Kraft Foods Inc. reported fourth quarter and full year 2010 results that were driven primarily by strong volume/mix gains in each geography.
"We delivered solid financial results in 2010, and finished the year with good momentum," said Irene Rosenfeld, Chairman and CEO. "We're realizing the benefits of increased investments behind our Power Brands, strong productivity and disciplined cash management, while making good progress in capturing the synergies from the Cadbury acquisition."
Rosenfeld continued, "Looking ahead, we expect the operating environment to remain challenging, with significant input cost inflation and persistent consumer weakness in many markets. Given our strong business fundamentals, however, we remain confident that we will deliver earnings growth in 2011 that's both ahead of our long-term targets and within the top tier of our peer group."
Net revenues in the fourth quarter increased 30.0 percent to $13.8 billion, including a 26.2 percentage point impact from the Cadbury acquisition, a negative 2.6 percentage points from currency and a negative 0.1 percentage points from divestitures.
Combined organic net revenues grew 5.7 percent, including a favorable impact of approximately one percentage point from the accounting calendar change for certain operations in Asia Pacific and Latin America.
Kraft Foods' base business organic net revenues grew 6.5 percent, driven by 4.6 percentage points from volume/mix and 1.9 percentage points from pricing. Volume/mix growth benefitted by 1.2 percentage points from the favorable impact of accounting calendar changes.
Cadbury organic net revenues grew 2.2 percent. Actions taken to normalize Cadbury trade inventories during the quarter tempered growth by 0.6 percentage points.
Operating income in the fourth quarter increased 2.2 percent to $1,240 million, including a favorable impact of 30.4 percentage points from Cadbury, partially offset by a negative 26.9 percentage point impact from integration program and acquisition-related costs. Currency had a negative impact of 3.1 percentage points. Excluding these factors, the increase in Kraft Foods' base business operating income was primarily driven by lower overheads, higher pricing, and favorable volume/mix. These benefits more than offset higher input costs.
Operating income margin was 9.0 percent, 240 basis points lower than the prior year, driven by 230 basis points of Integration Program and acquisition-related costs. Excluding these costs, operating margins were essentially flat as higher pricing as well as marketing and overhead efficiency gains offset the impact of input cost inflation.
The tax rate in the fourth quarter was 23.2 percent compared to 26.8 percent last year, reflecting the impact of 2010 year-end tax legislation and discrete items.
Diluted earnings per share in the fourth quarter were $0.31, including a negative $0.15 impact related to Integration Program costs.
Operating earnings per share was $0.46, reflecting strong gains from operations and lower taxes that were offset by several factors. These factors included higher asset impairment and exit costs primarily related to two small regional biscuit brands; lower gains on divestitures compared to the prior year quarter; as well as higher interest expense and the impact of more shares outstanding primarily related to the Cadbury acquisition. Higher interest expense in the quarter included a negative $0.03 per share impact from costs and fees related to the repurchase of approximately $1.5 billion of long-term debt securities.
Kraft Foods North America net revenues increased 12.2 percent. This included favorable impacts of 7.8 percentage points from the Cadbury acquisition and 0.6 percentage points from currency, partially offset by a negative 0.3 percentage point impact from divestitures.
Kraft Foods' base business organic net revenues grew 4.1 percent. Growth was broad-based, with revenue increasing in nearly every business segment. Volume/mix contributed 2.4 percentage points of the increase, reflecting the benefits from higher levels of merchandising activity and successful multi-brand marketing campaigns, such as Huddle to Fight Hunger. Pricing in response to rising input costs accounted for 1.7 percentage points of the increase.
Combined organic net revenues increased 3.3 percent. Power Brands grew approximately 5 percent, fueled by solid market share gains across several categories as well as double-digit growth in Maxwell House coffee, Planters nuts and Kraft Macaroni & Cheese dinners. In addition, Oreo cookies, Capri Sun and Kool-Aid ready-to-drink beverages, Philadelphia cream cheese and KraftSingles processed cheese each grew high-single-digits.
Cadbury organic net revenues declined 6.1 percent reflecting lower sales of Trident and Stride gum, as well as a difficult comparison against strong shipments of Halls cough drops in the prior year quarter. The decline was partially offset by double-digit growth of Dentyne gum and early shipments of new products.
Segment operating income declined 5.8 percent. The addition of Cadbury had a favorable impact of 7.2 percentage points, including the impact of Integration Program costs, while currency added 0.5 percentage points to growth. Excluding these factors, segment operating income declined largely due to a steep increase in input costs that more than offset the benefits of higher pricing, lower overheads, favorable volume/mix and productivity.