KRAFT FOODS INC. $36 (New York symbol KFT; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.8 billion; Market cap: $64.8 billion; Price-to-sales ratio: 1.2; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.kraft.com) plans to break itself into two separate, publicly traded companies by the end of 2012.
One company will sell snack foods, such as Oreo cookies, Cadbury chocolates, Trident gum and Tang powdered beverages. This business will have annual sales of $32 billion, with 42% of that coming from developing markets, such as China, Brazil and India.
The other company will consist of Kraft’s slower-growing grocery-products business, which mainly sells its foods in North American supermarkets. These products include Kraft macaroni and cheese, Oscar Mayer meats, Philadelphia cream cheese, Maxwell House coffee, Jell-O desserts and Miracle Whip salad dressing. This company will have $16 billion of annual sales.
Meanwhile, Kraft earned $922 million in the three months ended September 30, 2011. That’s up 22.3% from $754 million a year earlier. Earnings per share rose 20.9%, to $0.52 from $0.43, on more shares outstanding. If you exclude costs related to Kraft’s purchase of Cadbury plc in February 2010, it would have earned $0.58 a share.
Sales rose 11.5%, to $13.2 billion from $11.9 billion. That’s mainly because Kraft raised its selling prices to offset rising ingredient costs.
The stock has gained 7% since Kraft announced the breakup in August 2011. It now trades at 15.7 times Kraft’s likely 2011 earnings of $2.29 a share.
Kraft is a buy.
