Kraft Foods Group, Inc.
) reported solid first-quarter 2013 results beating the Zacks
Consensus Estimate for both revenues and earnings on the back of
solid innovation and stepped up advertising spend behind its
biggest brands. The company also stood by its full year 2013
Kraft's first-quarter 2013 adjusted earnings per share of 88
cents breezed past the Zacks Consensus Estimate of 65 cents by
35% driven by better-than-expected top line performance. Adjusted
earnings were flat year-over-year.
Adjusted earnings excluded charges related to Kraft's 2012-14
restructuring program which aims to aggressively reduce costs and
improve efficiencies. Including the restructuring charges,
reported earnings stood at 76 cents, down 7.3% from prior year
quarter's earnings of 82 cents.
Kraft Foods Group was spun off from Kraft Foods, Inc into an
independent company last year in October. Kraft Foods Group
includes the North American grocery business of the old Kraft
Foods which has been renamed to
), but now comprises only its global snacks business.
Kraft's first-quarter net revenues grew 2.1% year over year to
$4.55 billion driven by strong product innovation and increased
brand building and advertising investments. Revenues also beat
the Zacks Consensus Estimate of $4.487 billion.
Organic revenues (excluding the impact of currency and sales
to Mondelez) also increased 2.1% driven by volume gains and
improved product-mix which offset headwinds from lower pricing
and product pruning. Volume/mix benefitted revenues by 2.4
percentage points (pp), much better than last quarter's negative
impact of 7.9 pp. The new company however, was not much
successful in raising prices with pricing declining 0.3 pp, worse
than last quarter's 0.7 pp gain. An early Easter (which moved
sales to the first quarter from the second) added between 0.5 and
1 pp of growth, while product pruning created headwinds of 0.7
Adjusted operating income (excluding restructuring charges)
increased 16.6% in the first quarter driven by solid top-line
growth. Strong productivity gains and cost savings also boosted
profits making up for double-digit increase in the advertising
costs. In the upcoming quarters, Kraft expects to invest a
significant portion of its cost saving on brand building
investments in order to protect the market share of its biggest
Kraft includes products in the beverages, cheese, refrigerated
meals and grocery food categories. All the business segments
showed positive organic growth, except grocery, in the
business' revenues improved 1.8% (both reported and organic) to
$721 million in the quarter largely due to volume/mix gains.
Volume/mix grew 7.3 pp due to strong performance of the Kool-Aid
and Capri Sun franchises. However, pricing declined 5.5 pp due to
lower green coffee costs.
business' revenues improved 6.9% (up 5.5% organically) to $996
million in the quarter largely due to volume/mix gains.
Volume/mix grew 6.1 pp due to increased demand for Kraft natural
cheeses and Velveeta cheese slices. Price however, declined 0.6
pp in the quarter.
business' revenues improved 2.4% (both reported and organic) to
$826 million in the quarter as improved pricing offset declines
in volume/mix and headwinds from product pruning. Volume/mix
declined 0.3 pp while price added 2.7 pp to top line. Lunchables
reflected a strong growth trend, up in the mid single-digits
driven largely by innovation and increased advertising
business' revenues declined 0.2% (down 0.4% organically) to $1.08
billion as volume/mix declined 2.1 pp while pricing added 1.7 pp.
Brands like Velveeta dinners and Kraft Macaroni & Cheese
gained from increased innovation. However, brands like JELL-O
ready-to-eat desserts, Kraft dressings and Planters snack nuts
were sluggish in the quarter.
International & Foodservice
business' revenues declined 0.1% to $925 million. However,
organically revenues improved 1.7% due to volume/mix growth of
2.3 pp. Pricing however, declined 0.6 pp.
Fiscal 2013 Outlook Maintained
The company maintained its previously provided outlook for
2013. Organic revenues are expected to be in line with long-term
growth rates i.e., equal to or above the North American food and
beverage industry's growth rate. The top-line guidance includes a
negative impact of up to 1 pp from product pruning in North
For 2013, reported earnings are expected to be about $2.75 per
share, including restructuring costs of approximately $300
million or 33 cents per share. The company incurred $120 million
of re-structuring charges in the quarter and expects to realize
two-thirds of the costs in the first half. Management now expects
earnings growth to be equally divided between the two halves of
the year. Earlier management expected earnings to be more
back-half weighed with 48% to be realized in the first half and
52% in the later half.
Kraft Foods carries a Zacks Rank #2 (Buy). Overall, we are
encouraged by Kraft's aggressive cost reduction and
efficiency-improvement initiatives which provide more cash to
invest in stronger innovation and brand building and marketing
initiatives. Kraft also aims to maximize cash flows which will be
used to pay strong and competitive dividends.
Other Stocks to Consider
Some other food companies you may want to consider include
Flower Foods Inc.
), with a Zacks Rank #1 (Strong Buy) and
J&J Snack Foods Corp
) with a Zacks Rank #2 (Buy).
FLOWERS FOODS (FLO): Free Stock Analysis
J&J SNACK FOODS (JJSF): Free Stock Analysis
KRAFT FOODS GRP (KRFT): Free Stock Analysis
MONDELEZ INTL (MDLZ): Free Stock Analysis
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