Kraft Foods Reports Strong Q2 Results, Raises 2011 Guidance
NORTHFIELD, Ill., Aug. 4, 2011 /PRNewswire via COMTEX/ -- Kraft Foods Inc. (NYSE: KFT) today reported strong second quarter revenue growth in each geography. This strong top-line increase, coupled with aggressive cost management, also fueled solid operating income growth.
"Our second quarter results reflect the benefits of our virtuous cycle," said Irene Rosenfeld, Chairman and CEO. "Consumers are responding well to our investments in marketing and innovation, and our focus on End-to-End Cost Management is paying off. As a result, we're successfully managing higher input costs through pricing and productivity, and we're well-positioned to continue our momentum and take the next step in our transformation."
Net revenues for the second quarter were $13.9 billion, up 13.3 percent, including a 2.1 percentage point benefit from accounting calendar changes(2). Organic Net Revenues grew 7.1 percent, driven by robust growth in all geographies. Pricing, which accounted for 5.5 percentage points of growth, was up strongly in each geography as pricing actions announced earlier in the year continued to be implemented. Market share performance was solid despite the company's pricing actions. Volume/mix contributed 1.6 percentage points to growth, including an approximately 1.5 percentage point benefit from the shift of Easter-related shipments into the quarter.
Operating income was $1.8 billion, and operating income margin was 13.0 percent. Underlying Operating Income, which excludes acquisition-related(3) and Integration Program(4) costs, grew 4.4 percent to $1.9 billion. Pricing essentially offset the impact of higher raw material costs, excluding the unrealized losses on hedging activities. The increase in Underlying Operating Income(1) was driven by the impact of favorable currency, volume/mix gains, lower overheads and the benefit of accounting calendar changes. Unrealized losses on hedging activities and the impact from the Starbucks CPG business(5) tempered income growth in the quarter. Underlying Operating Income margin declined 120 basis points from peak levels in the prior year quarter to 14.0 percent, essentially due to the negative impact of pricing on the margin calculation.
Diluted earnings per share were $0.55. Operating EPS(1) increased 3.3 percent to $0.62, driven primarily by currency and operating gains (including the benefit from accounting calendar changes), partially offset by unrealized losses from hedging activities.
Pricing and Focused Investments Drove North America's Performance
Broad-based pricing and focused investments in Power Brands and new products drove strong revenue growth and solid operating income performance in Kraft Foods North America.
Net revenues increased 2.5 percent. Organic Net Revenues(1) increased 4.0 percent, led by higher pricing across each business segment. Higher pricing was partially offset by lower volume/mix, including an Easter shift benefit of approximately 1.5 percentage points, which was consistent with the company's expectations. Power Brands grew approximately 4 percent.
Segment operating income declined 4.0 percent, including a negative 3.1 percentage point impact from the Starbucks CPG business and a 0.6 percentage point impact from Integration Program costs. Excluding these factors, segment operating income was essentially flat versus peak profitability levels in the prior year quarter. This performance reflected the benefits of pricing and lower SG&A offsetting higher raw material costs and lower volume/mix.
Strong Revenue and Operating Income Growth Continued in Europe
Kraft Foods Europe continued to generate strong top- and bottom-line momentum in the quarter.
Net revenues increased 26.2 percent, including a favorable 6.3 percentage point impact from accounting calendar changes. Organic Net Revenues increased 6.4 percent, including an approximately 2.5 percentage point benefit from the Easter shift. Power Brands grew nearly 8 percent.
Segment operating income increased 23.9 percent. Currency added 12.5 percentage points to growth, and was partially offset by a negative 4.6 percentage point impact from Integration Program costs. Excluding these factors, the strong increase in segment operating income was driven by lower SG&A and the benefit of accounting calendar changes, while pricing and productivity fully offset the increase in raw material costs in the quarter.
Strong Broad-Based Growth in Developing Markets
Kraft Foods Developing Markets drove strong top- and bottom-line growth across each region.
Net revenues increased 22.3 percent, including a favorable 2.3 percentage point impact from accounting calendar changes. Organic Net Revenues(1) grew 13.5 percent, driven by strong volume/mix growth and favorable pricing. Power Brands grew nearly 20 percent. The Easter shift benefited growth by approximately 0.5 percentage points. The Latin America and Asia Pacific regions each grew double-digits, while the CEEMA(6) region grew nearly 10 percent behind improving economic conditions.
Segment operating income increased 20.7 percent, including a favorable 17.2 percentage point impact from currency and a negative 4.1 percentage points from Integration Program and acquisition-related costs. Excluding these factors, the increase in segment operating income was driven by higher pricing and volume/mix gains, partially offset by higher input costs, a double-digit increase in advertising and consumer support and higher overheads.
OUTLOOK
The company increased its expectations for organic net revenue growth from at least 4 percent to at least 5 percent, and Operating EPS from at least $2.20 to at least $2.25.
"We've raised our 2011 guidance to reflect our strong operating results and favorable currency through the first half," said David Brearton, Executive Vice President and CFO. "Despite rising input costs and a volatile economic environment, aggressive cost management coupled with strong revenue growth gives us confidence that we will deliver top-tier performance for the year."
CONFERENCE CALL
In a separate news release issued today, Kraft Foods announced that its Board of Directors intends to create two independent public companies: A high-growth global snacks business and a high-margin North American grocery business. The company will host a conference call for investors to discuss this transaction and to review its second quarter results at 8 a.m. EDT today. Access to a live audio webcast with accompanying slides is available at http://www.kraftfoodscompany.com/, and a replay of the event will also be available on the company's website.
