Kraft Foods Still Neutral - Analyst Blog
July 03 2012 - 11:26AM
Zacks
We maintain a Neutral rating on Kraft Foods
Inc. (KFT) following our appraisal of first quarter 2012
results.
Kraft Foods started the year on a strong note with adjusted
earnings of 57 cents per share, exceeding the Zacks Consensus
Estimate by a cent and the prior-year quarter earnings by 5 cents
per share. Solid top-line growth and effective cost management
boosted earnings in the quarter. Revenues in the quarter rose 4.1%
to $13.1 billion, in line with the Zacks Consensus Revenue
Estimate.
Organic revenues were up 6.5%, driven mainly by pricing gains.
New product launches and impressive growth of Power Brands also
added to the top line increase. Adjusted operating income surged
5.8% to $1.85 billion in the quarter, driven by effective cost
management and volume/mix gains, which offset the negative impact
from increased input cost and advertising spend. Kraft reaffirmed
its previously provided constant currency revenue and earnings
guidance.
Kraft Foods is one of the largest branded food and beverage
companies in the US and the second largest in the world. Among the
80 brands in its portfolio, 12 Kraft products generate revenues in
excess of $1 billion.
Kraft’s well performing strong-margined core brands have been
christened Power Brands. Power Brands grew 8% in 2011 to boost
top-line growth. We believe these brands will continue to drive
growth in 2012.
The company is also expanding into key developing markets such
as China, Brazil, India, Mexico, Russia and Southeast Asia,
encouraged by the high-growth nature of these countries. In 2011,
the developing market was the strongest performing segment for the
company and is expected to be the key growth driver in 2012.
Moreover, the acquisition of Cadbury in 2010 placed Kraft in
higher growth geographies and categories. Cadbury has opened new
sales channels for the company through its vast distribution
networks in developing markets such as India, Brazil and
Mexico.
Despite weak macroeconomic conditions, the company has
consistently delivered positive top and operating income growth in
its European segment. The first quarter of 2012 was Kraft Foods’
ninth consecutive quarter of sales and operating profit growth in
Europe despite severe economic challenges. The better than peer
performance in Europe reflects the strength of the company’s
products and categories and strong momentum of its Power
Brands.
Kraft Foods plans to separate into two independent public
companies: a global snacks company and a North American grocery
company. The decision is expected to help the company expand its
global presence, besides giving investors a chance to bet on a
snacks business that is growing fast in the emerging markets, or
opt for the stable dividends offered by a slower-growing general
grocery business that includes Oscar Mayer meats and Kraft
cheeses.
However, we remain concerned about rising input costs and the
slow economic recovery. The rising prices of commodities have
limited Kraft Foods’ pricing policies, thereby squeezing its
profitability. Overall, we expect commodity costs to continue to be
volatile and increase overall in 2012. Further, though the
overall economy is recovering, the process is relatively slow. Slow
job growth, high interest rates and still-tightened credit
availability continue to hurt costumer discretionary spending.
KRAFT FOODS INC (KFT): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Kraft (NASDAQ:KFT)
Historical Stock Chart
From Jun 2024 to Jul 2024
Kraft (NASDAQ:KFT)
Historical Stock Chart
From Jul 2023 to Jul 2024