KRAFT FOODS REPORTS STRONG FOURTH QUARTER GROWTH

NORTHFIELD, Ill., Feb. 10, 2011 /PRNewswire/ -- Kraft Foods Inc. (NYSE: KFT) today reported fourth quarter and full year 2010 results that were driven primarily by strong volume/mix gains in each geography.

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“We delivered solid financial results in 2010, and finished the year with good momentum,” said Irene Rosenfeld, Chairman and CEO.  “We’re realizing the benefits of increased investments behind our Power Brands, strong productivity and disciplined cash management, while making good progress in capturing the synergies from the Cadbury acquisition.”  

Rosenfeld continued, “Looking ahead, we expect the operating environment to remain challenging, with significant input cost inflation and persistent consumer weakness in many markets.  Given our strong business fundamentals, however, we remain confident that we will deliver earnings growth in 2011 that’s both ahead of our long-term targets and within the top tier of our peer group.”

Kraft Foods North America

Net revenues increased 12.2 percent.  This included favorable impacts of 7.8 percentage points from the Cadbury acquisition and 0.6 percentage points from currency, partially offset by a negative 0.3 percentage point impact from divestitures.

Kraft Foods’ base business organic net revenues(1) grew 4.1 percent.  Growth was broad-based, with revenue increasing in nearly every business segment.  Volume/mix contributed 2.4 percentage points of the increase, reflecting the benefits from higher levels of merchandising activity and successful multi-brand marketing campaigns, such as Huddle to Fight Hunger.  Pricing in response to rising input costs accounted for 1.7 percentage points of the increase.

Combined Organic Net Revenues(1) increased 3.3 percent.  Power Brands grew approximately 5 percent, fueled by solid market share gains across several categories as well as double-digit growth in Maxwell House coffee, Planters nuts and Kraft Macaroni & Cheese dinners.  In addition, Oreo cookies, Capri Sun and Kool-Aid ready-to-drink beverages, Philadelphia cream cheese and Kraft Singles processed cheese each grew high-single-digits.

Cadbury organic net revenues(1) declined 6.1 percent reflecting lower sales of Trident and Stride gum, as well as a difficult comparison against strong shipments of Halls cough drops in the prior year quarter.  The decline was partially offset by double-digit growth of Dentyne gum and early shipments of new products.

Segment operating income declined 5.8 percent.  The addition of Cadbury had a favorable impact of 7.2 percentage points, including the impact of Integration Program costs, while currency added 0.5 percentage points to growth.  Excluding these factors, segment operating income declined largely due to a steep increase in input costs that more than offset the benefits of higher pricing, lower overheads, favorable volume/mix and productivity.

Kraft Foods Europe

Net revenues increased by 28.6 percent, including a 33.3 percentage point impact from the Cadbury acquisition and a negative 6.9 percentage point impact from currency.

Kraft Foods’ base business organic net revenues grew 2.2 percent, driven by volume/mix gains of 2.0 percentage points and 0.2 percentage points from pricing.  Net revenues increased in each major category.

• Chocolate grew low-single digits, driven by strong in-store marketing activities, promotional programs and the introduction of new products.  Toblerone and Milka each delivered high-single-digit growth.  
• Biscuits increased from strong growth of Power Brands, including double-digit growth by both Oreo and Belvita, while strong momentum in the chocobakery platform drove volume/mix gains.  These gains were partially offset by weak economic conditions, particularly in Benelux and Southern Europe, and lower pricing.  
• Coffee grew low-single digits, driven by higher pricing in response to higher input costs.  On-demand market expansion and increased brewer placement drove mid-teens growth in Tassimo.
• Cheese grew high-single digits, primarily reflecting a successful marketing campaign and new product launches of Philadelphia.

Combined Organic Net Revenues(1) increased 1.6 percent, driven by approximately 6 percent growth in Power Brands.  

Cadbury organic net revenues(1) were essentially flat, as solid growth in the UK was offset by weaker gum and candy markets in Southern Europe.

Segment operating income declined 27.7 percent, reflecting negative impacts of 101.3 percentage points from Integration Program costs and 6.4 percentage points from currency, while Cadbury operating earnings added 59.1 percentage points to growth.  Excluding these factors, segment operating income increased significantly, driven by lower overheads, productivity improvements and favorable volume/mix.  These gains were partially offset by sharply higher input costs.

Kraft Foods Developing Markets

Net revenues increased 73.5 percent, including a favorable impact of 61.0 percentage points from the Cadbury acquisition.  Currency had a negative 4.8 percentage point impact.

