Higher commodity costs and devaluation-driven cost increases have been blamed by US food giant Kraft Foods for disappointing third quarter results. The company, which owns the Maxwell House coffee brand, reported an overall decline in gross profit of 1.7 per cent, while operating income was down 9.6 per cent.
"Our third quarter results reflect a continuation of the challenges we faced in the second quarter," said Roger K. Deromedi, Kraft Foods co-chief executive officer. "Volume growth from ongoing businesses of 1 per cent was below our expectations as solid gains in several North American businesses and Asia Pacific were partially offset by continued weakness in the US cookie category and the impact of the summer heat wave in Europe on our chocolate and coffee businesses."
In Europe, the Middle East and Africa specifically, however, volume decreased 1.4 per cent. Ongoing volume was down 0.4 per cent, as acquisitions and growth in Poland, Russia, Romania and Ukraine were more than offset by declines in European chocolate and coffee.
The decrease in beverage volumes was attributed by the company to a significant adverse impact of the summer heat wave. In addition, coffee volume was hurt by price competition in Germany. However, growth was up double-digits in Russia benefiting from expanded distribution of Maxwell House and Jacobs coffee, and in Poland behind new products including Jacobs Ice Presso ready-to-drink coffee.
Modest volume gains in the US beverage market were led by continued momentum in ready-to-drink, aided by the launches of Capri Sun Sport and Capri Sun Island Refreshers beverages, as well as by stronger consumption of Crystal Light powdered soft drinks. In coffee, volume was flat as the impact of heightened competitive activity was offset by strong growth in non-measured channels due to targeted merchandising programmes.
In the third quarter, the company spent approximately $45 million of the previously announced investment programme, primarily in September. In cheese, cold cuts and crackers, share and consumption trends showed solid improvement in September. In coffee, third quarter volume met expectations due to strong non-measured channel growth and an improvement in consumption, while shares declined due to significant competitive activity.
"The initial phase of our investment programme in focus categories is showing early signs of meeting our objectives," said Betsy D. Holden, co-chief executive officer of Kraft Foods.
"We are encouraged by our September share and consumption trends in cheese, cold cuts and crackers. However, we have encountered heightened competitive activity in coffee and continued category softness in cookies. While we believe we have the right programmes in place to drive top line growth through consumption and share trend improvements, we need to see ongoing progress throughout the fourth quarter."
Kraft Foods is the largest branded food and beverage company headquartered in the United States and the second largest worldwide. Kraft Foods markets many of the world's leading food brands, including Kraft cheese, Jacobs and Maxwell House coffees, Nabisco cookies and crackers, Philadelphia cream cheese, Oscar Mayer meats, Post cereals and Milka chocolates, in more than 150 countries.