2003 compared with 2002
The following discussion compares food operating results for 2003 with 2002.  North American food: Net revenues increased $422 million (2.0%), due primarily to higher volume/mix ($170 million), higher pricing, net of increased promotional spending ($151 million), and favorable currency ($120 million), partially offset by the divestiture of a small confectionery business in the fourth quarter of 2002.
Operating companies income decreased $33 million (0.7%), due primarily to cost increases, net of higher pricing ($161 million, including higher commodity costs and increased promotional spending), higher fixed manufacturing costs ($79 million, including higher benefit costs) and unfavorable volume/mix, partially offset by the 2002 pre-tax charges for asset impairment and exit costs, and integration charges (aggregating $242 million). Volume increased 1.6%. Volume gains were achieved in Beverages, Desserts and Cereals, driven primarily by new product momentum in ready-to-drink beverages and higher desserts volume, partially offset by lower shipments of coffee. In Cheese, Meals and Enhancers, volume increased, due primarily to improved consumption and share trends in cheese from increased marketing spending, and higher shipments in Canada and Mexico. Volume in KFNA’s food service business in the United States increased, due to higher shipments to national accounts. In Oscar Mayer and Pizza, volume increased, due primarily to higher shipments of cold cuts, hot dogs, bacon, soy-based meat alternatives and frozen pizza. Volume decreased in Biscuits, Snacks and Confectionery, due primarily to weakness in cookies resulting from the impact of consumers’ health and wellness focus, lower contributions from new products and higher pricing. International food: Net revenues increased $865 million (10.5%), due to favorable currency ($610 million), higher pricing ($320 million, reflecting higher commodity and currency devaluation-driven cost increases in Latin America) and the impact of acquisitions ($57 million), partially offset by the impact of divestitures ($66 million) and lower volume/mix ($56 million). Operating companies income decreased $48 million (3.6%), due primarily to higher marketing, administration and research costs ($98 million, including higher benefit costs and infrastructure investment in developing markets), the net impact of gains on sales of businesses ($41 million), lower volume/mix ($29 million) and the impact of divestitures, partially offset by favorable currency ($72 million), higher pricing, net of cost increases ($36 million, including fixed manufacturing costs), the 2002 pre-tax charges for integration costs ($17 million) and the impact of acquisitions ($7 million). Volume decreased 1.6%, due primarily to the impact of divestitures, the adverse impact of the summer heat wave in Europe on the coffee and confectionery businesses, and price competition, partially offset by growth in developing markets and the impact of acquisitions. In Europe, Middle East and Africa, volume increased, driven by growth in the Central and Eastern Europe, Middle East and Africa region, benefiting from the impact of acquisitions and new product introductions, partially offset by the adverse impact of the summer heat wave across Europe, price competition and the impact of divestitures. Snacks volume increased, benefiting from acquisitions, partially offset by the adverse impact of the summer heat wave on confectionery shipments and price competition. Beverages volume declined, due primarily to the summer heat wave across Europe (which had an adverse impact on coffee shipments) and price competition. These declines were partially offset by increased coffee shipments in Russia, benefiting from expanded distribution, and Poland, aided by new product introductions. In convenient meals, volume declined, due primarily to the divestiture of a European rice business, partially offset by higher shipments of canned meats in Italy. In cheese, volume decreased, due primarily to the impact of price competition in Germany and Spain, partially offset by higher shipments of cream cheese in Italy. Volume decreased in the Latin America and Asia Pacific region, due primarily to the divestiture of a Latin American bakery ingredients business in 2002, partially offset by growth in Argentina, Brazil, China and Australia. In grocery, volume declined in Latin America, due primarily to the divestiture of a bakery ingredients business in the fourth quarter of 2002. Snacks volume increased, due primarily to new product introductions in Brazil, Argentina, China and Australia, partially offset by lower confectionery volume due to trade inventory reductions, price competition and economic weakness in Brazil. In beverages, volume increased, driven by growth in Brazil, Venezuela and China, aided by new product introductions. In cheese, volume increased due to higher shipments to the Philippines and Australia, partially offset by declines in the Latin American region. Convenient meals volume also grew, benefiting from gains in Argentina. 
