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Kraft Foods Group Inc (KRFT): Best Positioned in Food and Beverages Industry

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Food and beverage companies in the U.S. operate in a mature industry. The companies in the industry are aiming for cost reduction and product innovation to achieve growth. Kraft Foods Group Inc (NASDAQ:KRFT) is one of those companies. Specifically, Kraft has been working on margin expansion and product innovation to achieve its long-term growth target.

Kraft Foods Group Inc (NASDAQ:KRFT)

What’s happened
Kraft Foods Group Inc (NASDAQ:KRFT) started trading as a standalone company after spinning-off Kraft. The company is focused and has markets in North America. It is a stable business with annual revenue of approximately $19 billion. The company manufactures and markets branded food product across North American markets. Subsequent to the spin-off, Kraft Foods is expected to enjoy sales growth of 1%-3% and bottom-line expansion in the range of 7%-8% per year. In the long run, the company is expected to expand its top line in line with the food and beverage industry in North America. Other than attractive growth opportunities, Kraft also offers a decent dividend yield of 3.7%.

Kraft’s stock price is up almost 16% year to date. The company has posted healthy financial performance for the first quarter of 2013. Revenues for the recent first quarter were $4.55 billion, 2% higher as compared to the corresponding period last year. Moreover, Kraft Foods Group Inc (NASDAQ:KRFT) was successful in posting earnings per share of $0.76, which were $0.12 higher than the analysts’ expectations.

Opportunities ahead
Since the spin-off, the company is focusing on its core grocery business and North American market; this is helping it to improve upon its management and cost structures. Kraft has gross and operating margins of 32% and 16%, which are below its peers. Analysts are estimating Kraft to enjoy operating margin expansion of almost 300 basis points. The fFollowing table shows a margin comparison between Kraft and two of its top competitors.

Gross Margin Operating Margin
Kraft Foods 32% 16%
ConAgra Foods (NYSE:CAG) 23% 11%
Hershey (NYSE:HSY) Foods 42% 18%
Industry Average 36% 17%

Kraft Foods Group Inc (NASDAQ:KRFT) is likely to experience margin expansion by improving its supply chain, implementing restructuring initiatives and reducing costs. The ongoing restructuring initiatives include reducing overhead and improving the breadth of the U.S. grocery division’s sales. These ongoing initiatives also include consolidation of the management centers in the U.S. that will lower general and administration expenses and eventually lead to margin expansion for Kraft.

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