Kraft Earnings: An Early Look

Earnings season is in full swing, with huge numbers of companies having already given their latest numbers to investors, and Kraft Foods (NASDAQ: KRFT  ) is about to release a financial update for its fourth quarter. The key to making smart investment decisions with stocks releasing their reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, knee-jerk reaction to news that turns out to be exactly the wrong move.

Kraft Foods is newly independent from Mondelez (NASDAQ: MDLZ  ) , with Mondelez having kept its old parent's global snack business while Kraft hung onto the slower-growing North American grocery division. The spinoff is the reason we're getting only an update rather than a full-blown earnings report, which is expected in late March. Let's take an early look at what's been happening with Kraft Foods over the past quarter and what we're likely to see in its update on Friday.

Stats on Kraft Foods

 

 

Analyst EPS Estimate

$0.24

Change From Year-Ago EPS

(65%)*

Revenue Estimate

$4.75 billion

Change From Year-Ago Revenue

(5.7%)*

Earnings Beats in Past 4 Quarters

3**

Source: Yahoo! Finance, S&P Capital IQ. * Uses pro forma figures from company. ** Includes pre-spinoff reports.

Will Kraft Foods deliver tasty earnings?
Analysts have recently slashed their estimates on Kraft, with a $0.13-per-share drop in consensus earnings coming in just the past 30 days. The stock hasn't faltered, though, having risen almost 9% since mid-November.

Kraft began the fourth quarter by emerging as a separately traded entity. By focusing on popular brands such as its Oscar Mayer, Velveeta, and Capri Sun offerings, Kraft will benefit from being able to concentrate on a smaller area than Mondelez's global snack-food business, which has far greater growth aspirations.

But Kraft is dealing with multiple threats right now. On one hand, despite its brand strength, lower-priced private-label competition has heated up with ConAgra's (NYSE: CAG  ) recent purchase of Ralcorp, leaving Kraft fighting to maintain revenue. Also, food-price inflation has reared its head again, with both packaged-food rivals Kellogg and B&G Foods (NYSE: BGS  ) both reporting pressure from high commodity prices that are weighing on margins.

One interesting recent event involves Kraft's rights to sell Cracker Barrel-branded (NASDAQ: CBRL  ) items, especially its cheese. Kraft sued Cracker Barrel when the restaurant company made a separate deal with Kraft competitor John Morrell to sell products with the Cracker Barrel brand. How the suit goes will tell a lot about how Kraft plans to defend its brand value as an independent company.

Although the update won't have the usual full range of quarterly report information, pay particular attention to margins. Part of Kraft's strength is its ability to pass on costs to customers, and the extent to which the company does so should point to its future success in growing its net income.

Learn more
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