Tags: Kraft | making | money | KFT

Kraft Making Money on Rising Food Demand

By    |   Monday, 09 January 2012 07:21 AM

Food prices around the world have been climbing. That’s in part the product of rising demand and part from monetary stimulus measures influencing commodities markets. One thing is for sure: Kraft Foods (KFT) is making money on rising prices.

Kraft’s net revenues grew 11.5 percent to $13.2 billion during the third quarter of 2011, while net income was up 22 percent at $922 million.

Consumers aren't the only ones paying more for food these days, as Kraft must pay more for raw materials to make its products under its many brands, including Cadbury, Nabisco and Oscar Mayer. That's where choosing the right investments while cutting costs pays off.

"Our investments in marketing and new products continue to drive high quality growth and solid market shares. And we’ve accomplished this despite having taken significant price increases to offset record-high input costs," Chairman and CEO Irene Rosenfeld says in a company earnings statement.

"Together with substantial savings opportunities, we expect to deliver top-tier results in 2011 and remain on track to launch two industry-leading companies with strong operating momentum in the coming year."

In 2011, Kraft announced plans to separate the North American grocery business in a tax-free spin-off to Kraft shareholders.

Ratings agencies viewed the restructuring with skepticism, with Standard and Poor's revising its outlook for the company to stable from positive.

"Kraft is unlikely to improve credit metrics to levels we believe will support an upgrade for the remaining entity in the near-term, and there is limited information regarding the company's future financial policies to support a higher rating," Standard & Poor's said in a statement.

The ratings agency, however, did not downgrade the company, stressing it was only changing its outlook

In late June, Argus upgraded the company's stock to buy from hold, prior to the Standard and Poor's revision.

Blue skies

The company, meanwhile, remains optimistic over its future, and recently bumped up its revenue forecast for 2011 to climb by at least 6 percent, from 5 percent, and hiked operating earnings-per-share guidance to at least $2.27 from $2.25.

Strong third-quarter earnings prompted the move, and so did business worldwide, Kraft Vice President and CFO David Brearton says in the earnings statement.

The company will report fourth quarter earnings on Feb. 9.

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