) Unrealized gains and losses on hedging activity are now excluded from
segment operating income in order to provide better transparency of
our segment operating results.
Schedule 4
----------
Kraft Foods Inc.
Condensed Statements of Earnings
For the Six Months Ended June 30,
(in millions, except per share data) (Unaudited)
As Reported Excluding Items
(GAAP) (1) (Non-GAAP) (1)
-------------------------- -------------------------
2008 2007 % Change 2008 2007 % Change
------ ------ ---------- ------ ------ ---------
Net revenues $21,548 $17,791 21.1% $21,548 $17,791 21.1%
Cost of sales 14,023 11,480 (22.2)% 14,014 11,450 (22.4)%
Gross profit 7,525 6,311 19.2% 7,534 6,341 18.8%
Marketing,
administration &
research costs 4,463 3,748 (19.1)% 4,432 3,707 (19.6)%
Asset impairment and
exit costs 183 174 (5.2)% - - -
(Gains) / losses on
divestitures, net 92 (20) (100.0+)% - - -
Amortization of
intangibles 11 6 (83.3)% 11 6 (83.3)%
General corporate
expenses 101 93 (8.6)% 101 93 (8.6)%
Operating income 2,675 2,310 15.8% 2,990 2,535 17.9%
Interest & other
debt expense, net 636 213 (100.0+)% 636 290 (100.0+)%
Earnings before
income taxes 2,039 2,097 (2.8)% 2,354 2,245 4.9%
Provision for income
taxes 699 688 (1.6)% 794 727 (9.2)%
Effective tax rate 34.3% 32.8% 33.7% 32.4%
Net earnings $1,340 $1,409 (4.9)% $1,560 $1,518 2.8%
Earnings per share:
Basic $0.89 $0.88 1.1% $1.03 $0.94 9.6%
Diluted $0.88 $0.87 1.1% $1.02 $0.94 8.5%
Average shares
outstanding:
Basic 1,513 1,607 1,513 1,607
Diluted 1,531 1,623 1,531 1,623
Gross margin 34.9% 35.5% 35.0% 35.6%
Operating income
margin 12.4% 13.0% 13.9% 14.2%
(1) Reconciliation of GAAP to Non-GAAP Condensed Statement of Earnings is
available at http://www.kraft.com.
Schedule 5
----------
Kraft Foods Inc.
Reconciliation of GAAP and Non-GAAP Information
Net Revenues
For the Six Months Ended June 30,
($ in millions) (Unaudited)
Impact
of
As Divest- Impact Impact Organic
Reported itures of of (Non-
(GAAP) /Other Acquisitions Currency (GAAP)
--------- ------ ------------ -------- ------
2008 Reconciliation
-------------------
U.S. Beverages $1,561 $- $- $- $1,561
U.S. Cheese 1,929 - - - 1,929
U.S. Convenient Meals 2,121 - - - 2,121
U.S. Grocery 1,704 - - - 1,704
U.S. Snacks & Cereals 2,969 - (6) - 2,963
Canada & N.A. Foodservice 2,220 - - (176) 2,044
--------- ------ ------------ -------- ------
North America $12,504 $- $(6) $(176) $12,322
--------- ------ ------------ -------- ------
European Union 5,634 (72) (1,304) (526) 3,732
Developing Markets 3,410 - (265) (240) 2,905
--------- ------ ------------ -------- ------
International $9,044 $(72) $(1,569) $(766) $6,637
--------- ------ ------------ -------- ------
Kraft Foods $21,548 $(72) $(1,575) $(942) $18,959
========= ====== ============ ======== ======
2007 Reconciliation (as Restated)
---------------------------------
U.S. Beverages $1,565 $(48) $- $- $1,517
U.S. Cheese 1,764 - - - 1,764
U.S. Convenient Meals 1,972 - - - 1,972
U.S. Grocery 1,654 - - - 1,654
U.S. Snacks & Cereals 2,860 (9) - - 2,851
Canada & N.A. Foodservice 1,949 (9) - - 1,940
--------- ------ ------------ -------- ------
North America $11,764 $(66) $- $- $11,698
--------- ------ ------------ -------- ------
European Union 3,591 (83) - - 3,508
Developing Markets 2,436 - - - 2,436
--------- ------ ------------ -------- ------
International $6,027 $(83) $- $- $5,944
--------- ------ ------------ -------- ------
Kraft Foods $17,791 $(149) $- $- $17,642
========= ====== ============ ======== ======
% Change Organic Growth Drivers
---------------- ---------------------------
As Organic
Reported (Non-
(GAAP) GAAP) Volume Mix Price
-------- ------- ---------------------------
2008 Reconciliation
-------------------
U.S. Beverages (0.3)% 2.9% (8.4)pp 5.8pp 5.5pp
U.S. Cheese 9.4% 9.4% (3.2) 0.5 12.1
U.S. Convenient Meals 7.6% 7.6% 2.2 3.2 2.2
U.S. Grocery 3.0% 3.0% (3.0) 0.1 5.9
U.S. Snacks & Cereals 3.8% 3.9% (0.6) (0.8) 5.3
Canada & N.A. Foodservice 13.9% 5.4% 3.5 (1.2) 3.1
-------- ------- ---------- -------- -----
North America 6.3% 5.3% (1.9) 1.6 5.6
-------- ------- ---------- -------- -----
European Union 56.9% 6.4% 1.7 1.8 2.9
Developing Markets 40.0% 19.3% 4.4 4.0 10.9
-------- ------- ---------- -------- -----
International 50.1% 11.7% 3.2 2.3 6.2
-------- ------- ---------- -------- -----
Kraft Foods 21.1% 7.5% (0.5)pp 2.2pp 5.8pp
======== ======= ========== ======== =====
Schedule 6
----------
Kraft Foods Inc.
