Bigger Slice For Kraft
Promising second quarter for food maker.
Sales increased by nearly 21.7%, from $9.2 billion to $11.2 billion. Kraft attributed more than 7% of this gain to price increases. The weak dollar also contributed to the results.
Despite these caveats, I remain bullish on Kraft. The 21% increase in revenue suggests that consumers aren't exactly fleeing en masse from Kraft products, though the company's decision to raise prices ahead of its competitors was undoubtedly a risky move. And as competitors begin to raise their prices to compensate for higher commodity costs (as Kraft already has done), I suspect the firm will see further increases in its market share as consumers stick to brands they know and love.
Though sales of Kraft's flagship line of cheese products are down, sales of Maxwell House coffee and Kool-Aid, among other items, are rising. Indeed, the company has boosted its 2008 earnings outlook to $1.92 per share (analysts' had estimated $1.89). I believe this number could change in the days ahead, generating further interest in the stock.
The current consumer climate may also work in Kraft's favor. As people become more reluctant to spend money on a host of luxury items - including upscale groceries - I believe Kraft will see increased demand across many of its product lines. CEO Irene Rosenfeld is particularly optimistic about the firm's ability to increase market share in single-serving pizza, salad dressing and crackers.
For my part, I think macaroni and cheese - along with those Oscar Meyer deli snacks - are clearly the ones to watch.
Kraft closed at $30.83, up $1.45 or 4.94%.
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