Kraft Foods reported its first quarter EPS of $0.52, which was $0.04 above our estimate and $0.06 above the consensus estimate. This quarter was led by a strong revenue-growth performance in the quarter — sales were up 4.6 percent (mostly pricing) and would have been up over 6 percent including the benefit from Easter. This sort of revenue growth could continue to produce upside to our EPS estimates.
We believe this pricing will continue to pick up especially in Q2 2011. By the end of the quarter, we expect most of the pricing Kraft needs for the year to be in place, but clearly this remains a “watch out” especially for Europe where cost inflation is high (chocolate, coffee, and biscuits especially) and the retail environment remains challenging.
Kraft reported Q1 adjusted earnings of $0.52, a nickel ahead of the consensus estimate and our own. Kraft delivered organic growth of 4.6 percent, modestly behind our projection, but its overall revenue growth of 11 percent was well ahead of our 6.4 percent expectation. Guidance of at least 4 percent organic growth and EPS of at least $2.20, now excluding the lost Starbucks business, hewed closely to Street expectations.
Revenue growth was solid across all three segments. In North America, organic growth of 2.2 percent was a bit below our estimate, but price realization of 3.3 percent was solid and representative of Kraft’s ability in the quarter to get better pricing to cover input push than we expected. Similarly, revenue growth of 24 percent in the developing markets and 11.3 percent in Europe exceeded our expectations. It also appears that revenue synergies may be occurring more quickly than we projected.
Meredith Adler, CFA