Kraft (NYSE: KFT), whose supermarket competitors include Campbell Soup (NYSE: CPB), ConAgra (NYSE: CAG), and Kellogg (NYSE: K), reported results for Q3 on Wednesday, and although they weren't stunning, they were apparently good enough for investors, as the stock was higher after the release.>
Of course, today is a funny day, with the Fed decision on rates and all. Still, Kraft proves that it continues to chug along with its popular brands and pricing strategies.
The food company said that net organic revenue grew by 7%. Price increases helped out quite a bit. Unfortunately, management said that volume decreased. That's not great news, as it shows that consumers are reacting to the costs. Adjusted earnings per share, which exclude the significant effects of a gain from a divestiture, came in at $0.44.
According to Melly Alazraki's Before the Bell article, the bottom line only met expectations. Furthermore, the current adjusted earnings performance represented a 0% growth rate. Ouch, Kraft! And then we come to the guidance. It's sort of good, sort of neutral. Management raised its guidance for organic net revenue growth for the year by 1% to 7%, but the outlook for adjusted earnings per share remains the same at $1.88. I suppose this is really more neutral than good since it's the bottom line that most investors care about.
So, where does this leave Kraft? Well, I think the company is doing all right once everything is considered, but no, this can't be looked upon as the greatest quarter ever. If the overall market wasn't in a good mood (I should note that it was in a good mood as I was writing this piece), I could believe that Kraft's stock would have been sold off on this report. That's short-term thinking, of course. Kraft should do well for a core portfolio over time, with a lot of dollar-cost-averaging thrown in to take advantage of the natural ups-and-downs of Wall Street. The company will need to be careful about price increases, and it will need to keep up its marketing push to keep consumers away from generic equivalents. Kraft does have brand power, though, and it has a cool dividend yield. Those two things should keep the business and the stock relatively safe.
Disclosure: I don't own any company mentioned; positions can change at any time.
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Reader Comments (Page 1 of 1)
10-29-2008 @ 6:16PM
adam hartung said...
I can't imagine how anyone can be excited to own Kraft. What new products, new businesses, is Kraft bringing that would drive new revenues and higher prices to pay future higher dividends? Focusing on Velveeta and Oscar Meyer bologna does not create growth. And Kraft is not a commodities trading company that can rely on price and cost arbitrage. Read more at http://www.ThePhoenixPrinciple.com