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Kraft Foods expects 4Q adj. profit to top Street

NORTHFIELD – Kraft Foods expects to report adjusted earnings for the fourth quarter that is above analysts' current estimates and raised its earnings forecast for this year.

But the company behind brands such as Oscar Mayer and Miracle Whip also said it expects a decline in fourth-quarter revenue compared with a year ago.

"The fourth quarter was one of real progress and some significant disappointment," Kraft CEO Tony Vernon told investors during a conference call Friday. "We made great strides in productivity, profit, and cash, but we really missed our topline."

But Vernon noted he feels good about the solid financial foundation for the future of the "new Kraft."

The outlook comes as Kraft, based in Northfield, looks to redefine itself after splitting last year from its global snack foods business called Mondelez International Inc. Mondelez has brands including Oreo and Nabisco. The split was intended to allow each of the companies to focus on a more targeted portfolio of products, thus accelerating growth. As part of Kraft's strategy, it's working to clean up the company's lineup of less-profitable product extensions and revitalize languishing brands like Jell-O by betting on innovations.

Kraft anticipates quarterly earnings of about 15 cents per share. Analysts surveyed by FactSet expect earnings of 23 cents per share but usually exclude unusual items from the comparison.

The company said its earnings estimate of 15 cents included charges of approximately 24 cents per share related to its pension fund strategy, about 14 cents per share in restructuring charges and 4 cents per share in unrealized losses from hedging activities.

If those charges were excluded, adjusted earnings would be 57 cents per share and easily beat Wall Street estimates.

Kraft said revenue is expected to drop 10.7 percent to $4.49 billion in the fourth quarter from an adjusted total of $5.03 billion a year ago. Wall Street expected revenue of $4.75 billion.

The company said the decline is due in part to the prior-year period having an extra week of sales. The year-ago quarter also included revenue from products that are now owned by Mondelez as well as product pruning.

But Vernon also noted that sales were also hurt because competitors offered lower prices in certain categories to lure financially strapped mothers. The company said one competitor pushed lower prices of its cold cuts and that hurt sales of the Kraft's Oscar Mayer's Lunchables. Lunchables are box-style lunch combinations like ham and cheddar cheese. In another case, Vernon said Kraft dealt with price competition for its macaroni and cheese products by stepping up its advertising.

"These are the choices we make as we roll out this playbook," said Vernon. "In hindset, I regret not responding on cold cuts exactly the way we responded on Mac & Cheese."

For 2013, Kraft now expects earnings of about $2.75 per share, up from approximately $2.60 per share. Analysts expected $2.66 per share.

Kraft said its full-year restructuring costs are now anticipated to be about $300 million, up from its prior forecast of approximately $240 million.

The company said it is implementing a four-part strategy to help better manage and lower the volatility of expenses and cash outlays related to its pension fund obligations. As part of this strategy, Kraft said that it will make a pension contribution of about $600 million in 2013. It anticipates level, annual pension contributions of about $225 million after that time. The company said that it expect the 2013 pension contribution to be funded with available cash. Future contributions are expected to be funded through cash flow from operations.

Kraft will report its final fourth-quarter and full-year results by March 29.

Its shares slipped 6 cents to $47.10 in afternoon trading.

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