ABOUT KRAFT FOODS
Northfield, Ill.-based Kraft Foods Inc. (NYSE: KFT) is a global snacks powerhouse with an unrivaled portfolio of brands people love. Proudly marketing delicious biscuits, confectionery, beverages, cheese, grocery products and convenient meals in approximately 170 countries, Kraft Foods had 2010 revenue of $49.2 billion, more than half of which was earned outside North America. Twelve of the company's iconic brands -- including Cadbury, Jacobs, Kraft, LU, Maxwell House, Milka, Nabisco, Oreo, Oscar Mayer, Philadelphia, Trident and Tang -- generate revenue of more than $1 billion annually, and 40 have been loved for more than a century. A leader in innovation, marketing, health & wellness and sustainability, Kraft Foods is a member of the Dow Jones Industrial Average, Standard & Poor's 500, Dow Jones Sustainability Index and Ethibel Sustainability Index. For more information, visit http://www.kraftfoodscompany.com/ and www.facebook.com/kraftfoodscorporate.
FORWARD-LOOKING STATEMENTS
This press release contains a number of forward-looking statements. Words, and variations of words such as "believe," continue," "expect," "will," and similar expressions are intended to identify our forward-looking statements, including but not limited to, our outlook for Organic Net Revenue growth and Operating EPS; our momentum and the next step in our transformation; Starbucks' actions; our Outlook, including, continued cost management and strong revenue growth; and our intention to create two independent companies. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause our actual results to differ materially from those indicated in our forward-looking statements. Such factors include, but are not limited to, our failure to successfully separate the company, continued volatility of and increases in input costs, pricing actions, increased competition, continued consumer weakness, weakness in economic conditions and tax law changes. Please also see our risk factors, as they may be amended from time to time, set forth in our filings with the SEC, including our most recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. Kraft Foods disclaims and does not undertake any obligation to update or revise any forward-looking statement in this press release, except as required by applicable law or regulation.
NON-GAAP FINANCIAL MEASURES
The company reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP").
The company's top-line measure is organic net revenues, which excludes the impacts of acquisitions, divestitures (including the Starbucks CPG business), currency and accounting calendar changes. The company uses organic net revenues and corresponding ratios as non-GAAP financial measures. Management believes this measure better reflects revenues on a going-forward basis and provides improved comparability of results because it excludes the volatility of currency, and the one-time impacts of acquisitions, divestitures and accounting calendar changes from net revenues.
The company uses underlying operating income, which is defined as operating income excluding costs related to: the Integration Program; and acquisition-related costs, including transaction advisory fees, U.K. stamp taxes and the impact of the Cadbury inventory revaluation. The company uses underlying operating income and corresponding ratios as non-GAAP financial measures. Management believes this measure better reflects operating income on a going-forward basis and provides improved comparability of results because it excludes certain impacts related to the Cadbury acquisition from operating income.
The company uses Operating EPS, which is defined as diluted EPS attributable to Kraft Foods from continuing operations excluding costs related to: the Integration Program; acquisition-related costs, including transaction advisory fees, U.K. stamp taxes and the impact of the Cadbury inventory revaluation; acquisition-related financing fees; and the impact of a deferred tax charge resulting from the recently enacted U.S. health care legislation. Management believes this measure better reflects earnings per share on a going-forward basis and provides improved comparability of results because it excludes certain impacts related to the Cadbury acquisition and other one-time impacts from earnings per share.
See the attached schedules for supplemental financial data and corresponding reconciliations of the non-GAAP financial measures referred to above to the most comparable GAAP financial measures for the three and six months ended June 30, 2011 and 2010. 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 used by other companies. Because GAAP financial measures on a forward-looking basis are neither accessible nor deemed to be significantly different from the non-GAAP financial measures, and reconciling information is not available without unreasonable effort, with regard to the non-GAAP financial measures in the company's Outlook, the company has not provided that information.
SEGMENT OPERATING INCOME
Management uses segment operating income to evaluate segment performance and allocate resources. The company believes it is appropriate to disclose this measure to help investors analyze segment performance and trends. Segment operating income excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), certain components of its U.S. pension plan cost (which is a component of cost of sales and marketing, administration and research costs), general corporate expenses (which are a component of marketing, administration and research costs) and amortization of intangibles for all periods presented. The company centrally manages pension plan funding decisions and determination of discount rate, expected rate of return on plan assets and other actuarial assumptions. Therefore, the company allocates only the service cost component of its U.S. pension plan expense to segment operating income. The company excludes the unrealized gains and losses on hedging activities from segment operating income to provide better transparency of its segment operating results. Once realized, the company records the gains and losses on hedging activities within segment operating results. Accordingly, the company does not present these items by segment because they are excluded from the segment profitability measure that management reviews.
(1)Please see discussion of Non-GAAP Financial Measures at the end of this press release.
(2)In the second quarter of 2011, Kraft Foods changed the consolidation date for certain operations of its Europe and Developing Markets segments, resulting in favorable impacts to net revenues of approximately $360 million (or $316 million excluding the effect of foreign currency) and to operating income of approximately $50 million (or $44 million excluding the effect of foreign currency).
(3)Acquisition-related costs include transaction advisory fees, UK stamp taxes, and the impact of the Cadbury inventory revaluation.
(4)Integration Program costs are defined as the costs associated with combining the Kraft Foods and Cadbury businesses, and are separate from those costs associated with the acquisition.
