Kraft Foods Inc KFT.O warned on Thursday that 2013 earnings for its standalone international snack company would likely be lower than some forecasts due to unfavorable foreign exchange rates.
Kraft is splitting next month into a snack company called Mondelez International and a North American grocery business with the Kraft name -- giving investors the option to bet on a fast growing snacks business or choose more stable dividends offered by selling groceries.
Mondelez, set to be a $36 billion company that generates 45 percent of its sales from developing markets and home to Cadbury chocolate, Oreo cookies and Trident gum, expects double-digit growth in operating earnings per share, excluding the impact of currency, over the long-term.
But due to its large international footprint, the recent weakening of various currencies versus the U.S. dollar will likely result in a 15-cent-per-share hit to earnings next year, Kraft said in its first official forecast for Mondelez.
For 2013, Mondelez expects to earn $1.50 to $1.55 per share -- below some analysts' forecasts and helping send Kraft's shares 1.4 percent lower in after-hours trade.
It expects revenue growth of 5 to 7 percent in the long term but next year is likely to see it come in at the lower end of the range, due to a smaller contribution from price increases.
"That is the prime reason for being potentially at the lower end in the near-term," said Irene Rosenfeld, Kraft's current chief executive, who will lead Mondelez, in an interview.
She said easing coffee prices meant Mondelez is likely to lower prices of its coffee, which include the popular Maxwell House brand. Maxwell House in the United States will stay with Kraft, but Mondelez will sell it overseas.
Mondelez also noted the gum business has been very hard hit by the economy. Executives said people chew a lot of gum while at work, or on their way to work, and that if they are working less, they chew gum less.
"That is a business where they've struggled for some time, and it will be interesting to see whether their plans bear fruit, even absent an improvement in the economy," said Morningstar analyst Erin Lash.
Mondelez's priorities for cash allocation include investing in its existing business by bringing its products to new markets and developing new products. The company is also open to tack-on acquisitions, Rosenfeld said, that could increase scale or its portfolio.
Following the meeting of Mondelez executives with investors on Thursday, Kraft Foods executives will meet with investors on Friday. The smaller Kraft Foods Group will be concentrated in North America, with brands like Oscar Mayer lunch meat and Velveeta cheese.
The spin-off is planned for October 1.
Kraft shares fell to $41.71 in after-hours trade, from their close at $42.32 on the Nasdaq.
(Editing by Diane Craft, Tim Dobbyn and Edwina Gibbs)