2002 compared with 2001
The following discussion compares food operating results for 2002 with 2001. North American food: Net revenues increased $515 million (2.5%), due primarily to higher volume/mix ($437 million) and the inclusion in 2002 of a business that was previously held for sale ($252 million), partially offset by lower net pricing ($154 million). Operating companies income increased $157 million (3.3%), due primarily to favorable margins ($176 million, driven by lower commodity-related costs and productivity savings) and higher volume/mix ($174 million), partially offset by higher benefit expenses, including the 2002 pre-tax charges for asset impairment and exit costs ($135 million). Volume increased 8.2%. In Cheese, Meals and Enhancers, volume increased, due primarily to the inclusion in 2002 of a business that was previously held for sale, increases in Kraft pourable dressings, barbecue sauce, higher shipments of macaroni & cheese dinners and the 2001 acquisition of It’s Pasta Anytime, partially offset by lower shipments of cheese. Cheese volume declined, as lower dairy costs in 2002 resulted in aggressive competitive activity by private label manufacturers in the form of reduced prices and increased merchandising levels. Volume increased slightly in Biscuits, Snacks and Confectionery, driven primarily by higher shipments of biscuits, which benefited from new product introductions, and higher shipments of snacks, due primarily to promotional initiatives, partially offset by lower confectionery shipments due to competitive activity in the breath-freshening category. Volume gains were achieved in Beverages, Desserts and Cereals, driven primarily by the strength of ready-to-drink beverages, coffee and desserts. In Oscar Mayer and Pizza, volume increased due primarily to hot dogs, bacon, soy-based meat alternatives and frozen pizza. International food: Net revenues decreased $26 million (0.3%), due primarily to unfavorable currency ($271 million), lower volume/mix ($36 million) and the impact of divested businesses, partially offset by the impact of acquisitions ($181 million) and higher net pricing ($122 million). Operating companies income increased $91 million (7.3%), due primarily to pre-tax gains on sales of businesses ($64 million), favorable margins ($37 million, including productivity savings), lower marketing, administration and research costs ($23 million, including synergy savings) and the impact of acquisitions ($18 million), partially offset by lower volume/mix ($19 million), the 2002 pre-tax charge for integration costs ($17 million) and the impact of businesses divested since the beginning of 2001. Volume increased 2.8%, benefiting from acquisitions, new product introductions, geographic expansion and marketing programs, partially offset by the impact of economic weakness in several Latin American countries and the impact of divested businesses since the beginning of 2001. In Europe, Middle East and Africa, volume increased, benefiting from acquisitions and from growth in most markets across the region, including Italy, the United Kingdom, Sweden, the Ukraine, the Middle East and Poland, partially offset by declines in Germany and Romania. In beverages, volume increased in both coffee and refreshment beverages. Coffee volume grew in most markets, driven by new product introductions, and acquisitions in Romania, Morocco and Bulgaria. In Germany, coffee volume decreased, reflecting market softness and increased price competition. Refreshment beverages volume also increased, driven by geographic expansion and new product introductions. Snacks volume increased, benefiting from confectionery acquisitions in Russia and Poland, a snacks acquisition in Turkey and new product introductions. Snacks volume growth was moderated by lower volume in Germany, due to increased price competition, and in Romania, due to lower consumer purchasing power. Cheese volume increased, due primarily to cream cheese growth across the region. In convenient meals, volume increased, due primarily to introductions of new lunch combinations in the United Kingdom and higher shipments of canned meats in Italy against a weak comparison in 2001. Volume increased in the Latin America and Asia Pacific region driven by the acquisition of a biscuits business in Australia and gains across a number of markets, partially offset by a volume decline in Argentina due to economic weakness, lower results in China and the impact of businesses sold. Beverages volume increased, due primarily to growth in powdered beverages in Latin America and Asia Pacific, benefiting from new product introductions. Snacks volume increased, driven primarily by new biscuit product introductions, geographic expansion, and by the 2002 acquisition of a biscuits business in Australia, partially offset by the negative impact of continued economic weakness in Argentina and distributor inventory reductions in China. In grocery, volume declined in both Latin America and Asia Pacific. |  | |
Operating Results by Business Segment 
