020201 Kraft Earnings Rise on Strong Volume

Chicago - Kraft Foods Inc. said fourth-quarter earnings rose 34 percent, helped by cost savings from its buyout of cookie maker Nabisco in late 2000, lower interest expense, and strong volume gains.

The maker of Philadelphia cream cheese, Oreo cookies and Oscar Mayer meats said earnings in the quarter, its third as a public company, rose to $556 million, or 32 cents a share, from $416 million, or 24 cents, a year earlier.

The results, which met Wall Street expectations, assume that Kraft had owned Nabisco for all of 2000. Operating revenues rose to $8.76 billion from $6.88 billion a year earlier.

The company forecast 2002 earnings ahead of Wall Street's expectations, helped by further cost savings from the Nabisco integration and continued volume growth of 3 percent to 4 percent.

Kraft expects to earn $2.00 to $2.05 a share in 2002, beating a consensus of $1.99 as tracked by Thomson Financial/First Call. The company compared its forecast to an adjusted 2001 base of $1.76 a share, adding a 55-cent-a-share benefit from a change in accounting rules to 2001 results of $1.21 a share, which were up 20 percent.

“I think now you'll see us really putting the organization together, really building a collective culture of best practices, getting the cost synergies and then really leveraging the collective trademarks for growth,” co-Chief Executive Betsy Holden said. “I think you'll see a lot more in growth as we leverage the trademarks.”

STRONG VOLUME GAINS

Kraft's worldwide fourth-quarter volumes increased 5.3 percent on a comparable basis, reflecting one less week of shipments in 2001. Gains were driven primarily by the introduction of new products and strong growth in developing country markets.

“Things look very much in line and it looks of high quality,” said Credit Suisse First Boston analyst David Nelson, who rates Kraft shares a “buy.” “We're just not seeing anybody posting volume growth across the industry besides Kraft. This is very impressive.”

North American volumes rose 5.0 percent, as strong gains increases in beverages and cereals offset some weakness in luncheon meats, which were pressured by lower consumption and reduced trade inventories.

The roll-out of products such as Capri Sun Big Pouch ready-to-drink juices, Crystal Light drinks in bottles, and chocolate creme Oreo cookies helped drive up volumes.

Kraft gleaned more than $1 billion from new product sales in 2001, Holden said, noting that she expects to match or exceed that amount in 2002.

International volumes rose 5.9 percent in the quarter, driven by improvement in developing markets such as Central and Eastern Europe, Latin America and Asia Pacific, and growth in the European Union.

Northfield, Illinois-based Kraft did not break out fourth-quarter cost savings from the Nabisco integration, but it said full-year 2001 savings exceeded its goal of $100 million. It expects to reach $300 million in savings this year.

Shares of Kraft, which closed Tuesday at $34.04, up 32 cents, on the New York Stock Exchange, have outperformed the Standard & Poor's 500 Index by more than 20 percent since the company went public in June.

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