Back to top

Analyst Blog

Recently, Kraft Foods Group Inc.'s (KRFT - Analyst Report) macaroni and cheese products have been recalled which were sold by its Kentucky-based distributor Truitt Brothers Inc. Truitt Brothers have recalled 1.77 million pounds of macaroni and cheese products, which are known as Kraft Velveeta Cheesy skilled single.

Incorrect labeling led to the recall of Kraft Velveeta Cheesy skilled single. Velveeta is one of the iconic brands of Kraft Foods which had reported decent growth in the third quarter of 2013.

Kraft Velveeta Cheesy skilled single is a macaroni and cheese product containing pasta and ground beef. The macaroni and cheese products contain hydrolyzed soy protein and dried soy sauce, which are also known allergens. However, these ingredients were not mentioned on labels of some of the products manufactured between May 6, 2013 and Jan. 16, 2014. However, there have been no reports of adverse reactions due to consumption of these products.

Dinner and cheese slices under the brand Kraft’s Velveeta brand witnessed steady growth in the third quarter of 2013 which were reported on Oct 30, 2013. However, Kraft’s third-quarter net revenue declined year over year and also missed the Zacks Consensus Estimate due to lower volume and pricing.

Kraft’s third-quarter 2013 adjusted earnings per share of $0.65 fell short of the Zacks Consensus Estimate of $0.68 by 4.4%. Adjusted earnings were also lower year over year due to a weak top line, higher interest expense as well as tax rate.

Several of the company’s product categories witnessed softness in the quarter due to lower consumption and increased competitive activity. Especially, salad dressings, powdered beverages and ready-to-eat desserts declined in the quarter. Management highlighted at the call that shopper trips are going down, especially the large ones as consumers are still purchasing only what they need. Traffic is only growing in the club and dollar channels.

However, the company has strong fundamentals. Kraft’s aggressive cost reduction and efficiency-improvement initiatives remain on track providing cash to invest in innovation, brand-building and marketing initiatives. Moreover, Kraft is focusing on building shareholders’ value through share buybacks and regular dividend payments.

Kraft Foods Group currently carries a Zacks Rank #2 (Buy).

Other companies in the consumer goods sector that warrant investor attention include Post Holdings, Inc. (POST - Snapshot Report), The Chefs' Warehouse, Inc. (CHEF - Snapshot Report), and ConAgra Foods, Inc. (CAG - Analyst Report). Post Holdings carries a Zacks Rank #1 (Strong Buy), whereas The Chefs' Warehouse and ConAgra Foods carry a Zacks Rank #2.

Please login to Zacks.com or register to post a comment.