Packaged-foods giant Kraft
For the quarter, diluted earnings grew 12.5%, but sales advanced an anemic 2.3% to $8.2 billion.
Kraft did increase its full-year 2006 guidance range, to $1.86-$1.89 from the previous $1.78-$1.83. However, the upside is due to a couple of one-time gains, including $0.09 from redeeming an interest in United Biscuits and $0.10 from divesting Minute Rice.
Overall, I can't find much to get excited about when considering an investment in Kraft. It does pay a decent dividend, with a 2.8% yield. However, five-year growth numbers look average; sales have advanced 8.3% and net income 5.6% annually over this time frame, although operating cash flow has grown only 1.3% each year. And as of the last fiscal year, while annual sales have grown nearly 6% over the past one, two, and three-year periods, annual bottom-line growth for those same periods has been negative.
As one would expect from a slow-growing company in a mature industry, cash flow generation is strong, and operating cash flow tends to exceed reported net income. But again, the margin is not overly wide. About a quarter of operating cash is used up by annual capex needs, as the food industry tends to be capital-intensive due to the need to manufacture, package, and transport its products.
Kraft's stable of brand names is impressive, including the namesake cheeses, Maxwell Coffee, Kool-Aid, Crystal Light, Oreos, Ritz, DiGiorno, and Jell-O, just to name a few. It also licenses certain beverages under the Starbucks
Unfortunately, Kraft appears to have found a way to underleverage its brands and get caught with the image of having a bunch of slow-growing, unhealthy, fatty, sugary, or salty product offerings. Perhaps it's as much perception as anything; I mean, the majority of PepsiCo's
Right now, Kraft has more similarities to struggling food company Sara Lee
For related Foolishness:
- Kraft Needs to Craft More Growth
- Kraft's New Big Cheese
- A Low-Key Quarter for Kraft
- Panic in Organics?
- Sweet and Sour at Sara Lee
Fool contributor Ryan Fuhrmann is long shares of Starbucks, but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.