We all know that Wall Street analysts live and die by quarterly earnings. It's not a bad thing, just the nature of the beast. But smart investors often need to look through the numbers to understand trends, particularly with a company like Kraft Foods (NYSE: KFT), which is facing significant headwinds. Ask yourself:

  1. Is the top line growing?
  2. Are the headwinds temporary?
  3. Does management know what it's doing and have a workable plan for the future?

In the case of Kraft's first-quarter results, I would say yes to all three. Sure, the company is facing unprecedented increases in commodity costs that are tripping up other food companies like Kellogg (NYSE: K) and General Mills (NYSE: GIS). But commodities are cyclical. If other key factors are in order, Kraft will stand to benefit once the cycle turns.

Kraft's sales for the quarter grew an impressive 20.8%, with acquisitions and currency making up 12.8% of the rise. Organic revenue advanced 8% on pricing and mix of product. Although I'd like to see more case volume growth (up modestly for the quarter), it's encouraging that the company has the brand strength to increase prices more than 4% and still grow case volume.

Gross margin dollars increased 14.4%, but were down 190 basis points as a percentage of sales. This sounds like a problem, but keep in mind that input commodity costs skyrocketed $460 million year over year. That's big-time stuff. By my calculations, margins would have risen handily even if these costs had been flat.

Operating income grew 7.2% and earnings per share (EPS) were flat at $0.44 (both excluding one-time items). Those are pretty respectable numbers given the headwinds. EPS in particular beat analyst estimates by $0.04, or 10%.

Warren Buffett of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) accumulated an 8.6% stake in Kraft last year, to go along with his holdings of two other consumer product companies: Coca-Cola (NYSE: KO) and Procter & Gamble (NYSE: PG). His year-end report says he paid on average $33.38 for the stock, about 5% more than its current trading price.

I like the looks of Kraft right now. While the quarterly financials aren't as pretty as Fools might like (and probably won't be for a while), the underlying trends appear solid. I'd consider accumulating a few shares and living on the 3.4% dividend yield for a while, with the anticipation that earnings growth will accelerate when commodity costs ease. 

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