Will 2 Bites of Kraft Taste Better?

(UPDATED 11:32 a.m. ET)
What: Shares of Kraft Foods (NYSE: KFT  ) popped 5% at the open on news that it would split its snack and grocery business into two publicly traded businesses. The company also reported strong second-quarter results.

So what: CEO Irene Rosenfeld said the breakup reflects a desire to capitalize on two "strong, but distinct, portfolios." Irony? Perhaps. It was only 18 months ago that Kraft acquired Cadbury after a series of offers and counteroffers. Now, it seems, the businesses are (ahem) "distinct."

Either way, Kraft put together a fine performance in Q2. Revenue increased 13.3%, to $13.9 billion, while operating earnings per share rose two pennies to $0.62. Analysts had been calling for $0.58 on $13.15 billion in revenue, according to data compiled by Yahoo! Finance.

Management also raised full-year earnings guidance from $2.20 to $2.25 a share, slightly above Wall Street's consensus estimate.

Now what: Berkshire Hathaway's (NYSE: BRK-A  ) (NYSE: BRK-B  ) Warren Buffett is Kraft's second-largest independent investor, holding 5.99% of the company's shares outstanding as of this writing. Buffett confirmed in a TV interview with CNBC's Becky Quick that he's OK with the split, an interesting development since he was originally a critic of the Cadbury acquisition. Rosenfeld apparently went to Buffett yesterday in an attempt to win him over before announcing publicly. Smart move.

Do you agree with the breakup? Disagree? Weigh in using the comments box below and be sure to add Kraft to your watchlist for up-to-date news and analysis on the break-up as it happens.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Berkshire Hathaway at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (13)

Comments from our Foolish Readers

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  • Report this Comment On August 04, 2011, at 11:08 AM, TMFMileHigh wrote:

    Fools,

    CNBC and The Wall Street Journal have confirmed that Buffett is OK with the split. Details:

    http://blogs.wsj.com/deals/2011/08/04/warren-buffett-on-boar...

    Your take? How much value could Kraft create by splitting in two like this?

    Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On August 04, 2011, at 12:20 PM, mm5525 wrote:

    I like the move. When I heard it this morning, I immediately thought of the MO/PM spinoff from 2008. A few minutes ago, CNBC also reported the similarity between what KFT is doing now and the 2008 MO/PM split/spinoff as well. This is basically the same thing now.... slow-growth, USA-based company separated from the EM, high-growth brands. It's all about creating better EPS and shareholder value, something the MO mgmt from years past always have tried to do.

    KFT has been a dog with fleas through the years, but has performed well this year, and I have held it since spinoff for the dividend. Not many companies out there do a better job rewarding shareholders than the MO/PM/KFT family. Buy, hold, and DRIP all the big dividends without fail for a decade or two and you will be very happy. All 4 companies, MO/PM/KFT-A/KFT-B will march along in both bull and bear markets.

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