Kraft Posts 26% Drop in Profit

Kraft Foods Inc., the largest U.S. food maker, said Monday that second-quarter earnings fell 26%, their fourth straight drop, because of higher ingredient and marketing costs. The company cut its 2004 profit forecast.

Net income declined to $698 million, or 41 cents a share, from $949 million, or 55 cents, a year earlier, the Northfield, Ill.-based company said. Sales rose 4.7% to $8.2 billion, helped by a weaker U.S. dollar.

Rising prices for commodities such as cheese and soybean oil lowered profit at Kraft, which gets one-third of sales from cheese brands including Cracker Barrel.

Chief Executive Roger Deromedi, 50, spent $170 million more on marketing cheese and products including meats and low-carbohydrate snacks to win back sales from Kellogg Co.

The results were hurt by 5 cents a share in restructuring costs, including factory closings and firings announced in January.

Excluding those costs, Kraft earned 46 cents a share. That matched the average estimate of 14 analysts polled by Thomson First Call.

Shares of Kraft, which also makes Maxwell House coffee and Tombstone frozen pizza, rose 83 cents to $31.13 on the New York Stock Exchange. They’ve dropped 3.4% this year. Altria Group Inc., which owns 84% of Kraft, increased 16 cents to $48.83, also on the NYSE.

Kraft said full-year net income probably would be $1.55 to $1.62 a share, including 30 cents in restructuring charges. The company had said in April that it expected to earn at the low end of a $1.63-to-$1.70 range.

The company plans to cut about 6,000 jobs, close as many as 20 plants and spend the savings on marketing cookies and cereals with reduced carbohydrates and fat.

“The cheese costs hung up higher and longer than we thought,” Deromedi said. Rivals’ new products and the popularity of low-carbohydrate diets that shun sugars and starches “hammered” Kraft’s cereal, cookies, frozen pizza and candy businesses, he said.