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Kraft's Profit Drops on Sale of Candy Business

Kraft Foods Inc., the nation's largest foodmaker, reported that its second-quarter profit fell 32 percent, mainly due to a $297 million loss from the sale of its Altoids and Life Savers business, according to a report in the Chicago Tribune.

The Northfield, Ill.-based company said net income fell to $472 million, or 28 cents a share, from $698 million, or 41 cents a share, a year earlier. Kraft said the one-time loss on the sale of Altoids and Life Savers business was due to the taxes it would pay. Kraft sold the confectionery business to the Wm. Wrigley Jr. Co. for $1.4 billion. Without the loss, Kraft said it would have recorded a 10-percent increase in net income.

In a conference call with Wall Street analysts, Kraft CEO Roger Deromedi remained upbeat about the prospects for the maker of Oscar Mayer hot dogs, Tombstone pizza and Oreo cookies. "We are doing the right things in the business that will benefit us for the remainder of this year and the future," he said, saying he was confident the company would achieve the earnings it has targeted.

Wall Street analysts repeatedly questioned whether Kraft would be able to achieve the earnings it reaffirmed in the conference call. John McMillin, an analyst with Prudential Equity Group, told Deromedi he has doubts Kraft will be able to hit its target. "It just seems to me that every time you try to get the margins [up], your volumes go down and vice versa," he said. "You can't seem to walk and chew gum at the same time."

It is a situation that has plagued Kraft for the past several years as it has tried to raise prices without hurting sales. Overall, Kraft said it raised retail prices an average of 5.1 percent from the year-ago quarter in an effort to limit the effect of higher commodity costs. Kraft said its sales grew 3 percent, to $8.33 billion.
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