Kraft net drops 28 percent

Kraft Foods Inc., the largest U.S. food manufacturer, posted a 28 percent decline in fourth-quarter net earnings Tuesday on higher commodity costs and increased marketing spending

Despite a better-than-expected sales increase of 7 percent, Kraft's results were weighed down by an 18 percent drop in operating income as it continues with restructuring. Costs for key commodities such as cheese, coffee, meat and nuts climbed by $300 million compared to the previous year.

Net income for the October-through-December quarter was $628 million, or 37 cents per share, down from $869 million, or 50 cents per share, for the same period in 2003.

Excluding restructuring and impairment charges, operating income was 49 cents a share. That matched the consensus estimate of analysts surveyed by Thomson First Call.

Revenue rose to $8.78 billion from $8.21 billion a year earlier. exceeding analysts' estimate of $8.64 billion.

CEO Roger Deromedi said the company made progress in its restructuring plan, citing North American revenue growth of 8.8 percent as evidence. But international results were sluggish.

Without the benefits of strong foreign currencies, Kraft said revenue would have been down 1.1 percent. The company also said it had to spend heavily on promotions in Europe as a result of stiff pricing competition.

"In a transition year in which we reorganized the company and began a significant restructuring program, we sequentially improved our top-line growth each quarter and are now in a better position to deliver sustainable growth going forward," Deromedi said.

The Northfield, Ill.-based company said it anticipates 2005 earnings of $1.60-$1.65 per share, including a total of 34 cents in restructuring charges and one-time items from divestitures that haven't yet closed. Excluding those charges, the estimate is for a range of $1.94 to $1.99, in line with analysts' estimate of $1.97.

Kraft shares closed down 37 cents at $33.03 on the New York Stock Exchange before the report was released and have declined by more than 7 percent this year. The after-hours price was unchanged in very limited activity.

For the full year, net earnings were $2.66 billion, or $1.55 per share. That was down about 23 percent from 2003, when net earnings were $3.48 billion, or $2.01 per share. Revenues were $32.2 billion, up 5.5 percent from $30.5 billion.

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