Kraft Foods Inc. overcame soft sales and weak foreign currencies to once again beat Wall Street profit estimates in the first quarter.
And, just maybe, Oreos with two fillings in one cookie will help continue that trend.
The Northfield-based food giant said net income more than doubled, to $693 million, or 40 cents a diluted share, from $326 million, or 22 cents a share, a year earlier. The growth was driven by lower interest expense, savings related to Kraft’s acquisition of Nabisco and the elimination of goodwill amortization because of new accounting guidelines.
Revenue fell 1 percent, to $7.15 billion from $7.2 billion, despite a 4.2 percent increase in worldwide shipments.
In the more closely watched pro-forma results, Kraft said earnings rose 20 percent to $802 million, or 46 cents a diluted share, from $670 million, or 39 cents a share, a year ago. That exceeded by 2 cents the consensus estimate of analysts surveyed by Thomson Financial/First Call–the third time in four quarters since Kraft had its initial public offering last year that it has beaten Wall Street expectations.
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Pro forma revenue, however, was flat, as Kraft’s international business struggled amid weak foreign economies–foreign currency translation shaved revenue by $129 million. Shipments to retailers rose 2.5 percent, below Kraft’s target of 3 percent to 4 percent annual volume growth.
“There was a little bit of volume slowdown,” said John McMillin, a food analyst at Prudential Securities. “But they’ve got the benefit of cost savings from Nabisco.”
During the quarter, Kraft recorded $169 million in pretax charges related to a voluntary retirement program that trimmed about 1,000 salaried jobs and the consolidation of production lines from the integration of Nabisco.
In North America, which accounts for three-quarters of Kraft’s sales, beverages led the way, fueled by the introductions of Kool-Aid Jammers and Crystal Light in bottles. But cookie and cracker volumes fell versus a strong year-ago quarter.
Kraft expects volumes to accelerate in the second half, driven by new product introductions. These include Oreos with a filling of half peanut butter and half cream, and citrus-flavored Altoids.
“I would see new products as a percentage of sales increasing as we move throughout the year,” said Betsy Holden, Kraft’s co-chief executive.
Kraft released its results after the close of regular New York Stock Exchange trading, where shares slid 54 cents, or 1.3 percent, to $39.91.
In other earnings news:
– Bank One Corp. reported first-quarter net income rose 16 percent, to $787 million, or 67 cents per diluted share, from $679 million, or 58 cents a share, a year earlier.
The results beat a consensus of analysts’ expectations by a penny, according to First Call.
Two key measures of profitability also rose, with return on assets at 1.21 percent–up from 1.02 percent–and return on common equity at 15.3 percent, up from 14.6 percent.
The Chicago-based company’s credit card operation–which is called First USA but will be changing its name to Bank One–posted a 61 percent increase in operating income, to $239 million. But operating income was down 27 percent from the fourth quarter, due in part to seasonality and higher marketing expenses.
Commercial banking saw operating income drop 27 percent, to $143 million from $196 million. The drop stemmed primarily from lower net interest income, driven by an intentional reduction of credit exposure in Bank One’s large corporate banking area.
The middle-market commercial operation, which is changing its name to Bank One from American National Bank, posted net loan charge-offs of $118 million, or 1.34 percent of average loans, up from 0.68 percent a year ago but down from 1.75 percent in the fourth quarter.
At Bank One’s annual meeting Tuesday, Chairman and Chief Executive Jamie Dimon called the losses “embarrassingly high,” but said the middle-market group still had good returns and emphasized that the name change does not mean Bank One is pulling back from middle-market banking.
Dimon half-jokingly said that if Bank One’s local competitors–which include LaSalle Bank and Harris Bank, both owned by foreign companies–try to capitalize on the American National Bank name change, he would like to respond with ads saying that the American National name may have changed, but “at least it’s still American.”
Bank One’s head count rose less than 1 percent from the fourth quarter to 73,864 employees, which included more than 1,600 employees from the consolidation of two joint ventures, Paymentech and Anexsys.
