Motley Fool Income Investor recommendation Kraft (NYSE:KFT) reported earnings for the fourth quarter and full year after the market closed on Monday, and while the numbers appeared pretty good on the whole, inflationary pressures kept things from looking outright spectacular. So grab yourself a package of Oreo cookies and snack away while we have a closer look at the results.

For the fourth quarter, Kraft scored a 10% increase in net sales revenues to reach $9.7 billion, while operating income was flat at $1.2 billion. Earnings from continuing operations came in at $773 million against $677 million, a 14% increase over last year's fourth quarter.

For the full year, net sales revenues increased by 6% to place at $34.1 billion, and operating income rose by 3% to $4.8 billion. Earnings from continuing operations were $2.9 billion, versus $2.7 billion in 2004, for a rise of 8.8%. And net earnings for the year, including the effect of discontinued operations and losses incurred on those dispositions, fell to $2.6 billion, a 1.2% decrease. Both the fourth quarter and fiscal year benefited from an extra week of shipping in 2005.

I think Kraft checks out fine on its numbers. The company seems to be managing itself well while it is in the midst of modifying its strategies for sound growth over the long haul. For example, the company gained a bit of market share in the U.S. -- an encouraging sign. The press release states that Kraft generated $4 billion in free cash flow and from sell-offs of operations that the company determined were no longer desirable, and that it implemented $2.6 billion worth of dividends and buybacks.

Kraft said it was also satisfied with the results of new products that it brought to market -- a fairly important issue, since new products tend to drive the prospects of a consumer company. Those products rang up $1.5 billion on a collective basis, with the South Beach Diet initiative being singled out for its expectations-beating performance.

Volume, however, was down by 2% for the quarter and flat for the full year. What drove such ho-hum statistics here? One factor was an issue that all industries have been dealing with -- commodity costs. In particular, Kraft had problems because of price increases in Europe. High energy prices are driving a lot of negative pressures on consumer concerns in general, including Colgate-Palmolive (NYSE:CL), Clorox (NYSE:CLX), and Procter & Gamble (NYSE:PG). Kraft is dealing with this inflation and its desire to remain a formidable competitor by moving to restructure its operations. The bad news is that the restructuring includes the elimination of 8,000 jobs. Kraft is predicting right now that earnings for 2006 will fall somewhere between $1.38 and $1.43 per share, including the effect of various charges related to the restructuring.

The company closed yesterday's session at $30 a stub. If it can keep to its prediction and pull in $1.40 in GAAP earnings next year, then we're looking at a P/E of 21. Granted, if the company grows between 7% and 8% from its continuing operations over the next several years, then the PEG ratio will be high. But as I discussed in a previous Take on Kraft, a shareholder must retain a wider perspective on the business; after all, if one expects to hold shares into retirement and reinvest dividends all the way, then the investment should work out handsomely. We're talking about a world-class brand here, as well as a well-diversified product portfolio, which includes items that consumers use every day and need to replenish often. (Those Oreo cookies can go in a snap!)

Strict value investors might disagree with the current price, but with its 3% yield and a long-term perspective on the part of investors, Kraft might be an idea worth considering.

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Kraft and Colgate-Palmolive are both Motley Fool Income Investor recommendations. Want to brush up on the market's best dividend-paying stocks? Check out Income Investor free for 30 days.

Fool contributor Steven Mallas owns none of the companies mentioned. The Motley Fool has a disclosure policy.