Kraft Foods (KRFT.DL) is out to remake its image, which could impact several consumer goods providers and their shareholders.
First on the docket for Kraft, removing artificial preservatives from its popular "Singles" cheeses. According to the Chicago Tribune, Kraft announced last month that it would eliminate preservatives from some of its cheeses, a decision that could give the company a competitive edge over its rivals .
What does the decision mean for Kraft?
Kraft finished the fourth quarter of 2013 on a positive note, boosting its net revenues by 2.3% during the timeframe. In addition, Kraft watched its year-over-year operating income increase nearly 72% to $4.6 billion in 2013.
As one of the largest providers of consumer packaged food in North America, Kraft is on a mission to differentiate from competitors like ConAgra Foods (NYSE:CAG) and Hillshire Brands (NYSE:HSH). Last month, Kraft CEO Tony Vernon acknowledged that his company is willing to do whatever's necessary to ensure it stays on the right track, including changes to its popular Singles brand.
"Our focus on driving profitable growth while reinvesting in our brands and people has delivered solid results to date and will serve us well as we continue to remake Kraft into the best food and beverage company in North America," Vernon said.
According to USA Today, Kraft is replacing sorbic acid it once used in its cheeses with natamycin, a "natural mold inhibitor." The decision to remove preservatives from Kraft Singles is part of the company's mission to provide a healthier product that could appeal to consumers who are closely examining food labels. Kraft is willing to change its long-standing cheese recipes to ensure that consumers get cheeses that are "made with milk" and "made with no artificial preservatives," as this company points out in its new ads.
What does the decision mean for Kraft's rivals?
ConAgra may need to take a page out of Kraft's playbook if it hopes to keep pace in the consumer goods market. While ConAgra products are found in 99% of U.S. households, the decline in sales of ConAgra products such as Healthy Choice meals, which fell 16% over the past year, could put this company in a tight spot.
ConAgra's Healthy Choice, Orville Redenbacher's and Chef Boyardee brands represent $1 billion of the company's annual sales. Meanwhile, ConAgra posted $1.9 billion in total sales in the fiscal 2014 third quarter, and a decline in sales for any of these brands may result in a significant decline in the company's total revenue.
Conversely, Hillshire looks ready to separate itself from the pack. Bloomberg reports that Hillshire, which is well-known for its breakfast meals, will release Jimmy Dean smoked bacon mac & cheese this year. In the first quarter of fiscal 2014, Jimmy Dean grew volume and sales thanks in part to double-digit growth in breakfast sandwiches. Also, Jimmy Dean grew share in the frozen protein breakfast category, and Hillshire's culinary innovations could help it keep up with Kraft and other consumer goods providers.
The foolish final word
Kraft, ConAgra and Hillshire are turning up the heat on the consumer products marketplace. But to fully understand the futures of these companies, take a look at how they have performed recently.
Several stock analysts view Kraft as a rising stock that could reach new heights in 2014. . Meanwhile, some stock experts have downgraded their projections for ConAgra, and even ConAgra's management are lowering their expectations for fiscal 2014.
Hillshire may be the strongest bet of the bunch. Since its debut as a public company in summer 2012, Hillshire has watched its operating income, earnings per share and total shareholder return increase. In addition, Hillshire CEO Sean Connolly recently said that he anticipates steady growth from his company in the near future.
"We have made broad-based progress against our plan," Connolly said. "Hillshire Brands competes in attractive and profitable categories. Our disciplined investment in brand building and innovation, coupled with our focus on cost management, positions us to generate strong and sustainable shareholder returns."
