Fool.com: Nabisco, Ding! (News) October 20, 1999

Nabisco, Ding!

By Dave Marino-Nachison (TMF Braden)
October 20, 1999

Cookie, cracker, and other food products maker Nabisco Holdings (NYSE: NA) advanced slightly in today's session after the company turned in third-quarter net income from continuing operations of $0.30 per share, up from $0.22 last year and a penny better than expected by First Call's chorus line of analysts.

The company managed to grow net income despite a slight decrease in business at its cookie and cracker division (officially known as the "Biscuit" division), which benefited from increased efficiencies that boosted operating profits.

Last year, the company launched a restructuring plan that included streamlining U.S. plant and distribution operations, reworking its domestic biscuit direct-store sales organization, realigning staff, and getting out of nonstrategic product lines. That, combined with increased marketing and advertising, has reinvigorated the company's Biscuit division, and though revenues are down about 4% for the first nine months of 1999, operating profits are holding strong.

It's a common theme among bakeries, which are struggling to modernize and eke out more profits in a rapidly consolidating industry: Click here for a recent Foolish story about Interstate Bakeries Corp. (NYSE: IBC) and here for one on Flowers Industries (NYSE: FLO). With that in mind, Nabisco's progress looks pretty tasty.

What's even more potentially encouraging is the progress made in the company's U.S. Foods Group division, where operating income in Q3 grew more than twice as fast, on a percentage basis, as the Biscuit division.

Led by Planters nuts and Life Savers candies, the U.S. Foods division posted growth in all snack and premium business, benefiting from an increased consumer move toward high-margin convenience purchases. Overall, third-quarter sales rose 9% to $545 million from $498 million a year before, while operating income improved 23% to $74 million from $60 million.

That's likely to improve if the court overseeing Favorite Brands International's bankruptcy proceedings gives Nabisco the go-ahead to complete the $475 million purchase of the company, which had $700 million in 1998 sales from its various lines including Jet-Puffed marshmallows, Trolli gummies, and the Farley's and Sather's candy lines. If approved, the deal should close in Q4.

Improving profitability from operations and expansion into profitable new areas? Sounds good, which is probably why Nabisco Group Holdings (NYSE: NGH) -- the company that owns an 80.5% stake in Nabisco Holdings after spinning off its tobacco operations -- agreed to name Nabisco Holdings CEO James Kilts to those same positions at its company as well starting January 1.

Related Links:
Nabisco Home Page
Nabisco Group Holdings Message Board
Fool News, 9/14/99: Interstate Bakeries Poised for a Pleasant Trip?
Fool News, 9/1/99: Restatement Wilts Q2 Profits for Flowers

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