Krafting a Growth Strategy

Ever since Altria Group (NYSE:MO) spun off Kraft Foods (NYSE:KFT) back in the first quarter, growth has been the latter company's byword. A consumer-goods company needs to keep the top line headed upward, especially Kraft, whose venerable brands aren't exactly the newest items on your supermarket shelves.

The company reported solid second-quarter results yesterday, including 4.1% organic sales growth. I'm not talking about pesticide-free produce here; instead, I mean growth in sales that came from within the company, not through acquisitions or currency. Kraft previously posted first-quarter organic growth of 3.6%, and its current number is slightly better than its annual goal of 3%-4%. No wonder CEO Irene Rosenfeld, a former PepsiCo (NYSE:PEP) executive, seemed to purr during the conference call.

EPS was $0.44 per share, a 7% jump from last year's $0.41. Excluding unusual items in both years, EPS was essentially flat on a comparable basis -- $0.50 this year versus $0.51 in 2006. Growth investments and higher dairy costs were offset here by better top-line numbers. Still, I don't consider a few cents of additional profitability Kraft's key metric these days. Steady growth will more crucially determine this company's value for the next few years.

Kraft raised its 2007 outlook, based on better-than-expected results in the first half of the year. It now expects annual organic growth of more than 4% for the year. The EPS estimate also rose by $0.05 per share, although the company expects that improvement to come from lower unusual charges.

Kraft has drawn attention recently from some of Wall Street's biggest names. Activist investors Carl Icahn and Nelson Peltz recently purchased shares, as did Berkshire Hathaway (NYSE:BRK-A) chairman Warren Buffett, who's reportedly scooped up a small (less than 5%) stake in the company. The stock has lagged the S&P 500 since the beginning of 2007, but the CAPS Community has a favorable view of this big cheese, citing Buffett's interest, sales momentum, and share repurchase activity.

Competitors Procter & Gamble (NYSE:PG) and Unilever (NYSE:UL) are scheduled to release quarterly results later this week, while Sara Lee (NYSE:SLE) reports on Aug. 15. This will give Foolish investors a better chance to gauge the relative strength of Kraft's second quarter. At first blush, however, this Motley Fool Income Investor pick looks to be Kraft-ing a winning growth strategy.

For more news on cheesy investments, check out:

• Stocks for Mom: Kraft
• The Spin on Spinoffs
• Smart Stocks for New Investors

Berkshire Hathaway is an Inside Value and a Stock Advisor selection. Unilever is an Income Investor recommendation.

Fool contributor Timothy M. Otte samples organic fare from Dallas. He welcomes comments on his articles, but doesn't own stock in any of the companies mentioned here. The Fool's disclosure policy is individually wrapped and loaded with calcium.