Kraft Beats Street, Raises Sales Guidance, But Margins Under Pressure

Kraft Foods reported 2Q net income increased 3.7% to $707 million, or $0.44/share, with adjusted EPS of $0.50 beating analysts' average estimate of $0.47. Revenues rose 6.8% to $9.21b, also topping analyst expectations. Organic net revenues increased 4.1%. Kraft raised its full-year organic revenue growth guidance to 4%-plus, from its previous forecast of 3% to 4%. Full-year EPS is now projected between $1.55 - $1.60, compared to $1.50 - $1.55 previously. Kraft maintained its adjusted EPS estimate of $1.75 - $1.80, compared to analysts' average estimate of $1.80. Gross margins fell 1.3% to 35.7% and operating margins declined 2.1% to 14.5%, as Kraft faced "significant increases in input costs" and increased spending on advertising. CEO Irene Rosenfeld warned "margins will show further decline in the second half of the year, but said, "it is critical that we invest now in order to lay the foundation for our future growth." During the quarter Kraft repurchased $2.0b of its common stock at an average price of $32.96/share. Its shares lost 0.7% to $32.75 on Tuesday.

Sources: Press release, MarketWatch
Commentary: Buffett Takes a Stake in Kraft • Kraft Foods Shares Rise On Reports of Icahn Stake, Peltz Meeting • Kraft's Danone Deal A Good One For Shareholders
Stocks/ETFs to watch: KFT. Competitors: GIS, DLM, K. ETFs: PRFG, XLP, UGE

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