1/12/2010 9:53 PM ET
(RTTNews) - Packaged foods company Kraft Foods Inc. (KFT: News ), which has made a hostile takeover bid for U.K.-based confectioner Cadbury plc (CBY: News ,CBRY.L: News ), raised its earnings outlook for fiscal year 2009 Tuesday evening, citing strong operating gains as well as a significant increase in marketing investments compared to the prior year. Kraft's announcement comes after Cadbury rejected its bid earlier in the day, citing its own "outstanding" financial performance in 2009 and expectations of a strong business momentum in 2010.
Kraft now forecasts earnings of at least $2.00 per share, up from its prior expectation of at least $1.97 per share. On average, ten analysts polled by Thomson Reuters expect the company to report earnings of $2.00 per share for the full year. Analysts' estimates typically exclude special items.
Irene Rosenfeld, Chairman and CEO of Kraft Foods said, "As we complete our turnaround, we're delivering high-quality earnings growth, despite the difficult economic environment, and we're doing this while continuing to invest in our brands and businesses. As a result, we're well positioned to deliver sustainable top-tier performance, with or without Cadbury."
Although the tough economy has reflected on all sectors, food makers are benefiting from the eat-at-home trend. The reduction in ingredient costs is another positive factor for these companies. Northfield, Illinois-based Kraft manufactures packaged food products and grocery products. Its offerings include Kraft cheeses, Oscar Mayer meats, Philadelphia cream cheese, Maxwell House and Jacobs coffee, Milka chocolates and LU biscuits. Kraft, with about 100,000 employees and annual revenues of $42 billion, is the world's second largest food company.
Among Kraft's peers, ConAgra Foods Inc. (CAG: News ) in mid-December raised its earnings outlook for fiscal year 2010, citing the company's strong performance in the first half of the year. ConAgra raised its forecast for earnings from continuing operations, excluding items impacting comparability, to nearly $1.73 per share from the prior outlook of nearly $1.70 per share.
In early November, Kraft reported a 39.5% decline in profit for the third quarter from the prior year, when results were boosted by huge gains from the divestiture of discontinued operations. The company's net income for the third quarter dropped to $824 million or $0.55 per share from $1.4 billion or $0.91 per share in the year-ago quarter. Net revenue for the quarter declined 5.7% to $9.80 billion from $10.40 billion in the same quarter last year, hurt mainly by the impact of a stronger U.S. dollar.
At that time, Kraft had raised its earnings guidance for 2009 to at least $1.97 per share from the prior guidance of at least $1.93 per share, to reflect strong year-to-date profit performance and a reduction in its full-year effective tax rate.
About a week later, Kraft announced its firm intention to make an offer to acquire the whole of the issued and to be issued share capital of Cadbury. Kraft offered to acquire Cadbury for 300 pence in cash and 0.2589 new Kraft shares for each Cadbury share. The company's offer valued Cadbury at GBP 9.8 billion, or $16.3 billion, below the GBP 10.2 billion offered earlier in September, before Kraft shares slid and the dollar slumped badly versus the sterling.
Cadbury immediately rejected the "derisory offer" and encouraged shareholders to turn down the bid, noting it is worse than a previous offer due to the fall in the Kraft share price since September.
In early January, Warren Buffett's Berkshire Hathaway Inc. (BRK-A, BRK-B), Kraft's largest shareholder, said it voted "no" on Kraft's proposal to authorize the issuance of up to 370 million shares to facilitate the acquisition of Cadbury, as it believes that the Kraft share is a very expensive "currency" to be used in an acquisition. Kraft had said that it would sell the assets of its North American pizza business to Nestle (NSRGY.PK, NSTR.L) for a total consideration of $3.7 billion and would use the net proceeds to increase the cash portion of the offer to Cadbury shareholders.
Kraft must make its final offer for Cadbury by January 19. Cadbury shareholders have until February 2 to decide whether to accept Kraft's bid.
Earlier on Tuesday, Cadbury once again said that its board has unanimously rejected the "wholly inadequate offer" from Kraft and continues to urge its shareholders not to take any action in relation to the offer.
Cadbury's decision followed its "outstanding" financial performance in 2009 as well as the company's expectation of a strong business momentum in 2010. The company also said it believes that its standalone value has risen further since Kraft's approach on September 4.
This was the second response document from the board of Cadbury after Kraft's formal offer on December 4, 2009. Stating further reasons to reject Kraft offer, Cadbury said its 2009 performance was helped by strong growth in the fourth quarter and the savings generated by the company's Vision into Action business plan.
(RTTNews) - Media reports last week had said that Italian chocolate maker Ferrero SpA was in talks with Hershey Co. (HSY) about a possible takeover bid for Cadbury. Ferrero was also said to be discussing the possibility of a joint offer with buyout firms including Blackstone Group (BX).
KFT closed Tuesday's regular trading session at $29.29, up $0.49 or 1.70% on a volume of 19.56 million shares. In the past 52 weeks, the stock has been trading in a range of $20.81-$29.84.
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