Shares of Bank One slipped 5 cents, to $41.16, on the NYSE.
– Telephone and Data Systems Inc. reported first-quarter net income fell 52 percent, to $13.6 million, or 23 cents a share, from $28.2 million, or 47 cents a share, a year earlier.
The decline was attributed to one-time items, including a $37.4 million pretax decline in the Chicago-based telecommunications holding company’s investment in VeriSign Inc. and a $3.4 million increase in bad-debt expense related to the bankruptcy of a long-distance carrier. Excluding one-time items, TDS had earnings from continuing operations of 61 cents per share, up from 52 cents a year earlier.
Those results, however, fell short of analyst expectations of 64 cents a share.
Said CEO LeRoy T. Carlson: “We anticipate that our businesses will strengthen during the rest of the year, especially during the second half, as the hoped-for economic recovery unfolds.”
That upbeat forecast helped lift TDS $5.30, or 6.1 percent, to $91.90 on the American Stock Exchange.
Revenue for the quarter rose 11 percent, to $665.2 million from $600.4 million.
– First-quarter net income at U.S. Cellular Corp., a majority-owned subsidiary of TDS, rose 44 percent, to $43.9 million, or 51 cents a share, from $30.4 million, or 35 cents a share, a year earlier.
But much of the increase for the Chicago-based wireless phone carrier was attributed to an accounting charge that ends amortization of goodwill and other intangibles, which the company said lifted earnings by $6.4 million, or 7 cents a share.
Excluding a year-earlier charge for early debt extinguishment, diluted earnings rose to 51 cents a share from 39 cents a share. The results matched analyst expectations.
Revenue climbed 9 percent, to $478.4 million . U.S. Cellular shares added $2.63, or 6.6 percent, to $42.15 on the Amex.
– W.W. Grainger Inc., helped by special items, said first-quarter net income rose 39 percent despite an 8 percent decline in sales.
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The Lake Forest-based industrial-products distributor said net income was $58.5 million, or 61 cents a diluted share, up from $42.2 million, or 45 cents a share, a year earlier.
Much of the improvement, however, was due to non-operating items: In the latest quarter, Grainger had a gain of 4 cents a share from the sale of investment securities, and the year-ago quarter was hurt by 11 cents a share in losses from since-discontinued digital businesses.
Excluding the gain in this year’s quarter, Grainger’s earnings of 57 cents a share exceeded analyst views by 2 cents. Grainger shares rose $2.32, or 4.1 percent, to $58.82 on the NYSE.
Grainger, citing the “difficult economic environment” and the effect of one less selling day, said sales declined to $1.12 billion from $1.22 billion.
– Caterpillar Inc. said that low sales of heavy machinery and engines contributed to a 51 percent decline in first-quarter earnings, which fell just below Wall Street expectations.
Net income was $80 million, or 23 cents a share, down from $162 million, or 47 cents a share, a year earlier. Analysts had expected earnings of 24 cents a share, and shares of Peoria-based Caterpillar fell $1.34, or 2.3 percent, to $56.65 on the NYSE.
Sales fell 8 percent, to $4.41 billion from $4.81 billion.
Caterpillar said profit was down because of lower sales in two key markets: It reported heavy machinery sales were down 10 percent and engine sales dropped 8 percent.
For the year, Caterpillar expects sales to be about the same as in 2001, and profits to increase slightly.
– John Nuveen Co. reported a 7 percent increase in first-quarter net income, to $30.0 million, or 60 cents a diluted share, from $27.9 million, or 54 cents a share, a year ago.
The Chicago-based investment management company beat a consensus of analysts’ expectations by 2 cents a share.
Operating revenue rose 8 percent, to $92.6 million from $85.7 million.
Shares of John Nuveen hit an all-time high for the sixth straight session on Tuesday, reaching $58.25 during trading before closing with a loss of 69 cents, to $56.86, on the NYSE.