Kraft Foods Group (UNKNOWN:KRFT.DL) is entering a new era after its recent corporate break-up. Its brand power is indisputable, and its market share dominates. But Kraft's growth potential is limited, and its heavily commoditized categories face massive pressures. I've created a premium report on Kraft to help investors examine the company's future.
Below is an excerpt from the report, which lists the three areas investors must watch closely. It's just a taste of one section, but we hope you find it useful.
- Market share degradation:
Kraft currently enjoys market share domination in many categories. But if consumers don't perceive a difference in the quality or value between Kraft products and private-label or other economy brands, then the company could lose precious market share. If this is the case, Kraft may be forced to shift its product mix to lower-margin offerings.
- Investing in innovation while reducing costs:
Kraft's R&D and marketing investment has trailed its peers' in recent years. The company spent less than 3% of sales on advertising last year, compared to an industry average of 4.5% and Kellogg's 8.6%. Watch for Kraft's renewed focus, and increased advertising spend, on core brands. Concurrently, the company plans to operate a much leaner, cost-efficient organization while reformulating existing products and introducing new product categories.
- Profitability metrics:
Kraft intends to focus on profitability measures, like free cash flow and return on invested capital, instead of growth, considered a smart move for a big player in a mature, slow-moving market. As CFO Tim McLevish summed up in a September press release, "Cash will be king at Kraft." Investors should watch the profitability metrics over the next few years to make sure they are indeed increasing. If profitability metrics fail to meet targets, it could negatively impact Kraft's hefty dividend, likely a main reason investors gravitate toward the company's stock.
Looking for more help?
That was just a small morsel of our new premium report on Kraft Foods Group. If you're trying to figure out whether the company is a buy or sell, the report is an indispensable resource for investors seeking more information. Also, the report comes with updated quarterly guidance so you'll stay in the know. To get started, simply click here.
Fool contributor Nicole Seghetti has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.