Kraft 2008 Annual Report Download - page 33

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Segment operating income increased $189 million (22.8%), due primarily to 2006 asset impairment charges related to the divested pet snacks and hot cereal
assets and trademarks, favorable volume/mix and lower Restructuring Program charges. These favorable variances were partially offset by higher marketing,
administration and research costs (including higher marketing support) and the impact of divestitures.
2006 compared with 2005:
Net revenues increased $108 million (1.7%), due to favorable volume/mix (1.8 pp, including the 53rd week in 2005), higher net pricing (1.4 pp) and favorable
currency (0.6 pp), partially offset by the impact of divestitures (2.1 pp). Biscuit net revenues increased due to higher pricing to offset the impact of commodity
cost increases in energy and packaging, higher shipment volume and favorable mix. In snack bars, net revenue increases were driven by new product
introductions. Canadian snack net revenues also increased due to sales of co-manufactured products related to the 2005 divested confectionery business. Snack
nuts net revenues decreased due to lower shipments.
Segment operating income decreased $101 million (10.9%), due primarily to asset impairment charges related to the divested pet snacks and hot cereal assets and
trademarks, higher product costs, the impact of divestitures and higher Restructuring Program costs. These unfavorable items were partially offset by higher net
pricing, the 2005 asset impairment charge in anticipation of the 2006 sale of a small U.S. biscuit brand, lower marketing spending and lower fixed manufacturing
costs.
European Union
For the Years Ended
December 31,
$ change
% change
2007 2006
(in millions)
Net revenues $ 7,954 $ 6,672 $ 1,282 19.2%
Segment operating income 571 548 23 4.2%
For the Years Ended
December 31,
$ change
%
change
2006 2005
(in millions)
Net revenues $ 6,672 $ 6,714 $ (42) (0.6%)
Segment operating income 548 722 (174) (24.1%)
2007 compared with 2006:
Net revenues increased $1,282 million (19.2%), due to favorable currency (10.5 pp), the impact of the UB acquisition (5.1 pp), higher volume (3.4 pp) and
favorable mix (1.9 pp), partially offset by lower net pricing (1.7 pp). Volume related growth and favorable mix were driven by premium chocolate, due to new
product introductions and promotional activities, and higher shipments in mainstream coffee and cheese. Lower net pricing reflects higher promotional spending
in chocolate, cheese and coffee (primarily in Germany).
Segment operating income increased $23 million (4.2%), due primarily to the 2006 asset impairment charge related to Tassimo hot beverage system, favorable
volume/mix, lower Restructuring Program charges, favorable currency, lower fixed manufacturing costs and the impact of the UB acquisition. Partially offsetting
these favorable variances were the prior year gain on the redemption of our UB investment, higher commodity costs, lower net pricing and higher marketing
expense.
2006 compared with 2005:
Net revenues decreased $42 million (0.6%), due to lower volume (1.7 pp, including the 53rd week in 2005), unfavorable currency (1.3 pp) and the impact of
divestitures (0.2 pp), partially offset by the acquisition of UB (1.6 pp), favorable mix (0.9 pp) and higher net pricing (0.1 pp). Volume related declines, net of
favorable mix, were driven by lower shipments in cheese, coffee and refreshment beverages. Net pricing was essentially flat as increased pricing in coffee and
chocolate was offset by higher promotional spending across all categories.
Segment operating income decreased $174 million (24.1%), due primarily to the asset impairment charge related to Tassimo hot beverage system, the 2005 gain
on divested U.K. desserts assets, higher Restructuring Program costs, unfavorable costs and increased promotional spending, net of higher pricing, higher
marketing, administration and research costs and unfavorable
31
Source: KRAFT FOODS INC, 10-K, February 25, 2008 Powered by Morningstar® Document Research℠