• by Karlene Lukovitz  @KLmarketdaily, May 5, 2009

Kraft reported profits up 10% for first-quarter 2009 to $660 million, for earnings per share of 45 cents, versus $559 million and a 39-cent EPS in last year's first quarter. The results exceeded analysts' projections by five cents. 

CEO Irene Rosenfeld attributed the performance to price increases that better reflect input costs, with operational cost-cutting amounting to about $1 billion annually, and a simultaneous focus on marketing key brands/products and weeding out lower-margin product lines.

Net revenue declined 6.5% to $9.4 billion, including the negative impacts of 7.9 percentage points from currency and 0.9 percentage points from divestitures, and total-company volume/mix that declined by 3.4 percentage points. However, a 5.7 percentage-point gain from pricing increased organic (excluding currency and divestitures) net revenue by 2.3%, and operating income increased 18.8%, to $1.27 million.

North American organic net revenue rose 1.3% and operating income climbed 15.8%. Developing markets organic revenue rose 12% and operating income increased 8.9%. Europe's organic net revenue declined 3.3%, while operating income rose 17.7%.

U.S. convenient meals' net revenue grew 8.2%, reflecting both price increases and volume/mix gains. Operating income jumped 51.6%. Outstanding performers included DiGiorno, California Pizza Kitchen, Jack's pizza and Oscar Mayer Deli Fresh meats, bacon and Lunchables.

U.S. grocery saw organic net revenue increase 3.3%, driven by price hikes and double-digit volume growth in Kraft macaroni and cheese dinners, which offset other products' volume losses and the impact of Kraft's discontinuance of the Handi-Snacks ready-to-eat desserts line. Grocery's operating income rose 9.6%, as price hikes and improved product mix offset higher input costs and lower volume.

UBS analyst David Palmer told Bloomberg that UBS was "heartened" by the strong performances of the convenient meals and grocery businesses, adding that "these should be Kraft's strengths in difficult economic times."

U.S. beverage net revenue grew 1.4%, with pricing partially offsetting volume declines. Operating income grew 11.7%. A marketing push behind Capri Sun helped drive double-digit growth for ready-to-drink beverages, and Kool-Aid's value-oriented marketing drove continued growth in powdered beverages. Coffee revenue declined due to price rollbacks reflecting lower input costs and Easter's shift from March last year to April this year.

U.S. snacks' net revenue grew 0.6%. Higher price levels offset the impacts of volume declines, the Easter timing shift and the recall of certain products containing pistachios. (Snack nuts experienced a sales decline and took a $17-million hit related to the recall.) Gains for cookies and crackers were driven by 10% growth in the top five brands. Operating income increased 7.5%, driven in part by higher prices and profit growth in biscuits.

U.S. cheese net revenue declined 6.6%, attributed to volume/mix declines resulting from price increases and the Easter shift. However, operating income grew 59.8%.

Canadian product sales saw growth, but the North America Foodservice division also included in this business segment reflected the slowdown in casual dining traffic, as well as discontinuation of lower-margin product lines. Net revenue for the overall Canada/ foodservice business was down 11.9% -- although it was up 0.8% when currency is excluded. Operating income was down 20.6%, due primarily to the unfavorable currency effect.

Kraft reaffirmed its full-year guidance of diluted EPS of $1.88 for the year (down from last year's $1.90), in part reflecting the economy's downward pressure on sales volumes.