Kraft Foods Plans To Split Into 2 Companies
Steve’s breakdown: Obviously they are doing this for the stock holders but it’s great news for agencies who could never pitch Kraft Foods because of conflicts. So get your pitch books ready and let’s see how this shakes out.
NORTHFIELD, ILLINOIS: Kraft Foods Inc. said Thursday that it plans to split into two publicly traded companies, with one concentrating on its snack business like Oreo cookies and Trident gum while the other focuses on the North American grocery business, which includes Kraft cheese and Maxwell House coffee.
The move comes as more companies, including Wal-Mart Stores Inc., Target Corp. and various dollar stores, are increasing their grocery sections to capitalize on consumers’ one-stop shopping needs.
“Our strategic actions have put us in a position to create two great companies, each with the leadership, resources and strong market positions to realize their full potential,” Chairman and CEO Irene Rosenfeld said in statement.
The food maker’s stock gained 92 cents, or 2.7 percent, to $35.22 in premarket trading.
Kraft has steadily built up its snacks business over the years, helped in part by the acquisitions of LU biscuit from Danone and Cadbury PLC. The food maker said that the snacks company would include the current Kraft Foods Europe and developing markets units and the North American snacks and confectionery businesses. The non-snacks component of the business would include mostly powdered beverages and coffee.
The snacks business is estimated to have revenue of about $32 billion.
The grocery business, with estimated revenue of approximately $16 billion, would contain the current U.S. beverages, cheese, convenient meals and grocery segments and non-snack categories in Canada and food service. Its brands would also include Jell-O desserts.
Kraft said its plan to for a tax-free spinoff of the grocery business to shareholders will take some time, estimating that it will need a year or more to work on structure, management and other issues related to the split. Taking that into account, the Northfield, Ill., company’s current plan is for the split to be complete by the end of next year.
Aside from the spinoff plans, Kraft also announced that its second-quarter earnings climbed 4 percent to $976 million, or 55 cents per share, from $937 million, or 53 cents per share, a year ago. Revenue rose 13 percent to $13.88 billion from $12.25 billion. Analysts polled by FactSet predicted earnings of 58 cents per share on revenue of $13.08 billion.
Kraft also boosted its full-year forecasts for revenue from existing businesses and operating earnings. Kraft now anticipates so-called organic revenue to climb at least 5 percent, with operating earnings of at least $2.25 per share. Its prior guidance called for revenue to increase at least 4 percent, with operating earnings of at least $2.20 per share. Analysts expect earnings of $2.23 per share.