What were the main drivers of the change in net earnings?

Net earnings decreased slightly from $1.258 billion in the first six months of 2004 to $1.185 billion in the same period of 2005. This was primarily due to a significant loss of $272 million from discontinued operations, largely driven by a $297 million loss on the sale of the sugar confectionery business, which offset the growth in earnings from continuing operations.

How is the company managing rising commodity costs?

The company is experiencing significant increases in commodity costs, with a projected cumulative impact of approximately $2 billion over three years (2003-2005). To counter this, Kraft Foods has implemented price increases across many categories and is focused on improving productivity. For the six months ended June 30, 2005, net revenues increased due to higher net pricing, reflecting these commodity-driven adjustments.

What is the status of the company's restructuring program?

Kraft Foods is in the second year of a three-year restructuring program announced in January 2004, aimed at cost reduction and efficiency. As of June 30, 2005, $772 million of the expected up to $1.2 billion in pre-tax charges had been incurred. The program involves plant closures, workforce reductions, and asset disposals, with expected annualized cost savings of approximately $400 million by 2006.

What significant divestitures occurred during the period?

The most significant divestiture was the sale of substantially all of its sugar confectionery business in June 2005 for approximately $1.4 billion, including brands like Life Savers and Altoids. This business is reported as discontinued operations. Additionally, the company sold its fruit snacks business, U.K. desserts business, U.S. yogurt business, and a minor trademark in Mexico during the first half of 2005.

MDLZ 10-Q Quarterly Report Q2 FY2005 — Revenue, Net Income, EPS

Summary

Mondelez International, Inc. (MDLZ), reporting as Kraft Foods Inc. in this 2005 filing, demonstrated resilience in its first half performance despite ongoing restructuring efforts and rising commodity costs. The company reported an increase in earnings from continuing operations to $1.457 billion for the six months ended June 30, 2005, up from $1.226 billion in the prior year, driven by strategic gains on business sales, a lower effective income tax rate, and favorable currency movements. While net earnings saw a slight decrease due to a significant loss from discontinued operations related to the sale of its sugar confectionery business, the core business demonstrated operational strength. Significant ongoing initiatives include a three-year restructuring program aimed at cost reduction and efficiency, with a substantial portion of the planned $1.2 billion in pre-tax charges already incurred. The company also successfully divested its sugar confectionery business for approximately $1.4 billion and other smaller businesses, contributing to a net increase in cash provided by investing activities. Despite inflationary pressures from commodities, Kraft Foods managed to increase net revenues and operating income through strategic pricing and favorable currency translation, while also reaffirming its full-year diluted EPS forecast.

Key Highlights

1Net revenues for the six months ended June 30, 2005, increased by 4.6% to $16.393 billion compared to $15.666 billion in the prior year, driven by favorable currency, higher pricing, and volume/mix.
2Operating income for the six months increased by 10.3% to $2.407 billion, benefiting from lower asset impairment and exit costs, gains on business sales, and favorable currency.
3Earnings from continuing operations for the six months rose by 18.8% to $1.457 billion, with diluted EPS from continuing operations increasing to $0.86 from $0.71.
4The company reported a loss from discontinued operations of $272 million for the six months, primarily due to a $297 million loss on the sale of its sugar confectionery business.
5Total debt decreased to $11.1 billion as of June 30, 2005, from $12.5 billion at December 31, 2004, reflecting debt repayment, including from proceeds of divestitures.
6Capital expenditures for the first six months of 2005 were $441 million, an increase from $353 million in the prior year, supporting ongoing initiatives including restructuring.
7The company reaffirmed its 2005 full-year diluted EPS forecast of $1.73 to $1.78 on a continuing operations basis.

Mondelez International, Inc. Quarterly Report for Q2 Ended Jun 30, 2005

Summary

Key Highlights

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