Erin Lash, CFA
Even though consumers are maintaining a tight grip on their purse strings, Kraft Foods (KFT) hasn’t backed down from showering the market with new products. For example, new products accounted for 10% of sales in 2011, up from 9% the prior year. Even more encouraging to us, however, is that Kraft isn’t launching new products at any cost, but rather is mindful of profitability (consolidated adjusted operating income jumped nearly 10% in 2011).
We contend that the firm’s dual focus of (1) investing in its brands, and (2) introducing products that resonate with consumers, should ensure that Kraft continues to win at the shelf.
Kraft Foods (KFT) reported a strong start to the year with EPS up +10% to $0.57, which was $0.02 ahead of our estimate and $0.01 ahead of the consensus estimate. The quarter featured strong organic revenue growth, near double-digit segment operating profit growth, and a heavy investment in marketing and its emerging market infrastructure.
The organic revenue growth was up +6.5% and featured relatively balanced growth around the world — U.S. was soft (+3%), followed by a surprisingly strong performance in Europe (+7.2%), and the usual robust growth in the Developing Markets (+11.5%).
As such, we approach 2012 with real confidence — the company anticipates 5% organic revenue growth (keep in mind that includes a 1% drag on sales from its SKU rationalization in the U.S.) and earnings growth of at least +9%, suggesting EPS of $2.50 or higher. Our model generally conforms to these estimates. We model organic revenue growth of +5% and EPS of nearly +10% to $2.51.