Food Business News - October 9, 2012 - (Page 20)

New Kraft seeks to unlock ‘true potential’ Upbeat analysts see positive results from better aligned targets NEW YORK — Food analysts initiating coverage of Kraft Foods Group, Inc. offered upbeat to neutral assessments of the company in the aftermath of the breakup of Kraft Foods, Inc. Robert Moskow, an analyst with Credit Suisse, initiated coverage with an “outperform” rating, and Andrew Lazar, who covers U.S. Food for Barclays Capital Inc., rated Kraft an “overweight.” Eric Katzman, an analyst with Deutsche Bank, is ranking Kraft a “hold.” The analysis was published ahead of the spin-off of Kraft Oct. 2. The fourth largest packaged food and beverage company in the United States, Kraft has annual sales of about $19 billion with brands that include Kraft, Maxwell House, Oscar Mayer, Planters and Jell-O. The company has 25,000 employees in the United States and Canada. Kraft Foods shares began trading Oct. 2 on NASDAQ under the KRFT symbol. Separated from the global snacks division, a different, more disciplined culture at the company will lead to better results at Kraft than was the case pre-spin-off, Mr. Moskow said. Management focus on free cash flow and return on capital represent a “positive change for a Kraft culture that tends to trip itself up in bureaucracy and slow decision-making.” “The company’s 77% dividend payout ratio is a bold statement about where the new priorities lie,” Mr. Moskow said. “We expect the company to grow its dividend at a pace of 7% to 8% per year, and we think Kraft Foods Group began trading on The NASDAQ Global Select Market on Oct. 2 under the ticker symbol KRFT. Mondelez establishes global ambitions Categories, track record give some, not all, analysts confidence NEW YORK— With the bar for financial success modestly set, Mondelez International Inc. is poised for financial outperformance, according to two investment analysts initiating coverage. While Mondelez was split as the faster growing part of Kraft, Andrew Lazar, an analyst with Barclays Capital Inc., said financial targets are not especially ambitious. “Essentially, Mondelez is targeting organic top-line growth of at least 5%, in line with previous guidance for consolidated Kraft — though with its low-to-no growth business being spun off as Kraft Foods Group, this would appear to be a much more realistic and achievable annual outcome,” he said. “Based on an in-depth look at Mondelez’s category/geographic exposure.” Mr. Lazar, who rates Mondelez an “overweight,” said the objective of 5% to 7% topline growth over time “appears achievable to us.” He said share gains may be needed to achieve the high side, but a pro forma review of the business suggests the target was achieved over the past four years. Mondelez comprises the global snack and food brands of what had been Kraft Foods, Inc. The company has $36 billion in annual sales and operates in 80 countries, with a portfolio of billion-dollar brands that include Cadbury and Milka chocolate, Jacobs coffee, LU, Nabisco and Oreo biscuits, Tang powdered beverages and Trident gums. Robert Moskow, an analyst with Credit Suisse, described Mondelez as largely an agglomeration of the major acquisitions made by Kraft after the 1990s. “Mondelez is essentially the combination of three big snack company acquisitions that Kraft made beginning with Nabisco in 2000, followed by LU in 2008, then Cadbury in 2010,” he said. While acquired with the intention of boosting the growth at Kraft, dragged down by more mature categories such as cheese, coffee, mayonnaise and packaged meats, Mr. Moskow said the business combination proved ill conceived. “(The) grocery and snack businesses don’t mesh well to begin with,” he said. “Snack businesses require direct-to-store delivery sales networks that can penetrate deeply into small mom and pop convenient stores, bodegas, and kiosks. They utilize complicated back office infrastructure to support small, high frequency transaction. “Grocery businesses tend to be lower cost because they don’t require as much in-store attention and they ship in less frequent truckloads. Kraft Group’s grocery business also has two refrigerated businesses that sell to completely different procurement managers. As a result, Kraft had a great deal of trouble capitalizing on the scale that this portfolio breadth provided. They needed depth, not breadth.” Credit Suisse, which rates Mondelez “outperform,” said the company’s focus on the snack category (accounting for 75% of sales), gives it a stronger growth profile than regular processed foods. “Snacks can be consumed during many different times of the day as opposed to other packaged foods categories that are limited to specific meal times,” Mr. Moskow said. “(Its) brands are #1 and #2 in almost every category and geography in which they compete,” Mr. Moskow said. Elaborating on how Mondelez will grow sales by as much as 7% per year, Mr. Lazar said developing markets need to grow at double digit rates, including mid to high teens in the BRIC markets, while developed markets need to grow at low to single digit rates. Currently, developing markets account for about 44% of total sales. A third of those sales come from the BRIC markets. “Our analysis indicates that Mondelez 20 FOODBUSINESS NEWS ® October 9, 2012

Table of Contents for the Digital Edition of Food Business News - October 9, 2012

Food Business News - October 9, 2012
Unilever may put Skippy brand up for sale
Fruit prices on the rise
Bio-engineering on the ballot in California
Table of Contents
Web Contents
Editorial - Instant noodles as single food product success
Snyder’s-Lance expands distribution in southwest U.S.
American Sugar buys majority of Belize Sugar Industries
F.A.O. Food Price Index rises in September
Sunland peanut butter recall expands
RAND study shows rapid rise of morbid obesity
Dean puts Morningstar Foods on the trading block
Chiquita Brands names Edward Lonergan as c.e.o.
Smart Balance unveils new name, new structure
Clarkson Grain acquires US Soy
Alpina opens yogurt facility in New York
Chris Solly to c.e.o. of Ehrmann USA
ConAgra to expand frozen meals production
Campbell Soup closing two facilities
Jack Link’s acquiring Nebraska facility
New Kraft seeks to unlock ‘true potential'
Mondelez establishes global ambitions
August Restaurant Performance Index rises
Hershey to source 100% certified cocoa by 2020
Kroger introducing ‘Simple’ brands
Environmental claims to face greater scrutiny
Health and Wellness - Sodium reduction remains a priority
Ingredient Innovations - GRAS for probiotics seen as step toward market acceptance
Studies focus on probiotic benefits
New Food Products
Ingredient Market Trends
Ingredient Markets
Supplier Innovations and News
Ad Index
Food Business in the News

Food Business News - October 9, 2012