updated 7/28/2008 9:35:21 AM ET 2008-07-28T13:35:21

Kraft Foods Inc., the nation's largest food and beverage maker, reported a second-quarter profit rise of nearly 4 percent on Monday, saying higher prices helped offset rising commodity costs.

The maker of Velveeta, Oreo cookies and Maxwell House coffee boosted its outlook for the year.

Its shares were up more than 3 percent in pre-market trading.

The Northfield, Ill.-based company said its profit rose to $732 million, or 48 cents per share in the April-June period, up from $707 million, or 44 cents per share, a year earlier.

Kraft said earnings per share excluding items rose to 58 cents per share from 51 cents. That was above the 50 cents a share that analysts surveyed by Thomson Financial expected. The analysts typically exclude one-time items in their estimates.

A weak dollar and gains from an acquisition helped sales jump around 21 percent to $11.2 billion, beating analyst expectations of $10.7 billion.

Price increases accounted for more than 7 percent in the revenue gain, the company said.

Chief Executive Irene Rosenfeld said that market shares were under pressure in the quarter because many competitors lagged Kraft in instituting price increases. But she said market share in categories like crackers, pourable salad dressing, cheese and single serve pizza are expected to rebound in the second-half of the year as competitors institute their own price increases.

The company has been raising prices and will continue to do so in the third quarter, she said.

Cheese prices are now 6 percent to 33 percent higher than they were a year ago, executives said, with the highest increase in natural cheese. But the price increases helped revenue up 10 percent in the cheese category in the quarter.

The company said it now expects to earn at least $1.92 per share for the year, up from $1.90, excluding one time items. Analysts expect, on average, $1.89, according to a poll by Thomson Financial.

Shares were up 90 cents, or 3.1 percent, to $30.28 in premarket trading.

U.S. beverages grew 3.4 percent in the latest quarter, with coffee and powdered beverages contributing to that growth.

Kraft saw double digit growth for Maxwell House and Tassimo for the second quarter in a row.

The company tweaked its marketing for its powdered, ready-to-drink beverages segment, including Kool-Aid and Country Time lemonade, to play up its value and saw double digit volume gains there. Consumers are seeking lower-cost alternatives to soft drinks, Rosenfeld said.

She said the economic environment is spurring sales but making customers shop for good deals, so the company has to watch its pricing and values.

"The fact that people are eating at home more is certainly a positive," Rosenfeld said. "The fact that they're looking for value...we have to make sure our brands are delivering that value."

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