Kraft profit up on lower charges

CHICAGO (Reuters) - Kraft Foods Inc. (KFT.N) posted higher quarterly profit on Wednesday, helped by lower restructuring charges, a lower tax rate and higher sales, which offset rising ingredient costs.

The maker of Oreo Cookies, Crystal Light drink mixes and dozens of other products also said it expects margins to shrink in the second half of the year under the weight of higher costs and spending on new products to try to keep growing sales.

More than 50 percent of Kraft's North American sales come from businesses that are not gaining market share, an issue the company is trying to address with increased marketing and new product development.

"Less than half of our revenue is growing share and that is unacceptable," Irene Rosenfeld, chief executive, said during a conference call with analysts.

With its large, diversified mix of products, Kraft has successfully attracted a number of high-profile activist investors -- including Nelson Peltz and Carl Icahn, who both disclosed they have taken a stake in Kraft -- and Warren Buffett's Berkshire Hathaway Inc. (BRKa.N), which is reported to have taken a stake.

Kraft raised its expectation for sales for the year and left its forecast for earnings, excluding restructuring costs and other items, unchanged.

"It gives some confidence that they are going to be able to make it through this near-term headwind in terms of input costs" and still meet long-term plans for the company, Matt Arnold, analyst at Edward Jones, said of the company's earnings. He has a "buy" rating on the stock.

Kraft shares were down 7 cents at $32.68 on Wednesday on the New York Stock Exchange. The shares have traded in a 52-week range of $37.19, hit in June, to $29.95.

SHARE DOWN FROM PIZZA TO NUTS

Kraft said second-quarter profit was $707 million, or 44 cents a share, compared with $682 million, or 41 cents, a year earlier.

Excluding one-time items, earnings were 50 cents a share.

Analysts on average had forecast 47 cents a share, according to Reuters Estimates.

Kraft, which was spun off from Altria Group Inc. (MO.N) on March 30, has struggled with higher prices for ingredients like milk and wheat and falling market share in products like frozen pizza and nuts.

The company said it is planning to expand its European business, having said in July that it is in exclusive talks to buy the cookies and cereal snacks business of France's Danone (DANO.PA) for $7.2 billion.

Revenue rose 6.8 percent, to $9.21 billion, with 2.2 percentage points of the increase due to the weaker dollar, which boosts the value of international sales when they are reported in dollars on the company's income statement.

Volume, a measure of products sold that factors out currency and price fluctuations, fell 0.7 percent.

The company had a tax rate of 32.5 percent before one-time items in the second quarter, down from a tax rate of 33.4 percent a year earlier.

For the full year, the company forecast a tax rate of 33.5 percent, excluding items, down from 35.5 percent a year before, due to the resolution of outstanding tax issues as well as a change in the mix of earnings by country.

The company said it now expects sales to be up 4 percent or more, excluding the impact of currency, acquisitions and divestitures. That compares with its prior forecast of a 3 to 4 percent increase.

The forecast for earnings per share excluding items remained at $1.75 to $1.80. Analysts, on average, had forecast $1.80 a share, according to Reuters Estimates.

The company said it still is on track to spend $300 million to $400 million on new products and other growth initiatives, despite higher ingredient costs.

Through Tuesday, Kraft stock was down 8.3 percent this year, compared with a 1 percent increase for the Standard & Poor's packaged foods index .15GSPFOOD.

(Reporting by Brad Dorfman)