Kraft Foods’ base business organic net revenues(1) grew 17.3 percent, driven by 12.8 percentage points from volume/mix gains and 4.5 percentage points from pricing.  The volume/mix gains include a favorable 5.6 percentage point impact from accounting calendar changes for certain operations in Asia Pacific and Latin America.

• In Latin America, organic revenues grew more than 20 percent due to higher pricing and strong volume/mix gains, particularly in Brazil and the Andean countries.  Power Brands collectively grew more than 25 percent, led by Oreo cookies, Club Social crackers, Lacta chocolate and Tang powdered beverages.
• In Asia Pacific, organic revenues grew 30 percent due to strong volume/mix gains, particularly in China, Indonesia and the Philippines.  Power Brands collectively grew more than 50 percent, led by Oreo and Biskuat/Tiger cookies and Tang powdered beverages.
• Central and Eastern Europe, Middle East & Africa (CEEMA) organic revenues increased high single digits driven primarily by volume/mix gains, particularly in Ukraine, Russia, the Middle East and Africa.  Although economic conditions and category trends in the region remained weak, share gains in key markets and categories more than offset market weakness.  Power Brands collectively grew 8 percent, led by Tang powdered beverages and Milka chocolate.

Combined Organic Net Revenues(1) increased 13.6 percent, fueled by growth in Power Brands of approximately 18 percent.  The accounting calendar changes added 3.7 percentage points to the Combined Organic Net Revenues growth rate, while normalizing Cadbury trade inventories negatively impacted growth by approximately 0.5 percentage points.  

Cadbury organic net revenues(1) grew 6.7 percent, including a negative 1.4 percentage point impact from normalizing trade inventories.  Growth was driven by gains across all categories.  

Segment operating income more than doubled, reflecting a positive impact of 54.5 percentage points from the Cadbury acquisition, net of Integration Program costs, and a negative 15.2 percentage point impact from currency.  Excluding these factors, segment operating income grew substantially as strong volume/mix gains, higher pricing and lower overheads more than offset sharply higher input costs.

OUTLOOK

Kraft Foods’ outlook for 2011 reflects confidence in continuing its strong business momentum in a challenging environment of weak consumer and category growth as well as significant input cost inflation.

The company expects to deliver organic net revenue growth of at least 5 percent, or approximately 4 percent excluding the impact of accounting calendar changes, and Operating EPS growth of 11 to 13 percent.

CONFERENCE CALL

Kraft Foods will host a conference call for investors with accompanying slides to review its results at 5 p.m. EST today.  Access to a live audio webcast with accompanying slides is available at www.kraftfoodscompany.com, and a replay of the event will also be available on the company’s web site.

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.  Eleven of the company’s iconic brands -- including Cadbury, Jacobs, Kraft, LU, Maxwell House, Milka, Nabisco, Oreo, Oscar Mayer, Philadelphia and Trident -- 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 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 "expect," "goals," "plans," "believe," continue," "may," "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 growth; our strong momentum at end of 2010; our Cadbury synergies; the challenging operating environment; delivery of earnings growth in 2011 ahead of long-term targets and within the top tier of our peer group; and our confidence in continuing our strong business momentum.  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, continued volatility of, and sharp increase in, input costs, pricing actions, increased competition, risks from operating internationally, 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 the registration statement on Form S-4, as amended from time to time, filed by Kraft Foods in connection with the Cadbury offer, 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 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 because it excludes the volatility of currency, and the one-time impacts of acquisitions and divestitures from net revenues.

To reflect the impacts of a significant business combination, as defined by SEC Regulation S-X, the company uses Combined Organic Net Revenues as a top-line measure.  Accordingly, Combined Organic Net Revenues includes the impacts of significant acquisitions, and excludes the impacts of other acquisitions, divestitures and currency.  The company uses Combined Organic Net Revenues and corresponding growth ratios to reflect the organic growth rates for Kraft Foods’ base business and Cadbury.  On a year-to-date basis, the organic growth rate of Cadbury reflects growth from the date of acquisition, or February 2, 2010, through the end of the fourth quarter.  Similar to organic net revenues, management believes Combined Organic Net Revenues better reflects revenues on a going-forward basis of the combined business.

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 twelve months ended December 31, 2010 and 2009.  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) 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) Acquisition-related costs include transaction advisory fees, UK stamp taxes, and the impact of the Cadbury inventory revaluation.

(4) Excludes a negative $0.09 per share impact (full year) from acquisition-related financing fees, which include hedging and foreign currency impacts associated with the Cadbury acquisition and other fees associated with the Cadbury bridge facility.

(5) Excludes the negative $0.08 per share impact (full year) of the U.S. health care legislation on deferred taxes.

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SOURCE Kraft Foods