Kraft Foods Inc., the nation’s largest food manufacturer, on Tuesday reported a 13.5 percent drop in third quarter earnings and said profits for the full-year would be lower than expected because of lofty commodity and energy costs.
The maker of Jell-O desserts, Oreo cookies and Grey Poupon mustard said net earnings for the July-September quarter were $674 million, or 40 cents a share, versus $779 million, or 46 cents a share, from the same quarter a year earlier.
Analysts surveyed by Thomson Financial had expected a profit of 46 cents a share.
The Northfield, Ill.-based company revised its full-year earnings outlook to $1.68-$1.71 a share, down from $1.73 to $1.78 per share “as a result of higher than projected commodity costs that continue to impact the overall food industry.”
Kraft shares fell 4.2 percent in after-market trading, to $28.15, below its 52-week range of $29.14 to $36.06. The shares closed down 21 cents to $29.39 on the New York Stock Exchange Tuesday, before the company reported its financial results. The shares are down 17 percent for the year.
The company said it now expects commodity costs to be $800 million higher than in 2004 — about $200 million above previous estimates.
Kraft, which is about 85-percent owned by Altria Group Inc., said the 2005 profit estimate includes 22 cents per share in restructuring costs and a 4 cent per share gain from sales of businesses.
CEO Roger Deromedi said Kraft was unable to raise prices enough to offset the soaring cost of coffee, nuts, energy and other commodities. He said in a statement that the company expects high costs to continue and is “exploring additional pricing actions.”
Morningstar analyst Gregg Warren said the entire food industry has been battered by recent high energy prices, which increases transportation and packaging costs.
“All these guys really thought they were going to have it easier this year because commodity prices were so high last year, but energy prices have been killing them,” he said.
Still, he said Kraft’s better-than-expected revenue of $8.1 billion — 4.4 percent higher than a year earlier — showed that the company has shown some results from its three-year restructuring program.
Kraft in early 2004 announced a sweeping corporate overhaul aimed at sharpening its global focus while shaving its broad product portfolio and boosting its spending on marketing. But the $1.6 billion effort — which so far has included 5,200 of 6,000 planned layoffs — has been hampered by higher costs.