KRAFT FOODS INC. $26 (New York symbol KFT; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.5 billion; Market cap: $39 billion; Price-to-sales ratio: 0.9; WSSF Rating: Above Average) is the world’s second-largest food company after Nestle. Top brands include Kraft (cheese), Maxwell House (coffee), Nabisco (biscuits and cookies) and Oscar Meyer (meats).
Kraft faces strong competition from private-label foods, particularly in some of its main product lines, such as cheese, coffee and processed meats. But it has been helped by lower costs for a number of its raw materials, especially dairy products.
In the three months ended March 31, 2009, Kraft’s revenue fell 6.5%, to $9.4 billion from $10 billion a year earlier. However, if you account for last year’s sale of its Post cereals business and the negative impact of currency rates on overseas sales, Kraft’s revenue rose 2.3%. Overall earnings rose 21%, to $662 million from $547 million. Earnings per share rose 28.6%, to $0.45 from $0.35, on fewer outstanding shares.
Kraft also completed a major restructuring last year, which, aside from the Post sale, included selling less-profitable brands and making its other operations more efficient. The plan should save Kraft $1.4 billion a year.
Kraft’s $18.4-billion long-term debt is a manageable 50% of its market cap. It holds cash of $1.2 billion, or $0.80 a share. Kraft should earn $1.91 a share this year, and the stock trades at 13.6 times that estimate. The $1.16 dividend yields 4.5%.
Kraft Foods is a buy.
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