On Jul 9, we maintained a Neutral recommendation on
Kraft Foods Group, Inc.
) despite solid first-quarter results as we await a more
sustained improvement in top line.
Why the Neutral Recommendation?
On May 2, 2013, Kraft Foods announced 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.
Adjusted earnings of this consumer packaged food and beverage
company stood at 88 cents, flat year-over-year as gains from
strong top-line growth and cost savings were offset by high
interest expense and increased share count. Both total and
organic revenues grew 2.1% in the quarter driven by volume gains,
improved product mix and favorable Easter timing which offset
headwinds from lower pricing and product pruning.
Kraft Foods' adjusted operating income (excluding
restructuring charges) increased 16.6% in the first quarter. The
increase was driven by volume gains, improved product-mix and
strong productivity gains and cost savings making up for
double-digit increase in the advertising costs. The company also
stood by its full-year 2013 outlook and expects to invest its
cost savings more heavily on brand building investments in
Overall, we are encouraged by Kraft Foods' aggressive
cost-reduction and efficiency-improvement initiatives which will
provide more cash to invest in stronger innovation, brand
building and marketing initiatives. Kraft Foods also aims to
maximize cash flows which will be used to pay strong and
However, though Kraft Foods' first-quarter top-line
performance and cost-savings efforts look encouraging, it needs
to show sustained improvement in the top line. Moreover,
challenging industry conditions and lack of exposure outside the
U.S. also keep us on the sidelines.
Other Stocks to Consider
Kraft Foods carries a Zacks Rank #2 (Buy). Other stocks in the
food industry that are currently performing well and have a
bright outlook include
Flower Foods Inc.
Campbell Soup Company
B&G Foods Inc.
). While BGS and FLO carry a Zacks Rank #1 (Strong Buy), CPB
carries a Zacks Rank #2 (Buy).
B&G FOODS CL-A (BGS): Free Stock Analysis
CAMPBELL SOUP (CPB): Free Stock Analysis
FLOWERS FOODS (FLO): Free Stock Analysis
KRAFT FOODS GRP (KRFT): Free Stock Analysis
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