Cadbury bill eats into Kraft profit

Costs stemming from the acquisition of UK chocolate business Cadbury has left foods giant Kraft with a 24% drop in fourth quarter profits.

The cost of ingredients such as corn, sugar and cocoa also bit into results as the maker of Oreo cookies, Capri-Sun and Maxwell House coffee saw net income fall to 540 million US dollars (£335 million) in the final three months of 2010.

Cadbury’s revenues were flat in Europe as solid growth in the UK was offset by weaker gum and sweet sales in southern Europe. The Cadbury business fared less well in North America, where net revenues were down 6.1% due to lower sales of Trident and Stride gum and strong trading by Halls cough drops a year earlier.

Across the Kraft business, revenues increased by 30% to 13.8 billion US dollars (£8.6 billion) and included a 26.2 percentage point contribution from Cadbury, which the company bought for £11.5 billion last February. Cadbury’s like-for-like revenues grew 2.2%, helped by demand in emerging markets.

Kraft’s operating income for the quarter was impacted by a 26.9 percentage point hit from the integration of Cadbury, it added.

The Illinois-based firm softened its November guidance on profits growth this year to between 11% and 13% and warned that higher costs for ingredients and weak consumer confidence meant it faced a tough road ahead.

Chief executive Irene Rosenfeld described the results for 2010 as solid and said the company finished the year with good momentum.

She added: “Looking ahead, we expect the operating environment to remain challenging, with significant input cost inflation and persistent consumer weakness in many markets.”

While its underlying results met Wall Street expectations, the comments on 2011 trading will add to concerns about prospects in the consumer goods sector.

Johnnie Walker firm Diageo reported half-year results short of expectations yesterday, while Reckitt Benckiser, Colgate-Palmolive and Procter & Gamble have also disappointed analysts in recent days.