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Chocolate earnings climb 9 per cent for Kraft; gum growth flat

By Jane Byrne , 05-Aug-2011

Kraft, in its second quarter results, reports continuing challenges ahead for its gum and candy division in developed markets, and claims the Cadbury takeover is a fundamental earnings driver, with its global chocolate earnings up 9 per cent.

Net revenues for the food giant were $13.9bn, up 13.3 per cent. Kraft Foods North America posted earnings increase of 2.5 per cent while Kraft Foods Europe “continued to generate strong top- and bottom-line momentum in the quarter” to show a hike in revenues of 26.2 per cent.

Net revenues in developing markets jumped 22.3 per cent, added the Illinois based group.

Kraft CEO, Irene Rosenfeld, in a conference call on the results said the 6 per cent growth recorded for its global snacks division “is right in line “with the growth target of mid- to high-single digits target laid out last autumn.”

The global snacks business will be independent of high-margin North American grocery business, following on from the decision announced by Kraft in tandem with posting its Q2 results, that it is splitting the company into separate entities.

Cadbury

“Many of you have asked if the Cadbury acquisition is driving the growth we thought it would. The answer is an unqualified yes,” stressed the Kraft boss.

Rosenfeld notes that global chocolate category is up about 9 per cent, including gains of low to mid-teens in developing markets.

“Our $1bn Cadbury Dairy Milk brand, first introduced in 1905 and now sold in 30 countries around the world, has grown 13 per cent, [this] gives some perspective [as] that's the best growth in many years,” she remarked.

Lacta, a $700m brand in Latin America is up 18 per cent, continued Rosenfeld, and Cadbury Flake, “a leading brand in many hot weather markets” is up 13 per cent, she notes.

The CEO adds that even its gum & candy category, which has experienced significant challenges, had a high single-digit gain in developing markets.

Gum & candy

Rosenfeld said, though, that revenues in gum & candy are down double digits in North America and are flat in Europe.

“While we're certainly not satisfied with our gum results, we expected a slow first half due to two factors - first, sluggishness in the instant consumption channel as a result of the challenging macro economy - specifically the decline in pocket money among teens, our biggest consumer segment.

And second, our new products this year were simply not as robust as we had hoped or as strong as last year's innovations.”

She stressed that Kraft understands the issues and that it is in the process of finding remedies for its gum brands along the lines of “additional innovation and smaller-pack sizes to hit lower price points.”

Gum and confectionery, stressed Rosenfeld, remains an attractive category “with excellent long-term growth prospects.” She added that it expects to see better results “as the year progresses.”

Biscuits business

Meanwhile, the Kraft boss reports that earnings for its global biscuits business are up 7 per cent on a constant currency basis, “led by strong double-digit growth in developing markets.”

Oreo, a $1.5bn brand has grown 22 per cent. Chips Ahoy!, a brand sold primarily in developed markets is up 18 per cent and Club Social, our leading cracker brand in Latin America, is up 35 per cent, reveals the company.

Kraft, in its Q2 filing, increased its expectations for organic net revenue growth from at least 4 per cent to at least 5 per cent.

"We've raised our 2011 guidance to reflect our strong operating results and favorable currency through the first half," said David Brearton, said executive VP 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."

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