(5)Effective March 1, 2011, Starbucks unilaterally took control of the sale and distribution of the packaged coffee business in grocery stores and other channels by terminating its agreements with Kraft Foods and in a manner that Kraft Foods believes violates the terms of those agreements.
(6)Central and Eastern Europe, Middle East and Africa
|
Kraft Foods Inc. and Subsidiaries |
|||||||
|
Condensed Consolidated Statements of Earnings |
|||||||
|
For the Three Months Ended June 30, |
Schedule 1 |
||||||
|
(in millions of dollars, except per share data) (Unaudited) |
|||||||
|
As Reported (GAAP) |
|||||||
|
2011 |
2010 |
% Change |
|||||
|
Net revenues |
$ 13,878 |
$ 12,253 |
13.3% |
||||
|
Cost of sales |
9,007 |
7,559 |
(19.2)% |
||||
|
Gross profit |
4,871 |
4,694 |
3.8% |
||||
|
Gross profit margin |
35.1% |
38.3% |
|||||
|
Selling, general and administrative expenses |
3,008 |
2,933 |
(2.6)% |
||||
|
Amortization of intangibles |
57 |
60 |
5.0% |
||||
|
Operating income |
1,806 |
1,701 |
6.2% |
||||
|
Operating income margin |
13.0% |
13.9% |
|||||
|
Interest and other expense, net |
441 |
439 |
(0.5)% |
||||
|
Earnings from continuing operations before income taxes |
1,365 |
1,262 |
8.2% |
||||
|
Provision for income taxes |
389 |
323 |
(20.4)% |
||||
|
Effective tax rate |
28.5% |
25.6% |
|||||
|
Earnings from continuing operations |
$ 976 |
$ 939 |
3.9% |
||||
|
Earnings from discontinued operations, net of income taxes |
- |
- |
- |
||||
|
Net earnings |
$ 976 |
$ 939 |
3.9% |
||||
|
Noncontrolling interest |
- |
2 |
100.0% |
||||
|
Net earnings attributable to Kraft Foods |
$ 976 |
$ 937 |
4.2% |
||||
|
Per share data: |
|||||||
|
Basic earnings per share attributable to Kraft Foods: |
|||||||
|
- Continuing operations |
$ 0.55 |
$ 0.54 |
1.9% |
||||
|
- Discontinued operations |
- |
- |
- |
||||
|
- Net earnings attributable to Kraft Foods |
$ 0.55 |
$ 0.54 |
1.9% |
||||
|
Diluted earnings per share attributable to Kraft Foods: |
|||||||
|
- Continuing operations |
$ 0.55 |
$ 0.53 |
3.8% |
||||
|
- Discontinued operations |
- |
- |
- |
||||
|
- Net earnings attributable to Kraft Foods |
$ 0.55 |
$ 0.53 |
3.8% |
||||
|
Average shares outstanding: |
|||||||
|
Basic |
1,764 |
1,747 |
(1.0)% |
||||
|
Diluted |
1,771 |
1,752 |
(1.1)% |
||||
|
Kraft Foods Inc. and Subsidiaries |
|||||||||||||||||||
|
Reconciliation of GAAP to Non-GAAP Information |
|||||||||||||||||||
|
Net Revenues |
|||||||||||||||||||
|
For the Three Months Ended June 30, |
Schedule 2 |
||||||||||||||||||
|
($ in millions) (Unaudited) |
|||||||||||||||||||
|
% Change |
Organic Growth Drivers |
||||||||||||||||||
|
As Reported (GAAP) |
Impact of Divestitures (1) |
Impact of Accounting Calendar Changes |
Impact of Currency |
Organic (Non-GAAP) |
As Reported (GAAP) |
Organic |
Vol/Mix |
Price |
|||||||||||
|
2011 |
|||||||||||||||||||
|
U.S. Beverages |
$ 779 |
$ - |
$ - |
$ - |
$ 779 |
(12.1)% |
2.2% |
(5.0)pp |
7.2pp |
||||||||||
|
U.S. Cheese |
875 |
- |
- |
- |
875 |
9.8% |
10.3% |
1.1 |
9.2 |
||||||||||
|
U.S. Convenient Meals |
881 |
- |
- |
- |
881 |
5.0% |
5.0% |
(1.0) |
6.0 |
||||||||||
|
U.S. Grocery |
973 |
- |
- |
- |
973 |
5.4% |
5.4% |
(0.1) |
5.5 |
||||||||||
|
U.S. Snacks |
1,510 |
- |
- |
- |
1,510 |
(0.4)% |
(0.4)% |
(3.0) |
2.6 |
||||||||||
|
Canada & N.A. Foodservice |
1,300 |
- |
- |
(51) |
1,249 |
8.3% |
4.5% |
(0.6) |
5.1 |
||||||||||
|
Kraft Foods North America |
$ 6,318 |
$ - |
$ - |
$ (51) |
$ 6,267 |
2.5% |
4.0% |
(1.5) |
5.5 |
||||||||||
|
Kraft Foods Europe |
3,525 |
- |
(226) |
(376) |
2,923 |
26.2% |
6.4% |
0.8 |
5.6 |
||||||||||
|
Kraft Foods Developing Markets |
4,035 |
- |
(90) |
(260) |
3,685 |
22.3% |
13.5% |
8.1 |
5.4 |
||||||||||
|
Kraft Foods |
$ 13,878 |
$ - |
$ (316) |
$ (687) |
$ 12,875 |
13.3% |
7.1% |
1.6pp |
5.5pp |
||||||||||
|
2010 |
|||||||||||||||||||
|
U.S. Beverages |
$ 886 |
$ (124) |
$ - |
$ - |
$ 762 |
||||||||||||||
|
U.S. Cheese |
797 |
(4) |
- |
- |
793 |
||||||||||||||
|
