Earnings Preview: Kraft Foods - Analyst Blog
July 31 2012 - 12:25PM
Zacks
Food and beverage giant Kraft Foods Inc. (KFT)
is all set to unveil its second quarter 2012 results on August 2,
2012, after the market closes. The Zacks Consensus Estimate for the
second quarter is 67 cents (estimated year-over-year improvement of
8.1%) on revenues of $14.1 billion (year-over-year increase of
6.7%).
First Quarter Recap
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 gain. 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 in the process of separating into two independent
public companies: a global snacks company and a North American
grocery company.
Global snacks will consist of the current Kraft Foods Europe and
Developing Markets units as well as the North American snacks and
confectionery businesses. The North American grocery business would
consist of the current US Beverages, Cheese, Convenient Meals and
Grocery segments and the non-snack categories in Canada and Food
Service. The transaction is expected to be completed before the end
of 2012.
The North American grocery business, which includes popular
brands like Oscar Mayer meat and Kraft cheese, will be an
independent public company called Kraft Foods Group, Inc. and will
trade under the ticker symbol KRFT. The snacks company to be called
Mondelez International, Inc. will market popular brands like
Cadbury, Jacobs, LU, Milka, Nabisco, Oreo, Tang and Trident and
will trade under the ticker symbol MDLZ.
Agreement of Estimate Revisions
Over the past 30 days, only 1 of the 14 estimates on Kraft Foods
has been downwardly revised for the second quarter of 2012. For
fiscal 2012, 3 of the 15 estimates have been revised downwards.
None of the estimates have moved in the opposite direction in the
last 30 days. There have been no estimate revisions over the last 7
days.
The first quarter results benefited from shift of Easter-related
shipments into the first quarter. The absence of this tailwind this
quarter partly explains the downward pressure on earnings.
Magnitude of Estimate Revisions
Given the limited number of estimate revisions, the consensus
estimate for the second quarter of fiscal 2012 has remained static
over the last 7 as well as 30 days at 67 cents. The consensus
estimate for fiscal 2012 has gone down by a cent from $2.51 to
$2.50 over the last 30 days.
Surprise History
Kraft Foods has surpassed earnings estimates in three of the
past four quarters, recording a maximum positive surprise of 6.90%
in the second quarter of 2011. On average, the earnings surprise
was a positive 4.09%.
Our Recommendation
We currently have a Neutral recommendation on Kraft Foods. The
stock carries a Zacks #4 Rank (a short-term Sell rating).
We are encouraged by Kraft Foods’ diverse brand portfolio,
significant exposure to the fast growing emerging markets and
continued strong momentum from the core brands (Power Brands).
Further, Kraft Foods has been delivering much better sales and
profit performance in Europe despite the region’s economic
challenges and unlike most peers.
Moreover, the split of its North American business is expected
to allow Kraft to focus on its distinct strategic priorities and
allocate resources optimally. However, we remain concerned about
rising input costs and a slow economic recovery.
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