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Crafting the Right Strategies: Kraft Foods

February 24, 2014 | About:
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abirk

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Kraft Foods Group (KRFT) concentrates its operations in North America. The Company manufactures and markets food and beverage products, including convenient meals, refreshment beverages and coffee, cheese and other grocery products, in the U.S. and Canada, under a stable of iconic brands.

Its product categories span breakfast, lunch and dinner meal occasions, both at home and in foodservice locations. Kraft Foods Group Inc. announced plans to create two new, standalone business units: Meals and Desserts, and Enhancers and Snack Nuts. The company sells its products to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, drug stores, gasoline stations, value stores and other retail food outlets in the U.S. and Canada.

Recent Performance Report Card

Since the corporate breakup from Mondelez (MDLZ), Kraft's management has prioritized profit above revenue growth. As a result, Kraft has operated as a more cost-efficient organization, focusing on metrics like free cash flow and return on invested capital. After cutting jobs and other expenses, the company possesses a leaner cost structure.

So far, Kraft's profitability-boosting efforts appear to be paying off. At the end of the third quarter, Kraft's free cash flow stood at $745 million year to date, and the company expects its full-year 2013 figure to come in at $1.2 billion, up from a previous $1 billion estimate. It generates annual revenues topping $18 billion and has guided for diluted earnings per share target of $3.58 for 2013.

Its fourth-quarter profit rose to $931 million, or $1.54 a share, from $90 million, or 15 cents a share, a year ago. The results include a $782 million one-time gain that added $1.11 a share. Revenue for the three months ended Dec. 28 rose 2.3% to $4.6 billion from $4.49 billion. Kraft Foods Group has a market cap of $32.0 billion and is part of the consumer goods sector.

New Launch

Kraft Foods Group has launched a chocolate spread in Canada - with Ferrero's Nutella firmly in the U.S. company's sights.

The group has introduced Kraft Peanut Butter with Chocolate, adding to its core peanut butter line that has been on sale in Canada for over 50 years.

On the labelling for the new product, Kraft has placed the line: "50% less sugar than the leading hazelnut spread (per 1 tbsp serving)!"

Brewing Plans

Separately, the company said John Cahill, its executive chairman, will transition to non-executive chairman of Kraft's board on March 8. Cahill has held the post of executive chairman since Kraft was spun off from Mondelez International on Oct. 1, 2012. Kraft Foods Group, best known for products such as its namesake macaroni and cheese, is simplifying some of its foods to appeal to people looking for healthy foods and convenient meals.

The company, which has sold processed foods for years, knows that shoppers are becoming more conscious of what to eat and want more “fresh” and “real” foods, CEO Tony Vernon has said. Selling foods with no artificial colors, preservatives or flavors is something Kraft will focus on going forward, he said.

To appeal to diners looking for more protein, it is bringing out Philadelphia cream cheese with extra protein and portable protein packs with Oscar Mayer meat, Kraft cheese and Planters nuts. The snack-sized packs tout 14 grams of protein per snack, or an amount similar to the protein in two eggs.

Still, shoppers should not expect to see a massive overhaul. Kraft is also standing by those well-known, mainstream products that continue to fare much better in consumer preference tests. One of the “big bets” announced for this year is Kraft macaroni & cheese in the shapes of the Teenage Mutant Ninja Turtles, which is being advertised in a commercial featuring ‘90s rapper Vanilla Ice.

Late in 2013, McDonald's (MCD) announced that it will soon introduce packaged coffee under the McCafe brand. The company tied up with Kraft Food Group, which will be responsible for distributing and marketing the packaged products.

To End

The company's strengths can be seen in multiple areas, such as its notable return on equity, revenue growth and compelling growth in net income. Compared to other companies in the Food Products industry and the overall market, Kraft Foods Group Inc.'s return on equity significantly exceeds that of both the industry average and the S&P 500.

Kraft is a good company with a solid dividend yield and will grow slowly over time. Because Kraft Foods Group focuses exclusively on North America, it does not have to deal with the European and Asian currency fluctuations that have been flummoxing its peers. The company is aware of the negative pathologies that were rendering and consigning it to mediocre performance and is working to transform its corporate culture away from that unhealthy model. It is expected to render healthy returns to its valued shareholders.


Rating: 4.6/5 (5 votes)

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