U.S. Convenient Meals |
839 |
- |
- |
- |
839 |
||||||||||||||
|
U.S. Grocery |
923 |
- |
- |
- |
923 |
||||||||||||||
|
U.S. Snacks |
1,516 |
- |
- |
- |
1,516 |
||||||||||||||
|
Canada & N.A. Foodservice |
1,200 |
(5) |
- |
- |
1,195 |
||||||||||||||
|
Kraft Foods North America |
$ 6,161 |
$ (133) |
$ - |
$ - |
$ 6,028 |
||||||||||||||
|
Kraft Foods Europe |
2,793 |
- |
(45) |
- |
2,748 |
||||||||||||||
|
Kraft Foods Developing Markets |
3,299 |
(38) |
(14) |
- |
3,247 |
||||||||||||||
|
Kraft Foods |
$ 12,253 |
$ (171) |
$ (59) |
$ - |
$ 12,023 |
||||||||||||||
|
(1) Impact of divestitures includes Starbucks CPG business. |
|||||||||||||||||||
|
Kraft Foods Inc. and Subsidiaries |
||||||||||||||||||||||
|
Operating Income by Reportable Segments |
||||||||||||||||||||||
|
For the Three Months Ended June 30, |
Schedule 3 |
|||||||||||||||||||||
|
($ in millions) (Unaudited) |
||||||||||||||||||||||
|
2010 Impacts |
2011 Impacts |
|||||||||||||||||||||
|
2010 Operating Income - As Reported (GAAP) |
Acquisition- Related Costs (1) |
Integration Program Costs (2) |
Impact of Divestitures (3) |
Impact of Accounting Calendar Changes |
Integration Program Costs (2) |
Impact of Accounting Calendar Changes |
Impact of Currency |
Operations |
2011 Operating Income - As Reported (GAAP) |
% Change |
||||||||||||
|
Segment Operating Income: |
||||||||||||||||||||||
|
U.S. Beverages |
$ 178 |
$ - |
$ - |
$ (36) |
$ - |
$ - |
$ - |
$ - |
$ (4) |
$ 138 |
(22.5)% |
|||||||||||
|
U.S. Cheese |
136 |
- |
- |
- |
- |
- |
- |
- |
7 |
143 |
5.1% |
|||||||||||
|
U.S. Convenient Meals |
101 |
- |
- |
- |
- |
- |
- |
- |
(2) |
99 |
(2.0)% |
|||||||||||
|
U.S. Grocery |
357 |
- |
- |
- |
- |
- |
- |
- |
22 |
379 |
6.2% |
|||||||||||
|
U.S. Snacks |
240 |
- |
5 |
- |
- |
(8) |
- |
- |
(45) |
192 |
(20.0)% |
|||||||||||
|
Canada & N.A. Foodservice |
175 |
- |
2 |
(1) |
- |
(6) |
- |
11 |
7 |
188 |
7.4% |
|||||||||||
|
Kraft Foods North America |
$ 1,187 |
$ - |
$ 7 |
$ (37) |
$ - |
$ (14) |
$ - |
$ 11 |
$ (15) |
$ 1,139 |
(4.0)% |
|||||||||||
|
Kraft Foods Europe |
335 |
- |
33 |
- |
(8) |
(58) |
34 |
46 |
33 |
415 |
23.9% |
|||||||||||
|
Kraft Foods Developing Markets |
429 |
(2) |
32 |
(2) |
(2) |
(55) |
10 |
79 |
29 |
518 |
20.7% |
|||||||||||
|
Unrealized G/(L) on Hedging Activities |
22 |
- |
- |
- |
- |
- |
- |
- |
(122) |
(100) |
||||||||||||
|
HQ Pension |
(25) |
- |
- |
- |
- |
- |
- |
- |
(19) |
(44) |
||||||||||||
|
General Corporate Expenses |
(187) |
12 |
77 |
- |
- |
(9) |
- |
(3) |
45 |
(65) |
||||||||||||
|
Amortization of Intangibles |
(60) |
- |
- |
- |
- |
- |
- |
(6) |
9 |
(57) |
||||||||||||
|
Kraft Foods |
$ 1,701 |
$ 10 |
$ 149 |
$ (39) |
$ (10) |
$ (136) |
$ 44 |
$ 127 |
$ (40) |
$ 1,806 |
6.2% |
|||||||||||
|
(1) Acquisition-related costs include transaction advisory fees, U.K. stamp taxes and the impact of the Cadbury inventory revaluation. |
||||||||||||||||||||||
|
(2) Integration Program costs are defined as the costs associated with combining the Kraft Foods and Cadbury businesses, and are separate from those costs associated with the acquisition. |
||||||||||||||||||||||
|
(3) Impact of divestitures includes Starbucks CPG business. |
||||||||||||||||||||||
|
Kraft Foods Inc. and Subsidiaries |
||||||||
|
Reconciliation of GAAP to Non-GAAP Information |
||||||||
|
Operating Income |
||||||||
|
For the Three Months Ended June 30, |
Schedule 4 |
|||||||
|
(in millions) (Unaudited) |
||||||||
|
As Reported (GAAP) |
Integration Program Costs (1) |
Acquisition-Related Costs (2) |
Underlying |
|||||
|
2011 |
||||||||
|
Net Revenues |
$ 13,878 |
$ - |
$ - |
$ 13,878 |
||||
|
Operating Income |
$ 1,806 |
$ 136 |
$ - |
$ 1,942 |
||||
|
Operating Income Margin |
13.0% |
14.0% |
||||||
|
2010 |
||||||||
|
Net Revenues |
$ 12,253 |
$ - |
$ - |
$ 12,253 |
||||
|
Operating Income |
$ 1,701 |
$ 149 |
$ 10 |
$ 1,860 |
||||
|
Operating Income Margin |
13.9% |
15.2% |
||||||
|
(1) |
