(Updates with analyst comments and more comments from the company's chief executive)

By Anjali Cordeiro Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Facing a deadline to make a formal offer for confectioner Cadbury PLC (CBY, CRBY.LN) and under pressure to demonstrate the strength of its own business, Kraft Foods Inc. (KFT) reported a better-than-expected profit in the third quarter but lowered its outlook for sales growth this year.

The results pushed down the company's share price soon after the announcement, with Kraft's shares falling nearly 3% to $26.75 in after-hours trading. Kraft's third-quarter earnings have been closely watched as the company's September proposal for Cadbury had a stock component and as any movements in Kraft's stock price will influence the value of any offer Kraft makes.

Kraft's shares have been under pressure for the last month because investors have been concerned about how much the company could end up paying in a takeover battle. Kraft's shares are now below $28.10, where they were before the Cadbury proposal was announced, and any continued price pressure could be an added complication in its efforts to buy Cadbury.

Kraft's cash hoard increased in the latest quarter, with the company's cash and cash equivalents climbing to nearly $3 billion from $1.24 billion a year earlier. The company said some of that was to meet bond maturities, and it was being careful with cash--partly to ensure that it maintains its investment-grade credit rating. Credit-rating agencies put Kraft under review for possible downgrade following news of the bid.

"We are mindful of our investment-grade rating," Chief Executive Irene Rosenfeld said in an interview. Cash will also be important if the company moves forward in its bid for Cadbury. Kraft has previously said it will fund any deal with a mix of internal cash and outside financing.

In a statement accompanying its earnings results, the company said it is still interested in Cadbury, but that Kraft will be a "disciplined" buyer. On a conference call, Rosenfeld said Kraft has been talking to its own and Cadbury's investors and studying financing possibilities as it decides on its next move after its takeover proposal for the U.K. confectioner.

"At this time, we continue to review the opportunity by speaking with shareholders of both companies and [assessing] potential financing options," she said.

Kraft has until Nov. 9 to make a formal bid for the confectioner and it is widely expected to unveil an offer in time to meet the deadline. Kraft in September unveiled a takeover offer for Cadbury that was then valued at $16.7 billion and was rebuffed by the chocolate maker.

"The softer volume growth this quarter doesn't aid Kraft's case with Cadbury shareholders," said Stifel Nicolaus analyst Chris Growe. However, he added, a drop of two or three percentage points in Kraft's stock price isn't "going to matter ultimately to a deal."

On Tuesday, Kraft said its criteria for any deal with Cadbury would require that it be accretive in the second year and allow Kraft to maintain both its investment-grade credit rating and its dividend. Kraft's comments that it will stay disciplined are likely an effort to signal to its own investors and Cadbury holders that it won't overpay for the deal.

Kraft on Tuesday cut its forecast for 2009 organic revenue growth to about 2% from its prior view of around 3%, saying it would benefit less from price increases. The company again boosted its 2009 earnings target, seeing per-share earnings of at least $1.97, up from its August view of at least $1.93. Analysts most recently expected $1.97. The company cited its strong year-to-date performance as well as a lower full-year tax rate estimate.

Kraft Foods' third-quarter profit declined 40% as the food giant posted lower revenue, but lower costs again helped boost margins.

The maker of Kraft cheese, Oscar Mayer lunch meats and Planters nuts posted a profit of $824 million, or 55 cents a share, down from $1.36 billion, or 91 cents a share, a year earlier. The prior year included a 57-cent gain from the $2.6 billion sale of Post cereals to Ralcorp Holdings Inc. (RAH).

"We are seeing our market share trends beginning to improve," Rosenfeld said in the interview. Revenue declined 5.7% to $9.8 billion. Analysts polled by Thomson Reuters expected earnings of 48 cents on revenue of $10.32 billion.

-By Anjali Cordeiro, Dow Jones Newswires; 212-416-2200; anjali.cordeiro@dowjones.com

(John Kell contributed to this article.)

(END) Dow Jones Newswires

11-03-09 1959ET