KRAFT FOODS GROUP INC. $51 (Nasdaq symbol KRFT; Conservative Growth and Income Portfolios, Consumer sector; Shares outstanding: 593.4 million; Market cap: $30.3 billion; Price-to-sales ratio: 1.7; Dividend yield: 3.9%; TSINetwork Rating: Above Average; 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.
Unlike Mondelez, Kraft prefers to focus 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.
Sales were flat, at $18.2 billion, in 2012. The company increased its prices to cover rising ingredient costs. That offset lower sales after it discontinued some unprofitable products.
The company’s long-term debt of $10.0 billion (as of December 29, 2012) is a manageable 33% of its market cap. It 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.
Kraft Foods Group is a buy.
