Kraft raises prices without pain

The food giant says it was able to cover a jump in costs for fuel and raw ingredients. With video.

By Kim Peterson May 12, 2011 12:32PM
The price for raw ingredients is killing some food companies. While costs are going up, in this economy any sort of price increase will irritate consumers.

But Kraft Foods (KFT) has managed to navigate those rough waters pretty well. Analysts say it could be the only food company so far this year to successfully raise prices enough to cover costs without sacrificing demand. Kraft's largest brands include Nabisco, Maxwell House and Oscar Mayer.

Kraft "may take the prize as the only (food) company to have offset inflation via pricing" in the first quarter, a Barclays Capital analyst told Dow Jones. "To the extent that pricing can continue to run in line (or slightly ahead) of commodity costs, Kraft should have all the more flexibility to continue to reinvest against its brands and support volume growth."

Post continues after this video about how one cupcake company is dealing with higher food costs:
Kraft said this month that it raised the prices of its products by 3.7%, allowing it to handle a 7% rise in input costs, Dow Jones reported. And investors were pleased, pushing Kraft's share price up nearly 8% in just the past month alone. Kraft shares hit a 52-week high Thursday at $34.52 in morning trading.

We're seeing food producers raise prices across the board as commodity costs spike. Corn, soybeans and other grains used to feed animals are rising, making business more expensive for Tyson Foods (TSN), for example. We all know what's happening to fuel prices, which makes transporting materials all the more expensive for companies as well.

Hershey (HSY) has raised prices as the costs of its materials rose $33 million in the first quarter. Even fast-food restaurants like Wendy's and McDonald's (MCD) have had to raise prices on higher food costs. Global food costs hit a near-record in April and may rise an additional 4.4% by the end of the year, Bloomberg reported.

But higher costs didn't stop Kraft from posting a remarkable first quarter. The company beat analyst expectations on both earnings and revenue and predicted a full-year operating profit of at least $2.20 a share -- likely 11% to 13% more than the year before. Revenue for the quarter rose 11% to $12.6 billion, and gross margin rose to 36.9% from 36.1%.

"We're realizing better alignment between pricing and input costs, and volumes to date have held up well," the company's chief financial officer said.
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