Depending on how you slice third-quarter results, packaged-foods icon Kraft (NYSE: KFT) turned in a performance that was absolutely delectable, merely palatable, or somewhere in between.

Starting with the top line, sales were soured by unfavorable currency movements and lost business related to a divestiture. All told, net revenue slipped 5.7% year over year to $9.8 billion. That number was lower than analysts had expected, and it also represented a sequential decline.

Organic sales (which exclude currency and restructuring effects), conversely, were higher by 0.5%. However, some analysts felt that even this metric was on the soft side. In defense of Kraft, lower prices lopped roughly 1.6% off of sales growth. And rather than some last-ditch attempt to woo consumers through product discounts, the move reflected the company's "adaptive pricing model" in its U.S. Cheese business. In this case, that meant passing along markedly lower dairy costs.

Skeptical? OK, but consider that operating income in Kraft's U.S. Cheese segment climbed by double digits, even as revenue fell. In other words, higher volume and improved product mix more than offset what might be described as misleading segment sales.

Moreover, total volume/product mix (Kraft reports these metrics as a single figure) rose 0.7%, a substantial improvement over the prior quarter'spaltry 0.2% gain. That compares to a similar volume performancefor cereal-and-snacks maker Kellogg (NYSE: K); an unsavory 4.3% dropat H.J. Heinz (NYSE: HNZ) earlier in the year; and 2% growth (excluding acquisitions) for the outperforming J.M. Smucker (NYSE: SJM). Since these competitors report volume as a stand-alone metric, we're not exactly comparing apples to apples, but it does appear that Kraft is running somewhere in the middle of the pack. Absent the effect of recently discontinued product lines, volume growth would've been about twice the reported number, and management expects strong volumes to boost revenue by 3% next quarter.

Other Kraft businesses fared worse. As a whole, the North American Foodservice segment -- responsible for roughly 10% of 2008 net revenue -- was still weak. Management attributed anemic results to low casual-dining traffic. Certainly, the restaurant industry slumpis no secret to Brinker International (NYSE: EAT) shareholders, even if select names such as Buffalo Wild Wings (Nasdaq: BWLD) have defied the recession.

I know, I know, let's hurry up and get to the bottom line. At first, earnings-per-share growth looks phenomenal, leaping to $0.55 from $0.34 in the year-ago period. However, only $0.09 per share of that increase owed to operating gains, with the remainder stemming from items such as hedging activities, lower taxes, and restructuring charges.

Ultimately, the core business grew EPS by a still-impressive 26.5%. But investors might consider that a lower cost of goods sold -- the direct cost of producing finished products -- pitched in $0.56 per share. No doubt a now-completed restructuring program contributed toward production efficiencies, but it's prudent to wonder to what degree lower commodity prices boosted gross margin. In the future, commodity-driven gains might not be repeatable.

Limited by U.K. law, management couldn't say much about its ongoing pursuitof leading global confectioner Cadbury (NYSE: CBY). However, Kraft did say that it will be disciplined about any potential acquisition, giving priority to the company's investment-grade credit rating and the preservation of its dividend.

At a forward P/E of 12.5, shares might be cheap. However, investors who aren't willing to stomach possible acquisition-related pains could do best to wait on the sidelines.

This article was originally published as Kraft: Dig In or Move On?on Fool.com

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