Integration Program costs are defined as the costs associated with combining the Kraft Foods and Cadbury businesses, and are separate from those costs associated with the acquisition. |
|
|
(2) |
Acquisition-related costs include transaction advisory fees, U.K. stamp taxes and the impact of the Cadbury inventory revaluation. |
|
|
Kraft Foods Inc. and Subsidiaries |
||||
|
Reconciliation of GAAP to Non-GAAP Information |
||||
|
Diluted EPS |
Schedule 5 |
|||
|
(Unaudited) |
||||
|
Diluted EPS |
% Growth |
|||
|
Diluted EPS Attributable to Kraft Foods for the Three |
||||
|
Months Ended June 30, 2010 (GAAP) |
$ 0.53 |
|||
|
Earnings and gain from discontinued operations, net of income taxes |
- |
|||
|
Diluted EPS Attributable to Kraft Foods from continuing |
||||
|
operations for the Three Months Ended June 30, 2010 (GAAP) |
0.53 |
|||
|
Acquisition-related costs(1) |
0.01 |
|||
|
Integration Program costs(2) |
0.06 |
|||
|
Operating EPS for the Three Months Ended June 30, 2010 (Non-GAAP) |
0.60 |
|||
|
Increases in operations |
0.03 |
|||
|
Increase in operating income from accounting calendar changes |
0.01 |
|||
|
Decrease in operating income from divestitures (including Starbucks |
||||
|
CPG business) |
(0.01) |
|||
|
Change in unrealized gains/losses on hedging activities |
(0.05) |
|||
|
Favorable foreign currency |
0.05 |
|||
|
Changes in taxes |
(0.01) |
|||
|
Higher interest and other expense, net(3) |
- |
|||
|
Higher shares outstanding |
- |
|||
|
Operating EPS for the Three Months Ended June 30, 2011 (Non-GAAP) |
0.62 |
3.3% |
||
|
Integration Program costs(2) |
(0.07) |
|||
|
Diluted EPS Attributable to Kraft Foods for the Three |
||||
|
Months Ended June 30, 2011 (GAAP) |
$ 0.55 |
3.8% |
||
|
(1) |
Acquisition-related costs include transaction advisory fees, U.K. stamp taxes and the impact of the Cadbury inventory revaluation. |
|
|
(2) |
Integration Program costs are defined as the costs associated with combining the Kraft Foods and Cadbury businesses, and are separate from those costs associated with the acquisition. Integration Program costs were $136 million, or $120 million after-tax including certain tax costs associated with the integration of Cadbury, for the three months ended June 30, 2011, as compared to $149 million, or $108 million after-tax for the three months ended June 30, 2010. |
|
|
(3) |
Excludes impacts of acquisition-related interest and other expense, net. |
|
|
Kraft Foods Inc. and Subsidiaries |
|||||||
|
Condensed Consolidated Statements of Earnings |
|||||||
|
For the Six Months Ended June 30, |
Schedule 6 |
||||||
|
(in millions of dollars, except per share data) (Unaudited) |
|||||||
|
As Reported (GAAP) |
|||||||
|
2011 |
2010 |
% Change |
|||||
|
Net revenues |
$ 26,451 |
$ 23,571 |
12.2% |
||||
|
Cost of sales |
16,944 |
14,788 |
(14.6)% |
||||
|
Gross profit |
9,507 |
8,783 |
8.2% |
||||
|
Gross profit margin |
35.9% |
37.3% |
|||||
|
Selling, general and administrative expenses |
5,941 |
5,783 |
(2.7)% |
||||
|
Amortization of intangibles |
114 |
93 |
(22.6)% |
||||
|
Operating income |
3,452 |
2,907 |
18.7% |
||||
|
Operating income margin |
13.1% |
12.3% |
|||||
|
Interest and other expense, net |
887 |
1,063 |
16.6% |
||||
|
Earnings from continuing operations before income taxes |
2,565 |
1,844 |
39.1% |
||||
|
Provision for income taxes |
787 |
656 |
(20.0)% |
||||
|
Effective tax rate |
30.7% |
35.6% |
|||||
|
Earnings from continuing operations |
$ 1,778 |
$ 1,188 |
49.7% |
||||
|
Earnings from discontinued operations, net of income taxes |
- |
48 |
(100.0)% |
||||
|
Gain on divestiture of discontinued operations, net of income taxes |
- |
1,596 |
(100.0)% |
||||
|
Net earnings |
$ 1,778 |
$ 2,832 |
(37.2)% |
||||
|
Noncontrolling interest |
3 |
12 |
75.0% |
||||
|
Net earnings attributable to Kraft Foods |
$ 1,775 |
$ 2,820 |
(37.1)% |
||||
|
Per share data: |
|||||||
|
Basic earnings per share attributable to Kraft Foods: |
|||||||
|
- Continuing operations |
$ 1.01 |
$ 0.70 |
44.3% |
