Kraft's profit rises as it embraces startup spirit
New York • Kraft Foods is embracing the spirit of a startup and betting that innovation will help it grow, as the maker of household names such as Oscar Mayer, Miracle Whip and Velveeta looks to redefine itself after splitting from its more glamorous global snack foods business.
The company, which was established in 1903, said Wednesday that its net income rose 13 percent in the third quarter, as a mix of new products, increased advertising and productivity improvements lifted results. But the company cautioned that there were limitations to the conclusions that could be drawn from the comparison with last year, before the companies split. Although it stood by its outlook for 2013, Kraft said revenue in the fourth quarter should be flat or down as it prunes less-profitable products and continues incurring restructuring costs.
The results are the first since Kraft Foods Group Inc., based in Northfield, Ill., split with its snack food business. That company, which is called Mondelez International Inc. and has brands with global appeal including Oreo, Cadbury and Nabisco, is expected to grow at a faster rate than Kraft.
The split was intended to allow each of the companies to focus on a more targeted portfolio of products, thus accelerating growth.
At Kraft, CEO Tony Vernon said the company felt like a startup of sorts after the break, with executives working to clean up the company's lineup of less-profitable product extensions and revitalize languishing brands.
In coming months, for example, Vernon said Jell-O would be a brand "moms and kids are going to rediscover" as the company rolls out new packaging and marketing.
"Jell-O is one of the great brands Kraft has the chance to revitalize," Vernon said in a conference call with analysts. But he noted that it faces formidable competition from the "explosive" growth of yogurt in recent years. Jell-O, along with Planters and Capri Sun, saw volume declines in the quarter.
Vernon also noted that Kraft could do a lot better with its coffee business. With Maxwell House, Vernon said inefficiencies in production left the brand with worse margins than its biggest competitor, Folgers. He also noted that the company's Gevalia premium coffee and Tassimo single-serve coffee have plenty of room for growth.