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Kraft Foods Inc. (NYSE: KFT) took its turn reporting earnings today, and it was yet another case of rising commodity costs impacting the bottom line at a food company. Third-quarter profit at the largest food and beverage manufacturer in the U.S. hit $596 million, or 38 cents per share, a 20% drop from year-ago results of $748 million, or 45 cents per share. Company officials cited rising dairy costs, as well as investments in new products, as the primary reasons for this backslide. Kraft's cost of sales rose 14% while marketing and research expenses were 8% higher. Additionally, the year-ago time period had included a one-time gain of 9 cents per share, further impacting the year-over-year results.
The latest quarter did include various charges of 6 cents per share, some of which was related to asset impairments. Excluding these items, the maker of Nabisco, Oscar Mayer, and Post would have banked 44 cents per share, topping the Street's estimates by two pennies.
Revenue jumped 10% during the reporting period to $9.05 billion, topping analysts' expectations of $8.68 billion.
In a statement quoted by The Associated Press, Kraft Chairman and CEO Irene Rosenfeld noted that the company's "business momentum continued to build in the third quarter . . . we are making the necessary investments to strengthen our brand equity." She also noted that margins may continue to be squeezed and dairy costs increase, saying that "We're covering only about half of our cost at this point. It's primarily an issue related to dairy and it has a lot to do with the strength of our brand equity and that's why we continue to make the necessary investments."
Looking ahead, Kraft reiterated its 2007 earnings-per-share target of $1.60 to $1.62. Excluding items, the company expects to post full-year results of $1.80 to $1.82.
KFT shares moved higher out of the gate and are currently showing a 1.8% gain. Perched just overhead is the stock's 20-day moving average, above which the stock has not traded since early October.
Beth Gaston Moon is an analyst at Schaeffer's Investment Research.
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