Kraft Foods (NYSE:KFT) is scheduled to announce its Q1 earnings on May 3. We expect the company’s top-line growth to be driven by international operations and a slew of new products launched in the U.S. Kraft’s developing markets have seen robust growth in recent years, generating sales of $7.9 billion in 2009, $13.6 billion in 2010 and $15.8 billion in 2011. Globally, Kraft competes with players like PepsiCo (NYSE:PEP), General Mills (NYSE:GIS) and Kellogg (NYSE:K).
We currently estimate a $41.83 price for Kraft Foods, which is about 6% higher than the current market price.
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New Products the Key
For 2011, revenues generated from new product introductions stood at 10% of the total revenues, compared to 9% in 2010. In absolute terms that is about $5.5 billion, up from $4.4 billion a year ago. That implies incremental sales of $1.1 billion. Kraft entered into a partnership with SodaStream in January which will see the company introducing carbonated version of its popular beverages Crystal Light and Country Time. Some of the major products introduced in 2012 are MilkBite, belVita and Philadelphia Indulgence. Although the official sales figures for the products are not available, the initial response to all of the three products has been positive.
Kraft is also looking to bolster its grocery division as it readies itself for the spin-off. The company will split into two companies i.e. the North American Grocery division and the Global Snacks division. It will rename the latter as Mondelez. After extending the Planters brand to peanut butter, the company is looking to boost sales by increasing production and marketing initiatives. The grocery segment is one of the most important divisions within Kraft as the EBITDA margins are almost double those of the other divisions.
Going Deeper into Emerging Markets
Internationally, Kraft is benefiting from increased distribution networks and improved supply chain with Cadbury’s acquisition. For example, In India, Kraft was able to use Cadbury’s existing distribution networks to make Oreo and Tang available in more than 300,000 retail outlets within 6 months of their launch. Oreo cookies are now available in India for a price as low as Rs 5 (10 cents). In fact, the bigger pack, which costs Rs 20 (40 cents) now, was priced at Rs 50 ($1) before the acquisition.
Recently, the company also forayed into children’s snack segment in the Middle East by launching Barni. The Middle East is projected to be the fastest growing snacking market in the world, and Kraft has been witnessing a double digit growth rate in the region. Kraft has also increased its chocolate related investments in Israel, a country which has witnessed a 40% growth in the past five years.