||||
|
- Discontinued operations |
- |
0.98 |
(100.0)% |
||||
|
- Net earnings attributable to Kraft Foods |
$ 1.01 |
$ 1.68 |
(39.9)% |
||||
|
Diluted earnings per share attributable to Kraft Foods: |
|||||||
|
- Continuing operations |
$ 1.01 |
$ 0.70 |
44.3% |
||||
|
- Discontinued operations |
- |
0.97 |
(100.0)% |
||||
|
- Net earnings attributable to Kraft Foods |
$ 1.01 |
$ 1.67 |
(39.5)% |
||||
|
Average shares outstanding: |
|||||||
|
Basic |
1,759 |
1,681 |
(4.6)% |
||||
|
Diluted |
1,766 |
1,686 |
(4.7)% |
||||
|
Kraft Foods Inc. and Subsidiaries |
||||||||||||||||||||||
|
Reconciliation of GAAP to Non-GAAP Information |
||||||||||||||||||||||
|
Net Revenues |
||||||||||||||||||||||
|
For the Six Months Ended June 30, |
Schedule 7 |
|||||||||||||||||||||
|
($ in millions) (Unaudited) |
||||||||||||||||||||||
|
% Change |
Organic Growth Drivers |
|||||||||||||||||||||
|
As Reported (GAAP) |
Impact of Divestitures (1) |
Impact of Acquisitions (2) |
Impact of Accounting Calendar Changes |
Impact of Currency |
Organic (Non-GAAP) |
As Reported (GAAP) |
Organic (Non-GAAP) |
Vol/Mix |
Price |
|||||||||||||
|
2011 |
||||||||||||||||||||||
|
U.S. Beverages |
$ 1,600 |
$ (87) |
$ - |
$ - |
$ - |
$ 1,513 |
(6.3)% |
3.1% |
(3.2)pp |
6.3pp |
||||||||||||
|
U.S. Cheese |
1,749 |
- |
- |
- |
- |
1,749 |
6.5% |
7.1% |
1.4 |
5.7 |
||||||||||||
|
U.S. Convenient Meals |
1,673 |
- |
- |
- |
- |
1,673 |
4.0% |
4.0% |
(1.3) |
5.3 |
||||||||||||
|
U.S. Grocery |
1,767 |
- |
- |
- |
- |
1,767 |
1.6% |
1.6% |
(3.3) |
4.9 |
||||||||||||
|
U.S. Snacks |
3,002 |
- |
(76) |
- |
- |
2,926 |
3.2% |
0.6% |
(1.0) |
1.6 |
||||||||||||
|
Canada & N.A. Foodservice |
2,463 |
(4) |
(41) |
- |
(92) |
2,326 |
9.8% |
4.1% |
(1.0) |
5.1 |
||||||||||||
|
Kraft Foods North America |
$ 12,254 |
$ (91) |
$ (117) |
$ - |
$ (92) |
$ 11,954 |
3.4% |
3.1% |
(1.3) |
4.4 |
||||||||||||
|
Kraft Foods Europe |
6,541 |
- |
(201) |
(226) |
(364) |
5,750 |
18.9% |
5.4% |
1.4 |
4.0 |
||||||||||||
|
Kraft Foods Developing Markets |
7,656 |
- |
(379) |
(90) |
(352) |
6,835 |
23.1% |
11.6% |
6.2 |
5.4 |
||||||||||||
|
Kraft Foods |
$ 26,451 |
$ (91) |
$ (697) |
$ (316) |
$ (808) |
$ 24,539 |
12.2% |
5.9% |
1.3pp |
4.6pp |
||||||||||||
|
2010 |
||||||||||||||||||||||
|
U.S. Beverages |
$ 1,707 |
$ (239) |
$ - |
$ - |
$ - |
$ 1,468 |
||||||||||||||||
|
U.S. Cheese |
1,642 |
(9) |
- |
- |
- |
1,633 |
||||||||||||||||
|
U.S. Convenient Meals |
1,609 |
- |
- |
- |
- |
1,609 |
||||||||||||||||
|
U.S. Grocery |
1,739 |
- |
- |
- |
- |
1,739 |
||||||||||||||||
|
U.S. Snacks |
2,908 |
- |
- |
- |
- |
2,908 |
||||||||||||||||
|
Canada & N.A. Foodservice |
2,244 |
(10) |
- |
- |
- |
2,234 |
||||||||||||||||
|
Kraft Foods North America |
$ 11,849 |
$ (258) |
$ - |
$ - |
$ - |
$ 11,591 |
||||||||||||||||
|
Kraft Foods Europe |
5,502 |
- |
- |
(45) |
- |
5,457 |
||||||||||||||||
|
Kraft Foods Developing Markets |
6,220 |
(80) |
- |
(18) |
- |
6,122 |
||||||||||||||||
|
Kraft Foods |
$ 23,571 |
$ (338) |
$ - |
$ (63) |
$ - |
$ 23,170 |
||||||||||||||||
|
(1) Impact of divestitures includes Starbucks CPG business. |
||||||||||||||||||||||
|
(2) Impact of acquisitions reflects the incremental January 2011 operating results from our Cadbury acquisition. |
||||||||||||||||||||||
|
Kraft Foods Inc. and Subsidiaries |
||||||||||||||||||||||||||
|
Operating Income by Reportable Segments |
||||||||||||||||||||||||||
|
For the Six Months Ended June 30, |
Schedule 8 |
|||||||||||||||||||||||||
|
($ in millions) (Unaudited) |
||||||||||||||||||||||||||
|
2010 Impacts |
2011 Impacts |
|||||||||||||||||||||||||
|
2010 Operating Income - As Reported (GAAP) |
Acquisition-Related Costs (1) |
Integration Program Costs (2) |
Impact of Divestitures (3) |
Impact of Accounting Calendar Changes |
Impact of Acquisitions (4) |
Integration Program Costs (2) |
Impact of Divestitures (3) |
Impact of Accounting Calendar Changes |
Impact of Currency |
Operations |
2011 Operating Income - As Reported (GAAP) |
