Kraft Foods Group Reports First Quarter 2015 Results, Net Revenues Flat

NORTHFIELD, Ill., April 28, 2015 /PRNewswire/ -- Kraft Foods Group, Inc. (NASDAQ: KRFT) today announced  financial results that reflected the impact of significant pricing actions taken over the past year as well as a favorable shift in Easter-related shipments versus the prior year.

"Our first quarter results reflected a solid start to 2015," said Kraft Chairman and CEO John T. Cahill.  "We've stepped up our focus on execution, our pricing actions over the past year are coming through, and we're benefiting from a disciplined approach to marketing.  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."

First Quarter Financial Summary

• Net revenues were down 0.2 percent including a negative impact from currency.  Organic Net Revenues were up 1.1 percent driven by a 1.2 percentage point increase from the carryover impact of price increases in previous quarters. Volume/mix was essentially flat and included an approximate 1.0 percentage point benefit from Easter-related shipment timing compared to the prior year.  Excluding the Easter-related benefit, gains from the successful launch of McCafé coffee and growth in Exports were more than offset by price-elasticity impacts in the Canada, Cheese and Refrigerated Meals segments, as well as category declines in the Meals & Desserts segment.
• Operating income of $740 million and diluted EPS of $0.72 included a non-cash loss of $77 million ($0.08 per diluted share) from market-based impacts to post-employment benefit plans.  Results also included $38 million ($0.04 per diluted share) in spending on cost savings initiatives, $17 million ($0.02 per diluted share) in costs related to the proposed merger with H.J. Heinz Holding Corporation and $2 million in unrealized gains from hedging activities.
  Excluding the impact of these factors in both years, operating income grew at a mid-single-digit rate and EPS grew at a high single-digit rate. This was primarily driven by a planned reduction in advertising and consumer spending as well as lower overhead costs.  EPS growth was further enhanced by lower net interest expense and average shares outstanding versus the prior year quarter.
• Free Cash Flow¹ was $195 million, up 11.4 percent versus the prior year primarily reflecting working capital improvements.

First Quarter Business Segment Highlights

Cheese:

• Net revenues of $1,020 million increased 1.3 percent driven by the carryover impact of price increases in previous quarters as well as the timing of Easter-related shipments and the ongoing success of last year's Philadelphia soft cream cheese reinvention.  These gains were partially offset by the negative impact to volumes from price increases, particularly in natural cheese and sandwich cheese.
• Operating income increased 19.8 percent primarily reflecting better alignment of prices and input costs versus the year-ago quarter.

Refrigerated Meals:

• Net revenues of $833 million increased 2.1 percent from the carryover impact of price increases taken in previous quarters in cold cuts and hot dogs, partially offset by unfavorable volume/mix.  The volume loss associated with price increases more than offset the timing benefits of Easter-related shipments, particularly in bacon.
• Operating income growth of 1.0 percent was tempered by higher spending on cost savings initiatives.  Excluding this impact, operating income was up high-single digits as the benefits of higher net pricing were partially offset by unfavorable volume/mix.

Beverages:

• Net revenues of $702 million grew 4.2 percent from a combination of favorable volume/mix and higher net pricing.  Favorable volume/mix was driven by the recent launch of McCafé coffee and increased shipments of Capri Sun ready-to-drink beverages ahead of a planned price increase, partially offset by lower shipments of powdered beverages due to category declines. Higher net pricing reflected the carryover impact of price increases taken in previous quarters in roast and ground coffee.
• Operating income declined 6.1 percent as higher coffee commodity costs were partially offset by reductions in marketing spending and higher net pricing.

Enhancers & Snack Nuts:

• Net revenues of $493 million declined 2.0 percent as lower net pricing from the timing of promotional activity versus the prior year more than offset volume/mix gains in Planters snack nuts.
• Operating income decreased 4.1 percent reflecting lower net pricing and higher nut commodity costs that were partially offset by reductions in marketing spending. View the full report here.