Are Kraft’s Q3 Earnings as Positive as They Look?
Kraft Foods Group’s (NASDAQ:KRFT) third-quarter report may not be one to remember, but it is of particular note for one reason. The company’s most recent quarterly results are the first to be released after Kraft spun off its popular snack brands as a separate business called Mondelez (NASDAQ:MDLZ) in early October.
Kraft split the company in two with the intention that each new business could focus on a more targeted range of products, and therefore increase growth more efficiently.
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For both new companies, the third quarter has been an early test of that hypothesis.
With the quarter’s results released on Wednesday, it appears that Kraft’s gamble has been successful thus far. In Bloomberg’s coverage of the company’s earnings, the publication commented that Kraft Foods had embraced “the spirit of a startup” by “betting that innovation will help it grow.”
For the three-month period, earnings rose 13 percent from the year-ago quarter as the newly created company developed a leaner cost structure and increased advertising, and organic sales rose 3.2 percent. While the results were positive, the company cautioned that comparing this quarter with the year-ago quarter was of limited value as the company had not yet split at this time last year.
However, that is not the biggest problem to be found in the analysis of Kraft’s third-quarter sales. The Wall Street Journal noted that a majority of the company’s sales gains came from retailers stockpiling inventory ahead of the company’s split. Without this added volume, sales for the quarter would have been flat, which could be the case for the fourth quarter as well.
Despite this possibility, Kraft Foods, which is the manufacturer of Maxwell House coffee, Oscar Mayer deli meats, and Kraft cheese, kept its forecast for 2013 unchanged.
The company has already begun its efforts to streamline its business model and revitalize older brands like Jell-O and Planters, whose sales volumes have fallen in recent years.
“The economic environment has not improved and that creates a burning platform for Kraft, our customers and our industry,” chief executive Tony Vernon said on Wednesday’s conference call. “That is, how to consistently grow volume.”
Mondelez will report third-quarter earnings after the markets close on Wednesday.