Transcript 2006 CAGNY

Kraft Foods Inc.
First Quarter 2006 Earnings
7/18/2015
1
Safe Harbor Statement
This presentation contains projections of future results and other forward-looking statements. One can identify these forward-looking
statements by use of words such as “strategy,” “expects,” “plans,” “anticipates,” “believes,” “will,” “continues,” “estimates,”
“intends,” “projects,” “goals,” “targets” and other words of similar meaning. One can also identify them by the fact that they do not
relate strictly to historical or current facts. These statements are based on the Company’s current assumptions and estimates and are
subject to risks and uncertainties. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of
1995, the Company is hereby identifying important factors that could cause actual results and outcomes to differ materially from those
contained in any forward looking statement made by or on behalf of the Company. These factors include: (a) the effect on the
Company of competition in its markets, changes in consumer preferences and demand for its products, including diet trends,
changing prices for its raw materials and local economic and market conditions; (b) the Company’s continued ability to promote brand
equity successfully, to anticipate and respond to new consumer trends, to develop new products and markets, to broaden brand
portfolios, to compete effectively with lower priced products in a consolidating environment at the retail and manufacturing levels and
to improve productivity; (c) the Company’s ability to consummate and successfully integrate acquisitions and to realize the cost
savings and improved asset utilization contemplated by its restructuring program; (d) the impact of gains or losses, or lost operating
income, from the sales businesses that are less of a strategic fit within the Company’s portfolio; (e) the effects of foreign economies,
changes in tax requirements and currency movements; (f) fluctuations in levels of customer inventories and credit and other business
risks related to the operations of the Company’s customers; (g) the Company’s access to credit markets, borrowing costs and credit
ratings, which may in turn be influenced by the credit ratings of Altria Group, Inc.; (h) the Company’s benefit expense, which is subject
to the investment performance of pension plan assets, interest rates and cost increases for medical benefits offered to employees and
retirees; (i) the impact of recalls if products become adulterated or misbranded, liability if product consumption causes injury,
ingredient disclosure and labeling laws and regulations, potential claims relating to false or deceptive advertising under consumer
protection or other laws and the possibility that consumers could lose confidence in the safety and quality of certain food products; (j)
consumer concerns regarding genetically modified organisms and the health implications of obesity and trans fatty acids; and (k)
potential short-term volatility in the trading volume and market price of the Company’s stock as a result of a spin-off of the Company
from Altria Group, Inc. Developments in any of these areas could cause the Company's results to differ materially from results that
have been or may be projected by or on behalf of the Company. The Company cautions that the foregoing list of important factors is
not exclusive. For additional information on these and other factors that could affect the Company’s forward-looking statements, see
the Company’s filings with the Securities and Exchange Commission, including the Company’s most recently filed Annual Report on
Form 10-K and subsequent reports on Form 10-Q and 8-K. Any forward looking statements in this presentation are made as of the date
hereof. The Company does not undertake to update any forward looking statement.
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Comparability of Q1 results affected by several items
Reported Diluted EPS
Asset Impairment, Exit, and Implementation
Costs
2006
2005
$0.61
$0.42
0.09
0.07
(Gains)/Losses on Sales of Businesses
(Favorable) resolution of the Altria Group, Inc.
1996-1999 IRS Tax Audit
(0.04)
(0.24)
(Earnings) from Discontinued Operations
Diluted EPS excluding above items
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(0.01)
$0.45
$0.44
3
Q1 results were solid and a good start to 2006
 Put Consumers First
– Brand Value propositions further improved
– Continued new product introductions
– Organic net revenue growth* above 3%
 Work Simply, Act Quickly
– Restructuring savings and overhead reductions on track
– Further SKU pruning and product line discontinuations
 Play to Win
– Strong developing markets growth
– Continued portfolio divestitures
* Organic net revenue growth excludes acquisitions, the impact of divestitures, currency impact, and asset impairment, exit, and
implementation costs.
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Organic revenue growth was solid in Q1
Reported
Change
Q1 2006 Vs 2005
Net Revenues
$8.1bn
0.8 %
Excluding Items*
Change
Q1 2006 Vs 2005
$8.1bn
0.8%
Divestitures
(1.6)pp
Currency
(1.2)
Organic Net Revenue
3.6%
* Reported Results excluding asset impairment, exit, and implementation costs; the gains/losses on the sales of businesses; the impacts of
the favorable tax resolution; and earnings from discontinued operations
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Organic net revenue growth improved
Organic Net Revenue Growth
% Chg Vs PY
3% Long-term
Target
2.9%
3.6%
3.0%*
1.9%
0.4%
2002
Excludes:
Acquisition Impact 0.7pp
2003
2004
2005
0.2pp
0.5pp
0.1pp
Q1 2006
0.0pp
* Growth rate shown has been adjusted down by 2 pp to remove the estimated impact of the 53rd week in 2005
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Organic net revenue growth was broad-based
Q1 Organic Net
Revenue Growth
NA Beverages
NA Cheese & Foodservice
NA Convenient Meals
NA Grocery
(0.2)
6.3
(2.5)
NA Snacks & Cereals
7.0
European Union
0.4
Developing Markets,
Oceania & North Asia
Total Kraft
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2.7 %
11.6
3.6%
7
Q1 volume impacted by pruning and pricing
Reported
Change
Q1 2006 Vs 2005
Net Revenues
$8.1bn
Organic Net Revenue Growth
Volume
0.8 %
Excluding Items
Change
Q1 2006 Vs 2005
$8.1bn
0.8%
3.6%
(1.1)pp
 Pruned items and discontinued product lines were 2% of volume
– Discontinued certain ready-to-drink beverages in Canada,
Mexico, U.S.
