Consumer spending patterns during the current economic recession have trended toward lower- priced options, whether with respect to necessities or discretionary items. Among the essential purchases, food label options have dwindled as manufacturers and retailers have dropped numerous items from the store shelves.Kraft Foods (NYSE: KFT) for example has eliminated many less profitable items from its product lines, dropping labels like the South Beach Living frozen meals. As a result of the reduction of product offerings and the impact of currency valuations, Kraft is projecting a decline in first-quarter 2009 revenues of 5%.
Kraft Chief Executive Officer, Irene Rosenfeld, is nonetheless projecting overall revenue growth for the year to reach 3%. Rosenfeld has noted that Kraft is less affected than its competitors by consumers trending to so-called "white label" store brands, stating that private labels have had less than a 1% impact on Kraft revenues.
With consumers looking increasingly for value in their food purchases, Kraft's line of packaged food products, snacks, beverages, cheeses and convenience meals at modest prices is attractive, reducing the company's earnings from exposure to the recession.
KFT is currently trading at its low for the past 52 weeks. While disconcerting, it should be noted that the stock has traded in a narrow range for the last several years. The stock reached a 10-year high of about $46 in mid-2002. The high for the current 52-week period was $34.97. KFT is now trading at $23.28.
While this represents a new low for the stock, the price is still trading at 67% of the high for the period. At the current price, the dividend yield for the stock is approaching 5%.
Kraft Foods is the second-largest food company in the world, with over $42 billion in sales. The company has more than 103,000 employees (called Kraft Foodies) in 27 countries.
The company has a strong balance sheet, with current assets of $11.3 billion and current liabilities of $10.8 billion. The current ratio is a favorable 1.1, and interest coverage is a healthy 3.8.
The company has a debt-to-equity ratio of 0.78, which positions the company well for securing additional capital if needed.
Kraft has undertaken measures in the last year to trim its product lines and to strengthen the balance sheet. The sale of the Post cereal brand has improved operating margins, and the delinking of the company from the fortunes of the tobacco industry through Atria's divestiture of their interest in Kraft have refocused the company on its basic business.
Overall, the savings from the restructuring that began last year will produce savings of $1.4 billion, of which $1.1 billion have already been realized.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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