Kraft Foods Group Reports First Quarter 2014 Results

05 May 2014 --- Kraft Foods Group, Inc. announced financial results for the first quarter of 2014 that reflected the timing of several factors, including an expected shift in Easter-related product shipments to the second quarter of 2014.

"We continued to make steady progress during the first quarter of this year," said Kraft CEO Tony Vernon. "We still have more work to do, but we're confident that our focus on brand renovation, marketing excellence and total cost management will drive the profitable growth that both we and our shareholders expect."

Q1 2014 FINANCIAL SUMMARY

Net revenues in the first quarter declined 3.3 percent to $4.4 billion.

- Organic Net Revenues declined 2.4 percent from lower volume/mix of 2.8 percentage points that was partially offset by 0.4 percentage points of higher pricing.
- Volume/mix was negatively impacted by approximately three percentage points from a combination of Easter-related shipments shifting to the second quarter of this year and a normalization of retail customer inventories from higher-than-average levels at the end of 2013.

Operating income in the first quarter increased 11.7 percent to $0.9 billion.

- First quarter operating income this year included a $49 million benefit from market-based impacts to post-employment benefit plans as well as a $47 million favorable change in unrealized gains/losses from hedging activities.
- Excluding these factors, operating income was flat as lower spending on cost savings initiatives,(2) favorable pricing net of commodity costs and gains from productivity were offset by the negative impacts of lower volume/mix and the timing of marketing expenses versus the prior year.

Earnings per share in the first quarter increased 11.8 percent to $0.85.

- The $0.09 increase in EPS versus the prior year included a $0.02 benefit from market-based impacts to post-employment benefit plans as well as a $0.05 favorable change in unrealized gains/losses from hedging activities.
- Excluding these factors, EPS growth reflected the favorable net impact of discrete tax items versus the prior year.

Free Cash Flow was up 19.0 percent to $175 million.

- Higher earnings and lower pension contributions drove the improvement in Free Cash Flow versus the first quarter last year.

FIRST QUARTER BUSINESS SEGMENT HIGHLIGHTS

Cheese:

- Net revenues of $1 billion increased from the prior year primarily due to price increases that more than offset a volume/mix decline caused by later Easter-related shipments versus the prior year.
- Operating income growth reflected lower spending on cost savings initiatives and favorable pricing net of commodity cost increases that were partially offset by unfavorable manufacturing costs, lower volumes and higher marketing expense versus the prior year.

Refrigerated Meals:

- Net revenues of $816 million were flat versus the prior year as continued momentum in Lunchables offset volume softness in cold cuts and bacon due to the shift in Easter-related shipments and retail customer inventory reductions versus year-end levels.
- Operating income was flat as higher marketing spending versus the prior year were offset by lower spending on cost savings initiatives.

Beverages:

- Net revenues of $674 million declined primarily due to lower pricing reflecting lower green coffee costs versus last year as well as increased merchandising activity behind Capri Sun ready-to-drink beverages.
- Operating income growth was driven by lower spending on cost savings initiatives and productivity gains that more than offset an increase in marketing spending and unfavorable volume/mix versus the prior year.

Meals & Desserts:

- Net revenues of $498 million were down from last year due to a combination of the shift in Easter-related shipments, retail customer inventory reductions versus year-end levels and continued weakness in ready-to-eat JELL-O desserts.
- Operating income declined significantly as a combination of unfavorable volume/mix and higher marketing spending more than offset the benefit of lower spending on cost savings initiatives versus the prior year.

Enhancers & Snack Nuts:

- Net revenues of $503 million were lower, primarily driven by comparisons with Easter-related shipments in the prior year as well as a reduction in retail customer inventory levels during the first quarter this year.
- Operating income declined reflecting higher marketing spending that more than offset lower spending on cost savings initiatives and productivity gains.

Canada:

- Net revenues of $427 million declined versus last year primarily due to a combination of an unfavorable currency impact, comparisons with Easter-related shipments in the prior year and retail customer inventory reductions versus year-end levels.
- Operating income declined as lower volume/mix and the unfavorable currency impact more than offset productivity gains.

Other Businesses:

- Net revenues of $437 million were slightly lower than the prior year as the exit of certain product lines in the company's Foodservice business led to lower volumes. This impact was partially offset by price increases to offset higher commodity costs.
- Strong double-digit growth in operating income was driven by lower spending on cost savings initiatives and productivity gains that more than offset the impact of the volume/mix decline.