Kraft 2005 Annual Report Download - page 38

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MERRILL CORPORATION ABLIJDE// 7-MAR-06 14:42 DISK126:[06CHI5.06CHI1135]DK1135A.;21
mrll.fmt Free: 30D*/120D Foot: 0D/ 0D VJ RSeq: 8 Clr: 0
DISK024:[PAGER.PSTYLES]UNIVERSAL.BST;51
KRAFT FOODS-FSC CERTIFIED-10K/AR Proj: P1102CHI06 Job: 06CHI1135 File: DK1135A.;21
Merrill Corporation/Chicago (312) 786-6300 Page Dim: 8.250X 10.750Copy Dim: 38. X 54.3
cookies. Cereals volume increased due primarily to new product introductions and expanded
distribution in ready-to-eat cereals. In salted snacks, volume declined due to higher commodity-driven
pricing on snack nuts and increased competitive activity.
Net revenues increased $339 million (6.3%), due primarily to higher volume/mix ($296 million,
including the benefit of the 53rd week) and higher pricing, net of increased promotional spending
($39 million, reflecting commodity-driven pricing in snack nuts and cereals). Biscuits net revenues
increased, driven by new product introductions and improved mix. Cereals net revenues also increased,
due primarily to new product introductions and higher shipments and pricing of ready-to-eat cereals.
Salted snacks net revenues increased, as lower volume was offset by higher prices.
Operating companies income increased $134 million (18.2%), due primarily to higher volume/mix
($171 million including the benefit of the 53rd week) and lower pre-tax charges for asset impairment and
exit costs ($153 million), partially offset by higher marketing, administration and research costs
($96 million, including higher marketing and benefit costs, as well as costs associated with the 53rd
week), unfavorable costs, net of higher pricing ($72 million, due primarily to higher commodity costs and
increased promotional spending), higher fixed manufacturing costs ($15 million) and the net impact of
higher implementation costs associated with the restructuring program ($6 million).
2004 compared with 2003
The following discussion compares Kraft North America Commercial’s operating results for 2004
with 2003.
Volume increased 4.3%, due primarily to an acquisition in the U.S. Beverages segment and
increased shipments in the U.S. Cheese, Canada & North America Foodservice segment.
Net revenues increased $1,123 million (5.4%), due primarily to higher volume/mix ($537 million),
higher net pricing ($312 million, reflecting commodity-driven price increases, partially offset by
increased promotional spending), favorable currency ($164 million) and the impact of acquisitions
($117 million). Higher net revenues were driven by cheese, meats and nuts due to higher volume in
response to consumer nutrition trends and higher commodity-driven pricing net of increased
promotional spending.
Operating companies income decreased $788 million (16.9%), due primarily to the 2004 pre-tax
charges for asset impairment and exit costs ($391 million), unfavorable costs, net of higher pricing
($356 million, including higher commodity costs and increased promotional spending), higher
marketing, administration and research costs ($214 million, including higher benefit costs) and the 2004
implementation costs associated with the restructuring program ($40 million), partially offset by higher
volume/mix ($197 million) and favorable currency ($29 million).
The following discusses operating results within each of Kraft North America Commercial’s
reportable segments.
U.S. Beverages. Volume increased 12.7%, due primarily to the 2004 acquisition of a beverage
business and new product introductions in refreshment beverages. In coffee, volume also increased,
due to product quality improvements and the impact of an expanded distribution arrangement.
Net revenues increased $122 million (5.0%), due primarily to the impact of acquisitions ($94 million)
and higher volume/mix ($85 million), partially offset by increased promotional spending ($56 million).
Net revenues increased in refreshment beverages due primarily to the acquisition of Veryfine and
increased shipments of sugar-free powdered beverages. In coffee, increased net revenues were due
primarily to favorable mix from higher shipments of premium coffee, partially offset by increased
promotional spending in base coffee in response to competitive activity.
Operating companies income decreased $151 million (24.0%), due primarily to higher marketing,
administration and research costs ($98 million), unfavorable costs and higher promotional spending
37
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