April 28, 2015 / 8:29 PM / 3 years ago

Kraft Foods quarterly profit falls 16 percent, but tops expectations

(Reuters) - Kraft Foods Group Inc KRFT.O, which is merging with ketchup maker H.J. Heinz Co [HJHC.UL], on Tuesday reported profit that topped analyst estimates, driven by reduced advertising spending and overhead.

The Kraft logo is pictured outside its headquarters in Northfield, Illinois, March 25, 2015. REUTERS/Jim Young

But the company missed revenue expectations amid sluggish demand for its meals and desserts. Kraft, whose brands include Velveeta and Oscar Mayer, is struggling to grow as consumers shift to brands that are perceived as healthier, including foods that are organic or less processed.

Shares fell 16 cents to $85.72 in after-hours trading on Wednesday.

“It may not matter to the stock, but the quarter wasn’t great,” said JP Morgan analyst Ken Goldman in a note. “We did not see much ... that we think will send the shares higher tomorrow.”

Kraft’s net income fell 16 percent to $429 million, or 72 cents per share, in the first quarter ended March 28, from $513 million, or 85 cents per share, a year earlier. When adjusted for items such as cost cuts and a loss related to the company’s pension obligations and other retirement benefits, Kraft earned 86 cents a share.

Revenue fell slightly to $4.35 billion. Analysts had expected earnings per share of 81 cents and revenue of $4.43 billion.

Heinz, backed by Warren Buffett’s Berkshire Hathaway Inc BRKa.N and Brazilian private equity firm 3G Capital, will combine with Kraft to create the third-largest North American food company, the companies said in late March.

Both companies said at the time that the deal, which is expected to close in the second half of 2015, would provide an opportunity to expand Kraft’s brands overseas. Kraft says its brands are currently in 98 percent of North American households.

In the first quarter, the company said its cheese business, which rose 1.3 percent, benefited from price hikes in the past year and changes the company made to its Philadelphia brand soft cream cheese.

Meanwhile, beverage sales were up 4.2 percent, helped by the launch of McCafe branded coffee that Kraft is selling in partnership with McDonald’s Corp MCD.N.

Reporting by Ramkumar Iyer in Bengaluru; Editing by Robin Paxton and Alan Crosby

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