November 8, 2012 / 12:46 AM / 5 years ago

UPDATE 5-Kraft, Mondelez stand by 2013 forecasts

* Kraft’s third quarter EPS $0.79, revenue $4.61 bln

* Mondelez EPS $0.37, revenue $8.3 billion

* Mondelez cites executional issues in Brazil, Russia

By Martinne Geller

Nov 7 (Reuters) - Kraft Foods Group Inc and Mondelez International Inc both stood by their full-year 2013 forecasts on Wednesday in their first earnings reports as standalone companies following last month’s breakup.

Kraft, home to brands like Oscar Mayer lunch meat and Maxwell House coffee, said it was working to better tailor its product portfolio to a weak economy in North America, the only region in which it now operates.

Mondelez, a geographically diverse snack company with brands like Cadbury chocolate and Trident gum, said it had “short-term executional” issues in Brazil and Russia that hurt sales in the quarter. After taking steps to address them, Mondelez said it expects the issues to be resolved by the end of the year.

“Our revenue growth hit a bit of a speed bump in the third quarter,” said Mondelez Chief Financial Officer Dave Brearton. “But we fully expect it to rebound in (the fourth quarter) to mid-single-digit (growth).”

Mondelez said that in Brazil gum category sales slowed to about half their prior rate, but the company failed to slow its shipments in time, leading to retailers getting overstocked and reducing future orders. The company then pulled back on its marketing for biscuits, which ended up hurting sales in that category as well.

“Essentially, they robbed Peter to pay Paul,” said Chief Executive Irene Rosenfeld. “I would suggest that was a mistake, in hindsight, and we have since restored marketing support to previous levels.”

In Russia, the company did not lower prices on coffee and chocolate as fast as some competitors did after raising them to offset higher commodity costs. That led the company to lose some market share. Rosenfeld said that situation is fixed now as well.

Mondelez derives some 45 percent of sales from developing markets and saw a 6.6 percent hit from foreign exchange rates. Kraft is focused on slower-growing North America, and sees earnings growth limited by the spending power of U.S. consumers who face stubbornly high unemployment and slow economic growth.

In the weakened economy, Kraft said it must drive sales volume with more advertising and a greater range of products and prices, in what it calls a “good, better, best” strategy.

“You have to be able to offer price points and innovation in all segments,” said Kraft Chief Executive Tony Vernon on a conference call. He said specific areas needing improvement were Maxwell House coffee, Planters nuts and Jell-O.

“The economic environment has not improved and that creates a burning platform for Kraft, our customers and our industry,” Vernon said.

Shares of Mondelez were down 1 percent at $26 in after-hours trade. Shares of Kraft, which reported results on Wednesday morning, closed down 0.3 percent at $44.57 on the Nasdaq.


After adjustments related to the separation, Mondelez reported third-quarter earnings of 37 cents per share and revenue of $8.3 billion, which was down 5 percent and slightly short of analysts’ estimate of $8.66 billion, according to Thomson Reuters I/B/E/S.

“As we expected, our top-line growth this quarter was modest,” Rosenfeld said. Excluding the impact of currency exchange rates, revenue would have risen 1.5 percent.

Kraft said net income rose to $470 million, or 79 cents per share, from $417 million, or 70 cents per share, a year earlier.

Revenue increased 3 percent to $4.61 billion. Most of the increase came from volume gains and selling a more expensive mix of products, with a smaller contribution from price increases.

The company affirmed its 2013 outlook, calling for earnings of $2.60 per share and revenue growth in line with the rest of the North American food and beverage market.

Mondelez also stood by its forecast, which calls for earnings of $1.50 to $1.55 per share and revenue growth at the low end of a 5 to 7 percent range.

Kraft said revenue in the current, fourth quarter would be flat to down due to a comparison with the year-earlier period when retailers increased orders in advance of a price increase.

In addition, Kraft will lose sales from some products that it pruned from its portfolio.

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