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GLOBAL NEWS – Kraft Foods Group reports second quarter 2014 results

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NORTHFIELD, Ill. – Kraft Foods Group, Inc. yesterday announced financial results for the second quarter of 2014 that reflected the expected benefit from a shift in Easter-related shipments as well as the impacts of significant pricing actions in response to rising input costs.

“We continue to execute our playbook and are on track to deliver another solid year of growth in earnings and cash flow,” said Kraft CEO Tony Vernon.

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“However, there’s no question that economic and consumer trends are creating top-line growth challenges for the food and beverage industry, Kraft included. Our focus remains on driving profitable growth through brand renovation, innovation, impactful marketing and total cost management.”

Q2 2014 FINANCIAL SUMMARY

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Net revenues in the second quarter increased 0.7 percent to $4.7 billion.

– Organic Net Revenues increased 1.5 percent from improved volume/mix and pricing benefits of 0.9 percentage points and 0.6 percentage points, respectively.

– Revenue was favorably impacted by approximately 2.5 percentage points from Easter-related shipments shifting to the second quarter of this year. Excluding this factor, volumes were negatively impacted by significant price increases in response to higher input costs.

Operating income in the second quarter decreased 37.5 percent to $0.9 billion.

– Second quarter operating income last year included a $604 million benefit from market-based impacts to post-employment benefit plans.2

– Excluding this factor, operating income was up strongly, reflecting the benefits of lower spending on cost savings initiatives,3 lower expenditures on in-store activity, improved overhead costs and manufacturing productivity. These gains were partially offset by unfavorable pricing net of commodity costs as well as an unfavorable change in unrealized gains/losses from hedging activities.

Earnings per share in the second quarter were $0.80.

– EPS in the second quarter last year was $1.38, which included a $0.62 benefit from market-based impacts to post-employment benefit plans.

– Excluding this factor, EPS growth reflected an increase in operating income, partially offset by a higher year-over-year tax rate.

Free Cash Flow through six months was up 13.8 percent to $454 million.

– Lower pension contributions were the primary driver of the improvement in Free Cash Flow versus the first half of last year.

SECOND QUARTER BUSINESS SEGMENT HIGHLIGHTS

Beverages:

– Net revenues of $748 million were flat versus the prior year as volume gains driven by coffee and Capri Sun ready-to-drink beverages were offset by lower pricing caused by an increase in promotional spending versus prior year.

– Operating income declined 10.3 percent as the benefits of volume growth and lower spending on cost savings initiatives versus the prior year were more than offset by the impact of lower pricing.

Meals & Desserts:

– Net revenues of $518 million were 5.0 percent lower than the prior year, primarily driven by continued weakness in ready-to-eat Jell-O desserts and lower pricing due to increased promotional activity behind Kraft and Velveeta dinners.

– Operating income increased 3.1 percent versus the prior year due to favorable timing of marketing expenses versus the prior year and lower spending on cost savings initiatives, which were partially offset by unfavorable pricing net of commodity costs.

Enhancers & Snack Nuts:

– Net revenues of $600 million increased 1.4 percent from the prior year reflecting the benefit of the Easter shift as well as continued growth in Planters snack nuts.

– Operating income growth of 18.2 percent reflected lower manufacturing costs as well as lower expenditures on in-store activity.

Canada:

– Net revenues of $523 million declined 3.1 percent versus last year due to an unfavorable currency impact. Excluding the currency impact, Organic Net Revenue growth of 3.6 percent reflected Easter-related shipments shifting to the second quarter of this year driving a solid increase in volume/mix.

– Operating income declined 6.3 percent including an unfavorable currency impact. Excluding this factor, operating income was flat, reflecting favorable timing of marketing expenses versus the prior year and improved volume/mix that were offset by unfavorable pricing net of commodity costs.

Other Businesses:

– Net revenues of $490 million increased 6.1 percent from the prior year as a result of price increases to offset higher commodity costs.

– Operating income growth of 23.2 percent was driven by productivity gains and favorable pricing net of commodity costs.

Kraft Foods Group, Inc. (NASDAQ: KRFT) is one of North America’s largest consumer packaged food and beverage companies, with annual revenues of more than $18 billion.

The company’s brands include Kraft, Oscar Mayer, Velveeta, Planters, Philadelphia, Maxwell House, Lunchables, Capri Sun, Kool-Aid and Jell-O. Kraft has 22,500 employees in the U.S. and Canada

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