– SKU pruning target of 10% in 2006
 Easter timing offset fiscal calendar shift
– Easter timing negatively impacted Cheese & Foodservice and
Grocery
 Pricing negatively impacted category growth
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Strong mix gains drove organic net revenue growth
Reported
Change
Q1 2006 Vs 2005
Net Revenues
$8.1bn
0.8 %
Organic Net Revenue Growth
Volume
Mix
Excluding Items
Change
Q1 2006 Vs 2005
$8.1bn
0.8%
3.6%
(1.1)pp
3.0
 Organization focus on revenue paying off
 New products contributing to positive mix
 Includes benefit from sku pruning and product line discontinuations
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All segments contributed to positive mix
Q1 2006 Mix Impact On Revenue Growth
DMONA
+6.3pp
NA Beverages
+4.0
NA Snacks & Cereals
+3.0
Total Kraft
+3.0
NA Convenient Meals
+2.7
European Union
NA Cheese & Foodservice
NA Grocery
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+1.4
+1.3
+0.4
10
New products momentum continued in Q1
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Pricing contributed to organic net revenue growth
Reported
Change
Q1 2006 Vs 2005
Net Revenues
$8.1bn
0.8 %
Excluding Items
Change
Q1 2006 Vs 2005
$8.1bn
Organic Net Revenue Growth
Volume
0.8%
3.6%
(1.1)pp
Mix
3.0
Pricing
1.7
 Pricing actions delivered solid price realization
 Overall, price gaps remained in line with expectations
– Actions being taken to address gaps in select categories
and countries
– US Cheese pricing taken but trade spending increased to
reflect lower cheese costs
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Pricing actions continued into 2006
2005
Q1 06
Coffee - Global
Cookies - US
Cold Cuts - US
Crackers – US
Chocolate - International
Cheese – US
Hot Dogs - US
Frozen Toppings - US
RTD Beverages - US
RTE Desserts - US
Snack Nuts - US
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Gross Margin declined slightly in Q1
Reported
Change
Q1 2006 Vs 2005
Excluding Items
Change
Q1 2006 Vs 2005
Net Revenues
$8.1bn
0.8 %
$8.1bn
0.8%
Gross Margin
36.1%
(0.6)pp
36.2%
(0.7)pp
 Pricing and productivity did not fully offset cost increases
 Continued to increase price gap investment in select categories
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Commodity cost trends were mixed
First Quarter Avg. Price % Change – 2006 Vs. 2005
Sugar (World)
91%
Coffee (London)
42%
Crude Oil (NY)
26%
Wheat (Chicago)
12%
2%
Cocoa (London)
(7%)
PET Resin
Hazelnuts (Turkey)
Lean Hogs
(18%)
(19%)
Barrel Cheese (U.S.) (21%)
Source: Chicago Mercantile Exchange; Bloomberg; Chemical Data Inc
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Overall commodity costs continued to increase
Cost Increase Vs. Prior Year
(in millions)
~ $900
~ $800
$300
$250
$250
$225
$200 $200
$150
$125
$100
Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06
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Operating Income Margin increased modestly
Reported
Change
Q1 2006 Vs 2005
Excluding Items
Change
Q1 2006 Vs 2005
Net Revenues
$8.1bn
0.8 %
$8.1bn
0.8%
Gross Margin
36.1%
(0.6)pp
36.2%
(0.7)pp
Operating Income
$1.0bn
$1.2bn
2.1%
15.2%
0.2pp
Operating Income Margin 12.5%
(12.0)%
(1.9)pp
 Strong overhead cost reductions
 Consumer marketing investment maintained
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Diluted EPS grew in line with Operating Income gains
Reported
Change
Q1 2006 Vs 2005
Excluding Items
Change
Q1 2006 Vs 2005
Net Revenues
$8.1bn
0.8 %
$8.1bn
0.8%
Gross Margin
36.1%
(0.6)pp
36.2%
(0.7)pp
Operating Income
$1.0bn
$1.2bn
2.1%
Diluted EPS
$0.61
45.2%
$0.45
2.3%
Interest Expense
$0.1
(45.5)%
$0.1
(19.3)%
Tax Rate
(9.2)%
NM
30.9%
Diluted Shares
1662
(2.4)%
1662
(12.0)%
2.9 pp
(2.4)%
 Lower debt level and financing costs
 Tax rate impacts of one-time items and adjustments
 Continued share buy-back program
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2006 Full Year Guidance remains unchanged
Organic Revenue
Growth
52-week Basis
3%+
Reported Basis
1%+
Excludes acquisitions, the
impact of divestitures,
currency impact, and asset
impairment, exit, and
implementation costs.
EPS
Cash Flow
Continuing Basis
$1.55 - $1.60
~$3.4B in
Discretionary
Cash Flow*
Plus Divestiture
Proceeds
Includes $(0.50) per share
charges from restructuring and
impairment charges, $0.24
from prior year tax resolutions,
and $(0.07) loss related to
divestiture
Includes $0.8B from prior
year tax resolutions and
divestiture proceeds, partially
offset by $(0.6)B impact from
Restructuring Program
* Net cash provided by operating activities less capital expenditures
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Summary
 Solid Q1 results and a good start to 2006
 Strengthening Brand Value propositions
 Cost savings benefits coming through
 Momentum will build as 2006 progresses
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