European turmoil hits demand for Kraft brands

ECONOMIC TURMOIL in Europe is softening demand for Kraft’s gum and candy brands, as costcutting consumers hold back on sweet indulgences.

“Without a doubt our categories are softer than they have been as a result of the macro environment,” said Kraft chief executive Irene Rosenfeld.

“Across the board, without a doubt, southern Europe is the worst.”

Ms Rosenfeld said weakness in those categories was the “sole disappointment” in an otherwise successful quarter for the US food and snacks group. Gum and candy sales rose just 1 per cent during the quarter.

“It has taken us longer changing gum’s trajectory than we anticipated,” Ms Rosenfeld said, explaining that she expected that weakness to continue while European markets remained volatile.

She also pointed out that high petrol prices in the US were slowing sales in the gum business there, as consumers were holding back at convenience stores.

The comments came as Kraft reported a first-quarter rise in profits, due to a lift from price increases and strength in emerging markets. Net income at Kraft rose 2.1 per cent year-on-year to $819 million (€626 million), or 46 US cents a share, as revenue climbed 4.1 per cent to $13 billion.

In spite of the weakness in European candy and gum sales, net revenue there rose 4.5 per cent from a year ago. Meanwhile, revenue in developing markets and North America were up 8.5 per cent and 1.3 per cent, respectively.

Last year Kraft said it would separate its US grocery business from its bigger global snacks business, which includes the Cadbury, Oreo and Trident brands.

Ms Rosenfeld will lead the global snacks company, which in March was named Mondelez International.

Kraft maintained its earnings outlook for the year, projecting net revenue to rise 5 per cent and operating earnings per share to increase by 9 per cent from 2011.

Kraft said that, although it expected to see commodity costs decline in some of its categories this year, it was unlikely to start offering discounts or price cuts on its products to drive sales volume. – (Copyright The Financial Times Limited 2012)