% Change |
||||||||||||||
|
Segment Operating Income: |
||||||||||||||||||||||||||
|
U.S. Beverages |
$ 350 |
$ - |
$ - |
$ (68) |
$ - |
$ - |
$ - |
$ 13 |
$ - |
$ - |
$ 4 |
$ 299 |
(14.6)% |
|||||||||||||
|
U.S. Cheese |
270 |
- |
- |
(1) |
- |
- |
- |
- |
- |
- |
8 |
277 |
2.6% |
|||||||||||||
|
U.S. Convenient Meals |
185 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
19 |
204 |
10.3% |
|||||||||||||
|
U.S. Grocery |
643 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
28 |
671 |
4.4% |
|||||||||||||
|
U.S. Snacks |
447 |
5 |
3 |
- |
- |
12 |
(15) |
- |
- |
- |
(67) |
385 |
(13.9)% |
|||||||||||||
|
Canada & N.A. Foodservice |
275 |
2 |
3 |
(1) |
- |
14 |
(7) |
2 |
- |
18 |
33 |
339 |
23.3% |
|||||||||||||
|
Kraft Foods North America |
$ 2,170 |
$ 7 |
$ 6 |
$ (70) |
$ - |
$ 26 |
$ (22) |
$ 15 |
$ - |
$ 18 |
$ 25 |
$ 2,175 |
0.2% |
|||||||||||||
|
Kraft Foods Europe |
624 |
23 |
34 |
- |
(8) |
24 |
(109) |
- |
34 |
50 |
51 |
723 |
15.9% |
|||||||||||||
|
Kraft Foods Developing Markets |
788 |
25 |
32 |
(3) |
(2) |
53 |
(90) |
- |
10 |
73 |
37 |
923 |
17.1% |
|||||||||||||
|
Unrealized G/(L) on Hedging Activities |
(16) |
- |
- |
- |
- |
18 |
- |
- |
- |
- |
(40) |
(38) |
||||||||||||||
|
HQ Pension |
(81) |
- |
- |
- |
- |
- |
- |
- |
- |
- |
(5) |
(86) |
||||||||||||||
|
General Corporate Expenses |
(485) |
215 |
120 |
- |
- |
(2) |
(19) |
- |
- |
(3) |
43 |
(131) |
||||||||||||||
|
Amortization of Intangibles |
(93) |
- |
- |
- |
- |
(18) |
- |
- |
- |
(6) |
3 |
(114) |
||||||||||||||
|
Kraft Foods |
$ 2,907 |
$ 270 |
$ 192 |
$ (73) |
$ (10) |
$ 101 |
$ (240) |
$ 15 |
$ 44 |
$ 132 |
$ 114 |
$ 3,452 |
18.7% |
|||||||||||||
|
(1) Acquisition-related costs include transaction advisory fees, U.K. stamp taxes and the impact of the Cadbury inventory revaluation. |
||||||||||||||||||||||||||
|
(2) Integration Program costs are defined as the costs associated with combining the Kraft Foods and Cadbury businesses, and are separate from those costs associated with the acquisition. |
||||||||||||||||||||||||||
|
(3) Impact of divestitures includes Starbucks CPG business. |
||||||||||||||||||||||||||
|
(4) Impact of acquisitions reflects the incremental January 2011 operating results from our Cadbury acquisition. |
||||||||||||||||||||||||||
|
Kraft Foods Inc. and Subsidiaries |
||||||||
|
Reconciliation of GAAP to Non-GAAP Information |
||||||||
|
Operating Income |
||||||||
|
For the Six Months Ended June 30, |
Schedule 9 |
|||||||
|
(in millions) (Unaudited) |
||||||||
|
As Reported (GAAP) |
Integration Program Costs (1) |
Acquisition-Related Costs (2) |
Underlying |
|||||
|
2011 |
||||||||
|
Net Revenues |
$ 26,451 |
$ - |
$ - |
$ 26,451 |
||||
|
Operating Income |
$ 3,452 |
$ 240 |
$ - |
$ 3,692 |
||||
|
Operating Income Margin |
13.1% |
14.0% |
||||||
|
2010 |
||||||||
|
Net Revenues |
$ 23,571 |
$ - |
$ - |
$ 23,571 |
||||
|
Operating Income |
$ 2,907 |
$ 192 |
$ 270 |
$ 3,369 |
||||
|
Operating Income Margin |
12.3% |
14.3% |
||||||
|
(1) |
Integration Program costs are defined as the costs associated with combining the Kraft Foods and Cadbury businesses, and are separate from those costs associated with the acquisition. |
|
|
(2) |
Acquisition-related costs include transaction advisory fees, U.K. stamp taxes and the impact of the Cadbury inventory revaluation. |
|
|
Kraft Foods Inc. and Subsidiaries |
|||||||
|
Reconciliation of GAAP to Non-GAAP Information |
|||||||
|
Diluted EPS |
Schedule 10 |
||||||
|
(Unaudited) |
|||||||
|
Diluted EPS |
% Growth |
||||||
|
Diluted EPS Attributable to Kraft Foods for the Six |
|||||||
|
Months Ended June 30, 2010 (GAAP) |
$ 1.67 |
||||||
|
Earnings and gain from discontinued operations, net of income taxes |
0.97 |
||||||
|
Diluted EPS Attributable to Kraft Foods from continuing |
|||||||
|
operations for the Six Months Ended June 30, 2010 (GAAP) |
0.70 |
||||||
|
Acquisition-related costs(1) |
0.14 |
||||||
|
Acquisition-related interest and other expenses, net(2) |
