Kraft Foods Group Earnings Call Nuggets: Marketing Expenditure and Revenue Growth

Kraft Foods Group Inc (NASDAQ:KRFT) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Marketing Expenditure

Alexia Howard – Sanford Bernstein: Could I ask a little bit about the marketing spending. Are you able to quantify how much that was down year-on-year this particular quarter and what the outlook is for the full year in terms of how you expect the full year to shape out?

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

W. Anthony Vernon – CEO: Sure, it wasn’t down in the quarter Alexia. It was up double digits in terms of the A&C, which is our key measure in terms of how much we’ll invest going forward, I would tell you this isn’t precise science, you are not going to see savings and reinvestment aligned perfectly every quarter. Our quarterly earnings pacing reflects the toggling of stepped-up brand investments vis-a-vis the flow of the cost savings. It’s important to us that we ensure we don’t create disruption or cause inefficiency in either area by trying to manage quarterly earnings. And you know, we make these investment decisions on margin, materiality, momentum and frankly message. If all things are right, we’ll invest.

Alexia Howard – Sanford Bernstein: Great. Then may be just one follow-up on the gross margin front. It looks like that the gross margins were up in the quarter. I’m curious about how you see that playing out going forward, and in particular, what the commodity cost situation looks like today and how that might look through the rest of the year? Thank you, and I’ll pass it on after that…

Tim McLevish – EVP and CFO: Well, Alexia, we’re very focused on better managing input cost than we are forecasting them. I think you have a pretty good sense for what’s happening in the commodity world and those that impact us, but we’re confident that with the continued strengthening of our brand and further investment that Tony talked about, that we will be able to manage pricing to accommodate those to maintain our gross margins.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Revenue Growth

Bryan Spillane – Bank of America Merrill Lynch: First question, just in terms of revenue growth in the quarter, it look like vol/mix especially was a lot better than what we could see in the scanner data. So could you talk a little bit about just maybe the difference between what you reported in the scanner data and maybe bridge that difference for us?

W. Anthony Vernon – CEO: Sure. Our year-on-year vol/mix in Q1 was better than the recent Scanner data would have suggested. This was probably due to comparison as the trade was working down, inventories of Capri Sun, coffee and Cheese during the first quarter 2012, and related to some pricing activity occurring in the year ago periods. So, I think you have to look at the last year to help sort of to explain it totally. The bottom-line is, we ended the quarter with retail inventory at normal levels for this time of year and I think the unit share gain you see are probably the best indicator of what’s happening on the brands, because we took pricing earlier as I mentioned in the speech last year than – in pretty much all of the industry…

Bryan Spillane – Bank of America Merrill Lynch: Just as a follow-up to that, you know we begun to hear a little bit about maybe some concern across the industry that maybe it starts to get a little bit of – more price competitive as there are some growth margins flexibility and even alluded a little bit to that I guess in some of the categories that you pointed out in the prepared remarks. Can you just comment on sort of where you see today kind of the state of the consumer and maybe just that competitive dynamic maybe relative to what you were seeing when the year started, do you think it’s any better, worse or the same versus kind of what your outlook might have been back in February?

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

W. Anthony Vernon – CEO: I think if you listen to our customers and For instance most recently, the restaurant industry, it’s not getting better. It might even be based on some of those comments getting worse for that lower end consumer on the barbell. We certainly see the consumer intensely focused on value for the money and that’s why we continue to see the need to innovate and ensure that our Good-Better-Best offerings span as many categories as we have them. We’re confident and we continue to be pretty confident, the elasticities are reflecting our equity and innovation investment and I point to the volume growth this quarter as a pretty good sign. Certainly we’re in a marathon, not a sprint, but offering value at every rung on the price ladder is critical and when we do it we do quite well.

A Closer Look: Kraft Foods Earnings Cheat Sheet>>