Kraft Foods Inc. (KFT) blew away Wall Street’s earnings expectations and raised its guidance as it was able to raise prices sufficiently to cover increasing commodity costs. Meanwhile, Tyson Foods Inc. (TSN) posted a lousy quarter after getting slammed by a huge jump in costs. Both stocks should be avoided for the time being.
As Bloomberg News notes, Kraft Chief Executive Irene Rosenfeld raised prices in April to counteract rising prices for commodities such as wheat and oil. Increased spending on advertising also pushed up sales of brands such as Oscar Meyer lunch meats, Jell-O pudding, Maxwell House coffee and Philadelphia cream chase.
For now, the strategy is working. Net income at the Northfield, Illinois-based company rose 3.5 percent to $732 million, or 48 cents a share, from $707 million, or 44 cents, a year earlier. Revenue rose 21 percent to $11.2 billion, the company said. Excluding one-time items, profit surpassed expectations by 8 cents, Kraft also raised its 2008 guidance to $1.92 from $1.90 and its outlook for organic net revenue growth to at least 6 percent versus 5 percent.
Tyson shares are slumping as the company’s chicken business lost money as grain costs soared by $140 million and are expected to skyrocket by $550 million in fiscal 2008. Chief Executive Richard Bond said he expects the company’s chicken business to improve once the economy improves which sounds like wishful thinking. The beef business was hurt by a negative $75 million impact from the application of mark-to-market accounting treatment related to unrealized derivative losses for forward cattle purchases and forward boxed beef sales. Net income fell to $9 million, or 3 cents a share, below the 12-cent profit analysts had expected. Revenue rose slightly to $6.8 billion
If the economy gets worse, both companies are going to find it increasingly difficult to pass on their costs to consumers. That means that they are going to rely upon coupons and special offers to boost sales.
For consumers, it’s great news. Shareholders, though, are going to get the short end of the stick.
Jonathan Berr
Take This Retirement Quiz To Get Matched With An Advisor Now (Sponsored)
Are you ready for retirement? Planning for retirement can be overwhelming, that’s why it could be a good idea to speak to a fiduciary financial advisor about your goals today.
Start by taking this retirement quiz right here from SmartAsset that will match you with up to 3 financial advisors that serve your area and beyond in 5 minutes. Smart Asset is now matching over 50,000 people a month.
Click here now to get started.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.