Kraft Foods
This year’s annual meet at CAGNY was the first one for Kraft Foods Group Inc (NASDAQ:KRFT) post its spin-off. According to the presentation, the company is undergoing lots of changes in its approach towards innovation and investment. Its new focus is on 10-15 big platform bets, supported by ample investment.
This means from now on, Kraft Foods Group Inc (NASDAQ:KRFT) will introduce and remain focused on a few number of products rather than introducing a large number of products every year. Kraft is shifting its innovation and investment toward ‘big bets’ that expand their respective categories to satisfy a broader range of consumer needs. Initial attempts with products like Velveeta Skillets, MiO, and Oscar Mayer are now paying off. They have grown to roughly $100 million businesses in a relatively short period.
Kraft Foods Group Inc (NASDAQ:KRFT) has some more products that have potential and can be a part of the big bet strategy. These products include large brands like Kool-Aid and JELL-O. These are already large businesses, with Kool-Aid generating over $100 million and JELL-O making over $500 million in sales annually.
However, since the company’s focus turned towards building the snacks business in the last decade, sales of these iconic brands stalled as cash flows were shifted to fund the snack brands. But now, after the spin-off, Kraft can now focus on raising back these brands to reach their true potential.
Additionally, the company’s cost saving plan through improved productivity also seems to be on track. In the last reported quarter, it helped the operating margins grow slightly. The productivity and cost savings initiatives could generate an incremental $0.45 per share over the next several years. However, investors should be cautious about the increased restructuring charges this year, as mentioned earlier in the company’s guidance.
The takeaway
Presentation at CAGNY’s annual gathering brought some clarity about the future of all these three companies. Ardent Mills, the joint venture of Cargill and CHS with ConAgra Foods, Inc. (NYSE:CAG), has the potential to generate more than twice the current sales of the company’s mills, while Ralcorp’s cost synergies and strong product base should give a required boost to the company’s profitability.
Kraft Foods Group Inc (NASDAQ:KRFT) will concentrate its funds towards fewer products to achieve better results. Its cost saving plans also gives some upside to the stock. Both the stocks seem strong in the future with their respective endeavors, and therefore, they give a bullish vibe.
As for Campbell Soup Company (NYSE:CPB), its strategy of global and portfolio expansion seems the right thing to do, but the reduced advertising expenses coupled with delayed growth in Mexico makes me remain Neutral on the stock.
Madhu Dube has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
