Kraft results hold key to Cadbury takeover

Kraft Foods Inc will need to show progress in cutting costs and improving organic revenue when it reports earnings today, in a bid to convince Cadbury shareholders it is a viable deal partner.

Lower commodity prices and cost controls helped other consumer-staples companies beat analyst estimates in recent weeks, including Kellogg Co, Clorox Co and General Mills Inc. They also came in slightly ahead of muted revenue expectations.

If that trend holds for Kraft - which is due to present a formal takeover bid for UK confectioner Cadbury by Nov 9 - it could boost the company's shares and make for a more compelling offer.

"The trend has been for food companies across the board to beat the number," Edward Jones analyst Matt Arnold said. "I haven't seen many companies in consumer staples post a miss lately."

Kraft is likely to stick by its initial cash and stock proposal to Cadbury shareholders that was disclosed on Sept 7, sources familiar with the situation told Reuters.

That deal was valued at 745 pence a share, or 10.2 billion British pounds ($16.7 billion), at the time. The proposed bid was worth 733.4 pence, or 10.06 billion pounds ($16.5 billion) on Monday afternoon based on the decline in Kraft shares.

The world's No 2 foodmaker is scheduled to post third-quarter earnings early this morning.

Kraft Chief Executive Officer Irene Rosenfeld is not expected to take questions about the Cadbury bid when she talks to analysts about earnings, a spokesman said.

But the results will help set the stage for Kraft's bid.

The maker of Velveeta cheese and Oreo cookies is expected to post earnings of 48 cents a share in the quarter, according to Thomson Reuters, up from 44 cents a year earlier, with lower commodity costs and its own cost-cutting measures helping boost profits.

But revenue is expected to fall to $10.32 billion from $10.46 billion, hurt by divestitures and strength in the dollar compared with a year earlier.

Source:China Daily