Milling & Baking News - August 1, 2006 - 18

F I N A N C I A L

Kraft raises full-year outlook
as second-quarter net climbs 45%
NORTHFIELD, ILL. - A favorable
product mix, increased advertising and successful cost-cutting
measures combined to drive a
significant increase in income at
Kraft Foods Inc. for the second
quarter, leading the company to
raise its outlook for the full year
to $1.78 to $1.83 per share, up
from $1.55 to $1.60.
Net income in the second quarter ended June 30 totaled
$682 million, equal to 41c
per share on the common
stock, up 45% from $472
million, or 28c per share, in
the same period last year.
The company continued
with its cost-cutting initiatives during the quarter,
which contributed to the
increase in income. Year-todate, Kraft has designated
seven facilities for closing and various headquarter
overhead reduction programs and initiatives to simplify internal business practices have been implemented. Ongoing
savings for the program to date totaled
approximately $385 million, up from
about $260 million at the end of 2005.
Net revenue for the second quarter totaled $8,619,000,000, an increase of 3% from
$8,334,000,000 in the year-ago period.
Commenting in a July 24 conference
call, newly appointed chief executive
officer Irene Rosenfeld said she feels "a
little bit like Rip Van Winkle."
"Much has changed, and many of the
challenges that were evident when I left
have begun to be addressed," Ms. Rosenfeld said. "But there is more to be done.
There's no question in my mind that Kraft
has great brands and talented people, but
we need to get it growing faster."
Ms. Rosenfeld explained that during her
first 100 days on the job she has been doing
a lot of "listening and learning." With that
in mind, she also urged patience.
"Patience is not one of my virtues, and I
know it doesn't come naturally to most of
you," she told the analysts. "But this is a big
organization, and we need to do the hard
work to ensure that we have an aspirational but achievable plan to accelerate our
growth. It can be done, and we will make
progress. In fact, our second-quarter results
provide early signs of improving momentum. But meaningfully accelerating that
momentum will not happen overnight."
In the company's North America
Snacks & Cereals business, operating income during the second quarter was $269
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million, up 13% from the second quarter
last year. Gains in volume growth, favorable
product mix, higher
prices and lower marketing spending helped
offset incremental investments in health
and wellness initiatives
as well as higher packaging and energy costs,
Kraft said.
Sales in the unit
grew 6% to $1.61 billion
as cracker sales led the
way with the introduction
of new flavors in Wheat Thins
and strong performance in Triscuits. Sales also were boosted
by slight growth in cookie revenues, which were driven by
Nabisco 100 Calorie Packs and
whole grain Newtons.
Cereal revenues edged up
only slightly as success in the new
Grape Nuts Trail Mix Crunch cereal and
Post Honey Bunches of Oats cereal lines
were largely offset by lower revenues in
children's cereals.
"We are addressing this through the
rollout of reformulated kid's cereals
that conform to our Sensible Solutions
guidelines, including a resumption of
advertising," said Jim Dollive, chief financial officer. He added that the company already has got the Honeycomb

R E S U L T S

and Pebbles businesses back on air.
Snack and cereal bars contributed
strong double-digit growth, driven by
the continued success of South Beach
Diet cereal bars.
Operating income in North America
Convenient Meals was $185 million, up
0.5% from the same period a year ago.
Sales in the unit grew 7% to $1.23 billion
as Oscar Mayer meats experienced double-digit revenue growth. The continued
strength of Lunchables and the introduction of Kraft Easy Mac in a microwavable
cup also boosted sales in this segment.
North America Grocery operating income was $294 million, up 5% from last
year. The improvement came despite a
decline in net revenue of 5% to $790 million, including an 8.7 percentage point
impact from divestitures.
"I don't have a crystal ball in terms of
the future development of our categories," Ms. Rosenfeld said. "What I will
tell you is that at the end of the day it is
all going to be about brand value and it
is going to be about what the consumer
wants, and to what extent we're satisfying her needs. And that really is going
to be my major focus.
"I think the key for us is to make sure
that we're really looking at some new solutions to some old issues."
As a result of the successful quarter and
the projected 13c one-time gain related to
Kraft's acquisition of United Biscuits, the
company has increased its e.p.s. guidance
for 2006 to $1.78 to $1.83 from $1.55 to
$1.60. Kraft also said the outlook was 10c
favorable due to the timing of cost recognition under its restructuring program. MBN

Panera Bread second-quarter net rises 31%
behind 30% improvement in sales
ST. LOUIS - Net income at Panera Bread Co.
in the second quarter ended June 27 increased
31% to $14,052,000, equal to 45c per share on
the common stock, up from $10,429,000, or
34c per share, in the same quarter a year ago.
For the six months ended June 27, net income was $29,065,000, or 93c per share, up
19% from $24,352,000, or 79c per share, in the
same period a year ago.
Total revenue for the quarter was
$197,135,000, up 30% from $151,908,000 in
the same period last year. For the six months,
revenue totaled $391,106,000, up 32% from
$296,045,000 last year.
The company's key metrics again showed
strength in the second quarter. System-wide
comparable bakery-cafe sales increased 3%,
resulting in second-quarter average weekly
sales increasing 2% to $38,621.
As of June 27, there were 939 Panera Bread
bakery cafes open. During the second quarter
ended June 27, 43 bakery cafes were opened.

Panera established a third-quarter earnings
per share target of 34c to 37c, which, if realized, would be an increase of 0% to 9% from
comparable third-quarter 2005 results.
"This e.p.s. target reflects incremental costs
of the earlier-than-planned operational rollout of Crispani of 2c to 4c per share," Panera
said. "In addition, the target includes costs
of 6c to 8c per share for training, sampling,
and local marketing expenses shifted forward
from the fourth quarter to the third."
The third-quarter target assumes thirdquarter system-wide comparable bakery cafe
sales growth of 3% to 4%.
"We expect to meet the targets for all of our
2006 key metrics," said Ron Shaich, chairman
and chief executive officer. "As a result, 2006 is
shaping up to be another strong year. We are extremely pleased to be in position to deliver 27%
to 32% e.p.s. growth while making investments
in our business that will fuel our ability to deliver
25% e.p.s. growth for the foreseeable future." MBN
Milling & Baking News, August 1, 2006 / 19

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Milling & Baking News - August 1, 2006

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