Marketing Push and New Products Drive Kraft’s Growth

Kraft Foods (NYSE:KFT) posted strong quarterly results last week despite significant price increases due to high input costs. Kraft’s net revenues witnessed a robust growth of 11.5% and reached $13.2 billion this quater. Kraft benefited from higher prices and this contributed 7 percentage points of growth. The company was successful in implementing pricing actions to recover higher input costs. It also raised its EPS guidance for 2011 in anticipation of delivering top-tier results in 2011. According to Reuters, Kraft’s Q3 results exceeded analyst expectations and resulted in a positive earnings surprise of 5%. Kraft competes with players like  PepsiCo (NYSE:PEP), General Mills (NYSE:GIS) and Kellogg (NYSE:K).

We currently maintain a $35 price estimate for Kraft Foods, which is in line with the current market price.

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Kraft’s Strategies at a Glance

According to Irene Rosenfeld, Kraft’s Chairman and CEO, Kraft’s investments in marketing and new products drove high quality growth and solid market shares. And it was successful in accomplishing this despite significant price increases to offset record-high input costs. A few other developments discussed were:

• Kraft’s new product launches were successful and helped in driving revenues. Including new MiO liquid beverage mixes, which are on track to reach the $100 million mark in their first year; Oscar Mayer Lunchables with Fruit, which are driving record sales of its Lunchables franchise; and Velveeta Skillets, which are expanding the Dinners business by taking share in adjacent categories.
• Kraft generated significant gains from innovation. For instance, it is successfully expanding into bite-sized chocolates across Continental Europe.
• Kraft plans to create two independent public companies, a high growth global snacks company and a high-margin North American Grocery Business. The company expects to create these companies through a tax-free spin-off of the North American grocery business to Kraft’s shareholders.

We believe Kraft’s strategies are well thought off and have the potential to result in continued success for the company. Creating two independent companies would help Kraft to focus on key issues in-depth. Kraft’s marketing strategies have been very effective and most of its product launches have received positive customer response. On a lighter note, the management surely has a reason to raise the guidance.

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