0.10 |
||||||
|
Integration Program costs(3) |
0.08 |
||||||
|
U.S. health care legislation impact on deferred taxes(4) |
0.08 |
||||||
|
Operating EPS for the Six Months Ended June 30, 2010 (Non-GAAP) |
1.10 |
||||||
|
Increases in operations |
0.06 |
||||||
|
Increases from operations from the Cadbury acquisition(5) |
0.04 |
||||||
|
Increase in operating income from accounting calendar changes |
0.01 |
||||||
|
Decrease in operating income from divestitures (including Starbucks |
|||||||
|
CPG business) |
(0.02) |
||||||
|
Change in unrealized losses on hedging activities |
(0.01) |
||||||
|
Favorable foreign currency |
0.05 |
||||||
|
Changes in taxes(6) |
(0.01) |
||||||
|
Higher interest and other expense, net(7) |
(0.03) |
||||||
|
Higher shares outstanding |
(0.05) |
||||||
|
Operating EPS for the Six Months Ended June 30, 2011 (Non-GAAP) |
1.14 |
3.6% |
|||||
|
Integration Program costs(3) |
(0.13) |
||||||
|
Diluted EPS Attributable to Kraft Foods for the Six |
|||||||
|
Months Ended June 30, 2011 (GAAP) |
$ 1.01 |
(39.5)% |
|||||
|
(1) |
Acquisition-related costs include transaction advisory fees, U.K. stamp taxes and the impact of the Cadbury inventory revaluation. |
|
|
(2) |
Acquisition-related interest and other expenses, net includes hedging and foreign currency impacts associated with the Cadbury acquisition and other fees associated with the Cadbury bridge facility. |
|
|
(3) |
Integration Program costs are defined as the costs associated with combining the Kraft Foods and Cadbury businesses, and are separate from those costs associated with the acquisition. Integration Program costs were $240 million, or $234 million after-tax including certain tax costs associated with the integration of Cadbury, for the six months ended June 30, 2011, as compared to $192 million, or $138 million after-tax for the six months ended June 30, 2010. |
|
|
(4) |
Reflects the impact of a deferred tax charge resulting from U.S. health care legislation enacted in March 2010. |
|
|
(5) |
Reflects the incremental January 2011 operating results from our Cadbury acquisition. |
|
|
(6) |
Excludes the impacts of the 2010 U.S. health care legislation impact on deferred taxes. |
|
|
(7) |
Excludes impacts of acquisition-related interest and other expense, net. |
|
|
Kraft Foods Inc. and Subsidiaries |
||||||
|
Condensed Consolidated Balance Sheets |
Schedule 11 |
|||||
|
($ in millions) (Unaudited) |
||||||
|
June 30, |
December 31, |
June 30, |
||||
|
2011 |
2010 (1) |
2010 (2) |
||||
|
ASSETS |
||||||
|
Cash and cash equivalents |
$ 2,267 |
$ 2,481 |
$ 2,854 |
|||
|
Receivables, net |
6,830 |
6,539 |
5,613 |
|||
|
Inventories, net |
6,414 |
5,310 |
5,167 |
|||
|
Other current assets |
1,985 |
1,891 |
1,582 |
|||
|
Property, plant and equipment, net |
14,216 |
13,792 |
12,974 |
|||
|
Goodwill |
39,063 |
37,856 |
36,539 |
|||
|
Intangible assets, net |
26,509 |
25,963 |
25,415 |
|||
|
Other assets |
1,743 |
1,457 |
1,914 |
|||
|
TOTAL ASSETS |
$ 99,027 |
$ 95,289 |
$ 92,058 |
|||
|
LIABILITIES AND EQUITY |
||||||
|
Short-term borrowings |
$ 1,242 |
$ 750 |
$ 291 |
|||
|
Current portion of long-term debt |
4,918 |
1,115 |
636 |
|||
|
Accounts payable |
5,308 |
5,409 |
4,906 |
|||
|
Other current liabilities |
8,812 |
8,619 |
8,120 |
|||
|
Long-term debt |
23,420 |
26,859 |
29,108 |
|||
|
Deferred income taxes |
7,993 |
7,984 |
7,688 |
|||
|
Accrued pension costs |
1,836 |
2,382 |
2,488 |
|||
|
Accrued postretirement health care costs |
3,001 |
3,046 |
2,898 |
|||
|
Other liabilities |
3,386 |
3,183 |
2,613 |
|||
|
TOTAL LIABILITIES |
59,916 |
59,347 |
58,748 |
|||
|
TOTAL EQUITY |
39,111 |
35,942 |
33,310 |
|||
|
TOTAL LIABILITIES AND EQUITY |
$ 99,027 |
$ 95,289 |
$ 92,058 |
|||
|
(1) Certain revisions were made to conform with the current-year presentation. |
||||||
|
(2) As revised to reflect purchase price allocation changes from the Cadbury acquisition. |
||||||
SOURCE: Kraft Foods Inc.