Reconciliation of GAAP and Non-GAAP Information
Operating Income(1)
For the Six Months Ended June 30,
($ in millions) (Unaudited)
Asset Asset
Impairment, Impairments /
Exit and Other
As Implementation Expenses -
Reported Costs - Non-
(GAAP) Restructuring Restructuring
--------- --------------- --------------
2008 Reconciliation
-------------------
U.S. Beverages $278 $16 $-
U.S. Cheese 240 15 -
U.S. Convenient Meals 227 8 -
U.S. Grocery 544 7 -
U.S. Snacks & Cereals 466 13 -
Canada & N.A. Foodservice 251 39 -
--------- --------------- --------------
North America $2,006 $98 $-
--------- --------------- --------------
European Union 334 81 4
Developing Markets 344 40 -
--------- --------------- --------------
International $678 $121 $4
--------- --------------- --------------
Unrealized G/(L) on Hedging
Activity 103 - -
Corporate Items (112) - -
--------- --------------- --------------
Kraft Foods $2,675 $219 $4
========= =============== ==============
2007 Reconciliation (as Restated)
---------------------------------
U.S. Beverages $270 $11 $-
U.S. Cheese 232 52 -
U.S. Convenient Meals 220 15 -
U.S. Grocery 523 21 -
U.S. Snacks & Cereals 482 16 -
Canada & N.A. Foodservice 198 9 -
--------- --------------- --------------
North America $1,925 $124 $-
--------- --------------- --------------
European Union 243 99 -
Developing Markets 229 22 -
--------- --------------- --------------
International $472 $121 $-
--------- --------------- --------------
Unrealized G/(L) on Hedging
Activity 12 - -
Corporate Items (99) - -
--------- --------------- --------------
Kraft Foods $2,310 $245 $-
========= =============== ==============
% Change
------------------------
(Gains) / Excluding Excluding
Losses on Items As Items
Divestitures, (Non- Reported (Non-
net GAAP) (GAAP) GAAP)
------------- -------- ------------ --------
2008 Reconciliation
-------------------
U.S. Beverages $- $294 3.0% 4.6%
U.S. Cheese - 255 3.4% (10.2)%
U.S. Convenient Meals - 235 3.2% 0.0%
U.S. Grocery - 551 4.0% 1.3%
U.S. Snacks & Cereals - 479 (3.3)% (1.4)%
Canada & N.A. Foodservice - 290 26.8% 40.1%
------------- -------- ------------ --------
North America $- $2,104 4.2% 3.3%
------------- -------- ------------ --------
European Union 92 511 37.4% 49.4%
Developing Markets - 384 50.2% 58.0%
------------- -------- ------------ --------
International $92 $895 43.6% 53.0%
------------- -------- ------------ --------
Unrealized G/(L) on
Hedging Activity - 103 100.0%+ 100.0%+
Corporate Items - (112) (13.1)% (13.1)%
------------- -------- ------------ --------
Kraft Foods $92 $2,990 15.8% 17.9%
============= ======== ============ ========
2007 Reconciliation (as Restated)
---------------------------------
U.S. Beverages $- $281
U.S. Cheese - 284
U.S. Convenient Meals - 235
U.S. Grocery - 544
U.S. Snacks & Cereals (12) 486
Canada & N.A. Foodservice - 207
------------- --------
North America $(12) $2,037
------------- --------
European Union - 342
Developing Markets (8) 243
------------- --------
International $(8) $585
------------- --------
Unrealized G/(L) on
Hedging Activity - 12
Corporate Items - (99)
------------- --------
Kraft Foods $(20) $2,535
============= ========
(1) Unrealized gains and losses on hedging activity are now excluded from
segment operating income in order to provide better transparency of
our segment operating results.
Schedule 7
----------
Kraft Foods Inc. and Subsidiaries
Condensed Balance Sheets
($ in millions) (Unaudited)
June 30, December 31, June 30,
2008 2007 2007
----------- ------------ ---------
Assets
------
Cash & cash equivalents $708 $567 $419
Receivables, net 5,223 5,197 3,957
Inventory 4,846 4,096 4,033
Other current assets 897 877 749
Property, plant & equipment, net 11,464 10,778 9,802
Goodwill 30,497 31,193 25,516
Other intangible assets, net 13,840 12,200 10,060
Other assets 3,370 3,085 1,959
----------- ------------ ---------
Total assets $70,845 $67,993 $56,495
=========== ============ =========
Liabilities & Shareholders' Equity
----------------------------------
Short-term borrowings $2,217 $7,385 $5,016
Current portion of long-term debt 725 722 416
Due to Altria Group, Inc. - - 5
Accounts payable 3,541 4,065 2,599
Other current liabilities 5,347 4,914 4,230
Long-term debt 19,348 12,902 7,085
Deferred income taxes 5,675 4,876 3,919
Other long-term liabilities 6,042 5,834 5,749
----------- ------------ ---------
Total liabilities 42,895 40,698 29,019
Total shareholders' equity 27,950 27,295 27,476
----------- ------------ ---------
Total liabilities & shareholders'
equity $70,845 $67,993 $56,495
=========== ============ =========
SOURCE Kraft Foods Inc.
CONTACT: Media, Michael Mitchell, +1-847-646-4538, or Investors,
Christopher M. Jakubik, +1-847-646-5494, both of Kraft Foods Inc.
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