Cadbury integration hangover hits Kraft revenues

11-Feb-2011 - Last updated on 11-Feb-2011 at 13:45 GMT

Related tags Kraft foods Revenue Kraft

Despite robust overall growth, Kraft is still suffering from costs associated with its £11.5bn Cadbury purchase, according to the US giant's full-year accounts.

Overall organic revenue (which excludes mergers, takeovers, acquisitions and borrowing) grew 3.5%, but Kraft suffered a 26.2% negative impact on net revenue from the Cadbury acquisition in the fourth quarter of 2010 alone, compared with Q4 2009.

High sugar, corn and cocoa costs also hit results, as the multi-national producer of Philadelphia, Oreo and Kraft Singles suffered a slump in net income to US $540m in Q4.

Sluggish chocolate sales

Within Europe, Kraft’s net revenues increased 28.6% in 2010 against the previous 12 months, but the US giant suffered a 33.3% hit from the Cadbury acquisition and lost 6.9% due to currency impacts.

The firm saw net revenue increases across all major categories: despite sluggish low single-digit growth in European chocolate (driven by in-store marketing, promotional programmes and new products), Toblerone and Milka each delivered high single-digit growth.

Solid UK growth was offset by weaker gum and candy markets in Southern Europe, Kraft said, while Cadbury operating income declined 101%, principally due to integration and currency costs.

In response to a question from Diane Geissler, analyst, CSLA on whether lower UK gum sales were due to a strategy change, or tough business conditions allied with the introduction of new products, Kraft chairman and CEO Irene Rosenfeld said: "We do need to act to stimulate gum in a number of key markets, and we did suffer some erosion of market share in the UK."

During the same call Rosenfeld said Kraft was "realising the benefits of increased investments" in its so-called 'Power brands', and two of these - Oreo and Belvita - both saw double-digit growth as a result, also benefiting from what the firm described as “strong momentum” in the choco-bakery market.

However, Kraft said these gains were partially offset by weak economic conditions in the Benelux countries and Southern Europe and lower prices.

Coffee also performed modestly, with higher prices for customers reflecting increased input costs, although Tassimo cofee T-disc sales were an exception, with “increased brewer placement” driving mid-teen growth; cheese also saw high single-digit growth as a result of marketing and new Philadelphia lines.

Power brands deliver Stateside

In the US Kraft's organic net revenues grew 4.1%, with higher prices (reflecting higher inputs) accounting for 1.7% of this figure, and merchandising and multi-brand marketing campaigns, such as ‘Huddle to Fight Hunger’ (which saw Kraft donate ready meals to hinger-relief charity Feeding America) also responsible.

Power brands delivered growth of around 5% in the US, with double-digit increase in sales of Maxwell House coffee, Planters nuts and Kraft Macaroni & Cheese Dinners; Oreo, Capri Sun, Kool-Aid, Philadelphia and Kraft Singles (processed cheese) grew in high single digits.

But Cadbury sales also took a hit in the US (6.1% down), due to lower sales of Trident and Stride gum and Halls cough drops, partially offset by double-digit growth in Dentyne gum and new product releases.

Kraft said it anticipates net revenue growth of at least 5% during 2011, despite input cost inflation.

Said Rosenfeld: "We expect the operating environment to remain challenging, with significant input cost inflationand persistent consumer weakness in many markets... [but] ... we remain confident that we will deliver 2011 earnings growth both ahead of our long-term targets and within the top tier of our peer group."