KRAFT FOODS GROUP INC. (Nasdaq symbol KRFT; www.kraftfoodsgroup.com) makes a variety of grocery products, including Kraft macaroni and cheese, Oscar Mayer meats, Philadelphia cream cheese, Maxwell House coffee, Jell-O desserts and Miracle Whip salad dressing.
In October 2012 Kraft broke itself up into two companies, spinning off Mondelez (Nasdaq symbol MDLZ), which makes cookies, biscuits, gum and beverages and does over 80% of its business outside North America.
Unlike Mondelez, Kraft is focused on North America. That limits its growth but also cuts its risk.
As a stand-alone company, Kraft earned $1.6 billion, or $2.75 a share, in 2012. That’s down 7.5% from $1.8 billion, or $3.00 a share, in 2011. The decline is mainly due to costs related to a restructuring, which includes closing plants and making its remaining operations more efficient. Kraft expects to spend $650 million on this plan by the end of 2014.
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Stock market advice: Cash should give Kraft room to buy back shares and maintain dividend
Kraft’s sales were flat, at $18.2 billion, in 2012. The company increased its prices to cover rising ingredient costs. It also discontinued some unprofitable products.
Kraft’s long-term debt of $10.0 billion (as of December 29, 2012) is a manageable 33% of its market cap. The company also held cash of $1.3 billion, or $2.12 a share. This gives it plenty of room to buy back shares and maintain its $2.00 dividend, which yields 3.9%.
The stock is up 11% since the start of 2013. It now trades at a reasonable 18.3 times the $2.78 a share that Kraft should earn in 2013.
In the latest edition of Wall Street Stock Forecaster, we look at the prospects for Kraft’s restructuring plans and also examine its plans to boost sales. We conclude with our clear buy-hold-sell advice on the stock.
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