Poor outlook for Kraft Foods after first quarter revenue decline

By Sara Shouhayib

Kraft Foods Group Inc.’s net income fell 16 percent and revenue declined slightly in the first quarter as the company dealt with restructuring and other costs associated with its planned merger with The H.J. Heinz Company.

Kraft said revenues were basically flat as increased shipments of Capri Sun and the launch of McCafé coffee were offset by losses in meals and dessert products.

For the quarter ended March 28, net income fell to $429 million or $0.72 per diluted share from $513 million or $0.85 from the same period last year. Analysts had expected earnings per share of $0.81.

Excluding restructuring and merger costs, Kraft’s earnings per share of $0.86 beat the analyst estimate of $0.81. The company credited price hikes and an earlier Easter holiday for gains in adjusted profit.

Revenues in the quarter fell less than 1 percent to $4.35 billion from $4.36 billion from the same quarter a year ago.

The company also announced lower marketing spending going forward which concerned some analysts.

“It may help near term profit because you know you cut back in advertising expense but eventually leads to weaker sales, trends and so we think it’s going to be extremely difficult for them,” said Brian Yarbrough, analyst at Edward D. Jones & Co.

“Now once they combine with Heinz, we still think even combined with Heinz it’s going to be a difficult revenue growth environment,” Yarbrough said.

The company, known for its macaroni and cheese, Maxwell House coffee and Jell-O, announced last week that it will start to make its products without artificial flavors, preservatives or synthetic colors.

Kraft said it will replace the synthetic orange colors with those derived from natural sources like paprika, annatto and turmeric.

“There is clearly more work ahead of us, but we will continue to build on this momentum to delight our consumers and customers, and prepare us for the next chapter ahead,” said Kraft Chairman and CEO John T. Cahill.

The merger with Heinz is expected to be completed in the second half of 2015. Kraft split off from Mondelez International in 2012.

Shares of Kraft were trading mid-day at $85.09, down $0.79 from Tuesday’s close.

Photo at top: Kraft Foods Group Inc. will be merging with The H.J Heinz company in the second half of 2015. (Roadsidepictures/CreativeCommons)