Milling & Baking News - May 6, 2008 - 14

Financial Results

Kraft grain-based foods portfolio
strong in first quarter of 2008
NORTHFIELD, ILL. - Strong gains in
a number of grain-based foods categories helped shore up financial results
of Kraft Foods Inc. in the first quarter
ended March 31.
Net income of Kraft in the first quarter was $608 million, equal to 40c per
share on the common stock, down 13%
from $702 million, or 43c per share, in
the first quarter last year. Earnings per
share were unchanged from last year
when one-time items are excluded,
Kraft said.
Net sales in the quarter were $10,372
million, up 21% from $8,586 million in
January-March 2007. Organic sales, excluding the international biscuit business acquired from Groupe Danone
S.A., grew 8%.
Cutting across several Kraft categories, cookies, crackers, pizza and
macaroni and cheese all enjoyed sales
growth during the period.
Operating earnings of the U.S.
Snacks and Cereals business of Kraft
were $168 million, down 28% from
$234 million in the first quarter of 2007.
Sales were $1,430 million, up 2.4%.
Kraft attributed the segment earnings decline to higher input costs, par-

ticularly for grain and oils, more than
offsetting the benefits of lower trade
spending and price increases.
The sales gain reflected both the
higher prices and volume gains in
cookies, driven by double-digit gains
in Nabisco 100 Calorie Packs as well
as successful new products such as

Oreo Cakesters and Oreo snack 'n
seal reclosable packaging. Doubledigit gains in Ritz cracker sales bolstered cracker revenues. By contrast,
the company suffered a decline in
sales of snack bars, attributed by Kraft

Higher input costs, accelerated
depreciation put Tasty in the red
PHILADELPHIA - Tasty Baking Co.,
in the first quarter ended March 29,
sustained a loss of $959,000, versus
net income of $876,000, equal to 11c
per share on the common stock, in the
first quarter last year. Net sales were
$42,822,000, down 3.4% from sales of
$44,325,000 in the comparable period
in 2007.
Unit sales in the first quarter declined 4.3% from the year before, a reversal the company attributed in part
to "the shift in the seasonal impact of
the Easter holiday."
The loss in the first quarter reflected
a $2 million jump in ingredient and
packaging costs, resulting in a 7.5
percentage point contraction in gross
margins. Also factoring into the loss
was an $800,000 incremental after-tax
depreciation expense against the useful life of its Philadelphia baking plant
associated with the company's pending move in 2010.
"During these times we are committed to protecting profits through
14 / May 6, 2008

Milling & Baking News

proper risk management, cost containment, and product pricing actions,"
said Charles P. Pizzi, president and
chief executive officer. "Specifically, we
raised list prices on single-serve and
family pack cake products in the first
quarter of 2008. In the second quarter
of 2008, we have taken pricing actions
on donuts and pies and made changes
to the company's promotional pricing
strategy. In addition, the company is
actively managing risk from higher ingredient and packaging prices through
long-term supply arrangements for key
ingredients like sugar, which is one of
our largest commodities."
Against a 4.3% unit volume decline,
an increase of 3% in the cost of sales,
excluding depreciation, translated into
severe pressure on margins.
"Variable manufacturing expense
per case in the first quarter of 2008 increased 11.2% versus the comparable
period a year ago," Tasty said. "This
increase was driven by industry-wide
commodity cost increases for certain

"largely to new product timing."
In the Kraft U.S. Grocery division,
results were helped by double-digit
revenue growth in sales of macaroni
and cheese, extending momentum established a year earlier. Similarly, in its
U.S. Convenient Meals business, sales
growth of 7.5% was attributed in part
to volume growth, "primarily driven
by ongoing success in pizza, where
all brands grew in the quarter, including double-digit volume and revenue
growth in premium brands such as DiGiorno and California Pizza Oven."
In its U.S. Beverages business, 2.4%
sales growth reflected gains in coffee
sales offset by a decline in ready-todrink beverages, especially Kool-Aid.
Maxwell House mainstream coffee
was successfully relaunched with upgrades in product quality and packaging, Kraft said.
Irene Rosenfeld, chairman and
chief executive officer of Kraft, described the quarter as an "excellent
start" for 2008.
"Our newly-acquired international
biscuit business is performing well
and integration is on track," she said.
Kraft affirmed earnings guidance
for the yearof $1.56 per share, or $1.90
excluding special items. The company
raised its sales growth forecast for the
year to 5% from 4%. MBN
key ingredients such as eggs, grains
and oils that began in 2007 and that
continued in the first quarter of 2008.
The increase in variable manufacturing expense was partially offset by a
4.5% reduction in fixed manufacturing
expense in the first quarter of 2008 versus the first quarter of 2007, primarily
due to lower employee and compensation related costs."
Partly helping offset the higher
costs was a cut of $1.2 million, or 9%,
in selling, general and administrative
expense versus last year.
"The combination of volatile commodities prices and the status of the
economy have resulted in a challenging operating environment," said Paul
D. Ridder, senior vice-president and
chief financial officer. "In this difficult
environment, we continue to focus on
managing controllable risks, including the balance between product pricing and promotion, as we attempt to
cover the higher cost of ingredients
and packaging."
Notwithstanding these challenges,
Mr. Ridder expressed confidence that
Tasty was well positioned in the snack
cake marketplace going forward. MBN
bakingbusiness.com / world-grain.com

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Milling & Baking News - May 6, 2008

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