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Kraft sees 13 percent increase in revenue, executives still cautious

by Margaret Sutherlin
Nov 07, 2012


Margaret Sutherlin/MEDILL

Kraft's shares have consistently traded in the $44-$47 range. Shares fell after Wednesday's earnings announcement but mostly recovered.

The new Kraft Foods Group Inc. posted increased third-quarter earnings Wednesday beating Wall Street expectations. Executives were cautious, though, warning that the company had much work to do after spinning off from the old Kraft Foods Inc.

The once enormous food conglomerate Kraft split into two companies in October, an international snack company called Mondelez International Inc.and a grocery-focused business, which became Kraft Foods Group. This was the first time Kraft reported as a separate company.

Kraft reported net income of $470 million, or 79 cents per diluted share, an increase of 12.7 percent from $417 million, or 70 cents per share, in the same period a year ago.

Revenue climbed 13 percent to $4.61 billion from $4.47 billion last year.

But executives cautioned that the coming quarters would be the ones that showed the real growth difference between the old and new Kraft. They said that sales would likely be flat in the fourth quarter, partly because of the large inventories grocery stores and businesses purchased before the spin-off. That inventory is still being sold.

“The economic environment has not improved and that creates a burning platform for Kraft, our customers, and our industry,” said CEO Tony Vernon during a conference call with analysts Wednesday. The challenge for Kraft going forward is to “consistently grow volume,” he added.

Analysts said the numbers aren’t yet giving them the full picture of Kraft’s health.

“It’s hard to get a true sense of things,” said Brian Yarbrough, an analyst with Edward Jones. “They’re moving forward and had an OK quarter. It wasn’t outstanding, it wasn’t terrible. It’s an interesting story and they’re doing the right things. They should be successful and see growth if they keep investing like this.”

Part of the reason for the split was to refocus each new company around the brands that needed attention. At the new Kraft those include household names such as Velveeta cheese, Maxwell House coffee, Planters peanuts and Jell-O, all of which have become a little stale.

Kraft has outlined a strategic plan for growth. The company will invest more in advertising and marketing, develop the “good, better, best” price options in key product categories, and create more product innovations. Executives pointed to Mio, a liquid that flavors water, as a success story. Sales increased 49 percent in the last quarter.

Analyst Jonathan Feeney at Janney Capital Markets kept his neutral rating on Kraft shares. “Overall Kraft’s first public quarter is marginally positive as cost relief is being reinvested,” he wrote.

For the first nine months, Kraft reported net income of $1.54 billion, or $2.60 per diluted share, up 7.2 percent from $1.44 billion, or $2.43 per share, last year. Revenue increased 1.7 percent to $13.85 billion from $13.62 billion.

Kraft’s shares closed down 13 cents to $44.57.