Kraft Foods Group Inc.
), the packaged food and beverage company, announced preliminary
results for the fourth quarter 2012 and updated guidance for full
Kraft Foods Group was spun off from Kraft Foods, Inc. in
September last year, and the latter was renamed to
Mondelez International, Inc.
). Mondelez focuses on its global snacks business of the old
Kraft Foods while Kraft Foods Group consists of the North
American grocery business of the latter.
Changes in its post-employment benefit strategy was cited the
reason for the financial update.
Preliminary Fourth Quarter 2012 Results
Krafts Foods expects reported earnings to be about 15 cents per
share in the fourth quarter, including post employment benefits,
restructuring charges and unrealized from hedging activities.
Adjusted earnings, excluding including the impact of
post-employment benefit changes stood at 39 cents in the
The Zacks Consensus Estimate for the fourth quarter is 30
cents. Excluding, all the charges mentioned above, earnings
would have been 57 cents.
Kraft also lowered its revenue expectations for the quarter.
Kraft had previously expected revenues to be flat or down in the
fourth quarter The company now expects net revenues to decline
10.7% year over year due to strong comparisons in the prior-year
quarter. The prior year quarter included an additional week of
sales and 0.7 percentage points of currency tailwinds and sales
The company expects organic revenues to decline 7.2% compared to
7.8% organic revenue growth in the prior-year quarter. Organic
revenues are expected to dip due to decline in trade inventories
and product pruning.
Operating income in the fourth quarter of 2012 is expected to be
around $260 million. Operating income includes headwinds from
post employment benefits, restructuring charges and unrealized
losses from hedging. Excluding these factors, the company
believes that lower sales volumes will be offset by strong
productivity gains and cost savings to result in decent operating
Fiscal 2013 Outlook Updated
The company updated its 2013 outlook that was provided at the
investor day meet held in September.
The company maintained its organic revenue guidance. 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 percentage point from product pruning in North
For 2013, reported earnings are now expected to be about $2.75,
up from the prior guidance of $2.60 (including restructuring
costs), driven by productivity improvements and overhead savings.
The upgraded earnings guidance includes the impact of post
employment benefits and restructuring charges. The Zacks
Consensus estimate stands at $2.67 for fiscal 2013.
Kraft Foods Group carries a Zacks Rank #2 (Buy). We are
encouraged by Kraft' strong and diverse brand portfolio and
market share positions. Kraft is trying to improve long-term
results by focusing on cost savings, brand support via strong
advertising, and cash generation.
However, the company is introducing a lot of changes post spin
off to bring in liquidity stability. It will take some time
before gaining full momentum in the market.
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Here are some other food companies that warrant investor
attention. These include
Flowers Foods, Inc.
J&J Snack Foods Corp.
) both carrying a Zacks Rank #1 (Strong Buy).