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Cadbury Makes Kraft’s Quarter
Kraft Foods' (NYSE:KFT) net income was down in the third quarter, while its revenue, excluding that from the addition of its Cadbury acquisitions, increased. With the revenue from Cadbury included, Kraft's net revenue shot up 26%.
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Income Down, Revenue Up
Kraft earned $754 million or 43 cents per diluted share, down from $824 million or 55 cents per diluted share a year ago. With one-time costs excluded, Kraft's EPS from continuing operations this quarter was 47 cents. Revenue was $11.86 billion, a 26% increase. Excluding Cadbury and other acquired brands, revenue rose 2.5%. Cadbury, though, continues to be the story for Kraft.
Cadbury Integration
The acquired Cadbury brands added to Kraft's lineup of well-known brands, which range from Maxwell House coffee to Velveeta cheese, and contributed strongly to the net revenue increases. Kraft continues to see overall revenue growth across its major operating regions. Kraft's developing markets grew revenue by nearly 70%, while Europe grew 29% and North America grew 9%. Again, Cadbury contributed heavily to these increases.
Competition
Acquisitions are ongoing in the highly competitive food industry. Hormel (NYSE:HRL) is buying Don Miguel Foods, a line of fresh authentic Mexican foods, which is expected to give Hormel inroads into convenience stores, food clubs and supermarkets in Mexico. In other areas, food packagers such as cereal makers Kellogg (NYSE:K) and General Mills (NYSE:GIS) have utilized heavy promotional selling through the recession. This may lead to cereal price increases, though unsteady consumers may balk at buying. Meat companies such as poultry producer Tyson Foods (NYSE:TSN) and pork producer Smithfield Foods (NYSE:SFD) may be among those affected by surfacing pressures to increase meat prices.
Kraft's Outlook
Kraft still expects to be on track for organic net revenue growth of 3% to 4% for 2010. For 2011, it expects this figure to rise to at least 5%, with income growth in the 15% range. CEO Irene Rosenfeld said, "the Cadbury integration has gone smoothly and quickly," and that the cost synergies are already showing benefits. Rosenfeld was confident Kraft would accelerate its growth in 2011.
The Bottom Line
Investors usually look to Kraft for its generous dividend: A current yield of 3.7%, along with stability as a long-term value stock. Add in some slow growth with the muted downside it brings, and long-term investors usually sleep well, not having to worry about this sound stock. When investors examine some of the other major food producers, it's clear that even squeezing any organic revenue growth out of this recession-tinged economy is no easy feat. With Cadbury set to rev up Kraft's growth engine, it's understandable why the market has pushed the stock up near its 52-week high. (Trim the fat from your grocery bill to reduce the impact of food cost on your budget. Check out 22 Ways To Fight Rising Food Prices.)
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Income Down, Revenue Up
Kraft earned $754 million or 43 cents per diluted share, down from $824 million or 55 cents per diluted share a year ago. With one-time costs excluded, Kraft's EPS from continuing operations this quarter was 47 cents. Revenue was $11.86 billion, a 26% increase. Excluding Cadbury and other acquired brands, revenue rose 2.5%. Cadbury, though, continues to be the story for Kraft.
Cadbury Integration
The acquired Cadbury brands added to Kraft's lineup of well-known brands, which range from Maxwell House coffee to Velveeta cheese, and contributed strongly to the net revenue increases. Kraft continues to see overall revenue growth across its major operating regions. Kraft's developing markets grew revenue by nearly 70%, while Europe grew 29% and North America grew 9%. Again, Cadbury contributed heavily to these increases.
Acquisitions are ongoing in the highly competitive food industry. Hormel (NYSE:HRL) is buying Don Miguel Foods, a line of fresh authentic Mexican foods, which is expected to give Hormel inroads into convenience stores, food clubs and supermarkets in Mexico. In other areas, food packagers such as cereal makers Kellogg (NYSE:K) and General Mills (NYSE:GIS) have utilized heavy promotional selling through the recession. This may lead to cereal price increases, though unsteady consumers may balk at buying. Meat companies such as poultry producer Tyson Foods (NYSE:TSN) and pork producer Smithfield Foods (NYSE:SFD) may be among those affected by surfacing pressures to increase meat prices.
Kraft's Outlook
Kraft still expects to be on track for organic net revenue growth of 3% to 4% for 2010. For 2011, it expects this figure to rise to at least 5%, with income growth in the 15% range. CEO Irene Rosenfeld said, "the Cadbury integration has gone smoothly and quickly," and that the cost synergies are already showing benefits. Rosenfeld was confident Kraft would accelerate its growth in 2011.
The Bottom Line
Investors usually look to Kraft for its generous dividend: A current yield of 3.7%, along with stability as a long-term value stock. Add in some slow growth with the muted downside it brings, and long-term investors usually sleep well, not having to worry about this sound stock. When investors examine some of the other major food producers, it's clear that even squeezing any organic revenue growth out of this recession-tinged economy is no easy feat. With Cadbury set to rev up Kraft's growth engine, it's understandable why the market has pushed the stock up near its 52-week high. (Trim the fat from your grocery bill to reduce the impact of food cost on your budget. Check out 22 Ways To Fight Rising Food Prices.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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