Earnings report

Q3 operating income, net revenues rise for new Kraft Foods Group

Kraft natural cheese, Philadelphia and Velveeta drove strong volume/mix gains.

NORTHFIELD, Ill., Nov. 7, 2012 /PRNewswire/ -- Newly independent Kraft Foods Group, Inc. (NASDAQ: KRFT) today reported strong third quarter 2012 results with top- and bottom-line growth fueled by new products, increased investments in advertising and consumer spending, and significant productivity gains.
"Our third quarter results demonstrate the power of our brands, our people and our innovation," said Tony Vernon, CEO of Kraft. "We have an excellent foundation as a new and independent Kraft, and we're confident we have what it takes to fulfill our mission of becoming the best food and beverage company in North America."

Q3 financial summary
Net revenues in the third quarter grew 3.0 percent to $4.6 billion.
• Organic Net Revenues increased 3.2 percent from volume/mix gains of 2.6 percentage points and favorable pricing of 0.6 percentage points, reflecting significant gains from new products.
• Customer inventory shifts in the third quarter, largely related to the spin-off, benefited volume/mix by 2.6 percentage points. These gains were partly offset by 1.3 percentage points from product pruning.

Operating income in the third quarter increased 7.6 percent to $762 million.
• Operating income growth reflected volume/mix gains, improved productivity and increased investments in advertising and consumer spending.
• Restructuring Program[2] costs of $54 million negatively impacted operating income growth by 7.7 percentage points while the year-over-year change in unrealized gains/losses from hedging activities added 10.2 percentage points of growth.
The spin-off of Kraft by Mondelez International, Inc. was completed on Oct. 1, 2012. Kraft's financial statements for the third quarter ended Sept. 30, 2012 were prepared on a "carve-out" basis, reflecting an allocation of costs incurred by its former parent company. The carve-out financials are not indicative of the complete future cost structure or expected future financial results of Kraft as an independent company, particularly in the areas of interest, taxes, overhead and pension costs.

Selected highlights by reporting segment
Cheese:
• Kraft natural cheese, Philadelphia and Velveeta drove strong volume/mix gains.
• Strong operating income growth reflected improved volume/mix driven by a significant increase in advertising and consumer spending, better alignment of prices and input costs versus the year-ago quarter, and productivity gains.

Grocery:
• Brand-building investments and innovation continued to drive strong gains in Kraft Macaroni & Cheese, Velveeta dinners and Cool Whip.
• Volume/mix gains from retail inventory increases were more than offset by lower volumes in JELL-O desserts and Planters nuts. Planters volume declines related to significantly higher price levels versus the prior year.
• Operating income declined as brand-building investments, restructuring costs and higher overheads more than offset significant gains from better alignment of prices and input costs versus the year-ago quarter and favorable productivity.
International & Foodservice:
• Significant volume/mix gains were led by a combination of strong growth in Cracker Barrel cheese and Tassimo and MiO beverages in Canada and customer inventory buildups.
• Double-digit operating income growth was driven by volume/mix gains in the quarter.

A webcast of the call will be available to the general public in real-time and archived for playback on Kraft's Web site, http://ir.kraftfoodsgroup.com. A replay of the conference call will be available until Nov. 21, 2012, by calling 855-859-2056 from the United States and Canada, and 404-537-3406 from other locations. The access code for the replay is 41933758. An archive of the webcast will be available for one year on Kraft's Web site.