Cadbury interest charges dent Kraft in Q1

INTEREST charges on the £11.5bn acquisition of Birmingham chocolate maker Cadbury have dented first quarter results for US food giant Kraft.

The company said in its Q1 results statement that earnings growth had been “tempered by the impact of higher shares outstanding and higher interest expense related to the February 2010 Cadbury acquisition”.

Despite this, Kraft said the confectioner would still have a long term benefit for the firm and that overall, it had had a string start to the year.

“We’re off to a stronger-than-anticipated start to the year as our teams around the world execute our growth strategy,” said chairman and chief executive Irene Rosenfeld in the Q1 statement.

“Our business fundamentals are solid, and we continue to benefit from brand-building investments which allowed us to successfully deliver net pricing to offset commodities increases and drive top-tier growth.  At the same time, we’re generating cost savings to reinvest in further growth and expand margins.”

Net revenues for the first quarter were £7.6bn ($12.6bn).  Organic net revenues grew 4.6%, driven by solid top-line growth in all regions.  Pricing, which accounted for 3.7 percentage points of growth, was higher in each of the firm’s geographic regions.

The shift of the Easter holidays into the second quarter also tempered growth – by approximately 1.5 percentage points, the impact being felt particularly in the chocolate division.  

Operating income was £960m ($1.6bn), and operating income margin was 13.1%.  Underlying operating income, which excludes acquisition-related and integration costs, grew 16% to £1.08bn ($1.8bn).

The firm said the addition of Cadbury had also had a favourable impact of 2.5 percentage points on performance, net of integration and acquisition costs.  However, this was largely offset by a negative 2.0 percentage point impact from divestitures and the Starbucks CPG business.  Excluding these factors, segment operating income increased.  

Tim McLevish, executive vice president and CFO, said the Q1 results bolstered the firm’s confidence for 2011, although he warned rising raw material costs and continued economic uncertainty could impact performance.