KFT

Our Reports on Stocks in the Food Products (Large/Mid-Cap) Industry

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Structure of the Food Products Industry The food products industry is composed of a number of firms with strong brand names. However, market supply/demand dynamics and intense competition still impact product prices, while fluctuations in commodity costs can make earnings quite volatile. Private-label competition, competitors’ promotional spending, and changing consumer preferences often drive demand trends. The group’s customers—such as supermarkets, warehouses, and food distributors—continue to consolidate, increasing buying power over constituents and hurting margins. Still, we’re generally neutral on the group. We’ve reallocated our resources to cover more recession-resistant stocks. See here.

Kraft’s Pricing Power Is Unmatched By Peers in Fourth Quarter; Waiting Patiently for the Break Up

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Kraft (KFT) posted solid fourth-quarter results Tuesday that continued to show the firm’s pricing power. Though we liked the quarter, we remain on the sidelines with respect to Kraft’s shares until after the company separates the firm into two entities later this year: a global-snacks company and a North American grocery products firm. At that time, we’ll be better able to evaluate the investment merits of each separate entity to optimally allocate our capital to the one with the most promise, if such an opportunity presents itself. Kraft’s fourth-quarter revenue jumped 6.6% thanks to a 6.1% jump in organic net revenues, as strong pricing offset declines in volume. However, cost of sales still outpaced revenue expansion, as gross profit growth was … Read more

Kraft Shows Off Pricing Power in Third Quarter; Raises 2011 Outlook

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Kraft (KFT) reported excellent third-quarter results Wednesday that showed significant pricing expansion. The firm raised its outlook for 2011, and we are maintaining our above-market fair value estimate. The firm’s top-line advanced 11.5% led almost exclusively by organic expansion, which was 8.4% in the quarter. We loved that 7 percentage points of the growth was pricing, which signals to us the strength of Kraft’s competitive advantages and pricing power. Volume and mix contributed the balance of the growth. The company noted that momentum is accelerating in North America, that operating results in Europe remain strong, and that it is seeing double-digit growth in developing markets—all positive news. Kraft’s adjusted operating income jumped over 12% thanks to pricing growth, productivity enhancements, … Read more

Kraft Posts Solid Second-Quarter Results, Raises Outlook, and Breaks Up Company

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Kraft Foods (KFT) reported solid second-quarter results Thursday and indicated that it would split its high-growth global snacks business and its mature, high-margin North American grocery business. The firm also bumped up its 2011 organic net revenue growth and operating earnings per share outlook, to at least 5% (was 4%) and $2.25 (was $2.20), respectively. We were impressed with the firm’s second-quarter performance and think its move to create two independent public companies will create value for shareholders over the long haul. Kraft’s second-quarter net revenues advanced over 13% (7.1% organic) thanks to strong pricing expansion, which accounted for 5.5 percentage points of growth, while operating income jumped 6% as pricing effectively offset higher raw material costs, though its underlying … Read more