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Kraft Foods plans to separate into two independent public companies: a high-growth global snacks business and a high-margin North American grocery business. Global snacks will consist of the current Kraft Foods Europe and Developing Markets units as well as the North American snacks and confectionery businesses.
The North American grocery business, which will retain the Kraft Foods name, would consist of the current US Beverages, Cheese, Convenient Meals and Grocery segments and the non-snack categories in Canada and Food Service.
The word Mondelez conjures the idea of a ‘delicious world’. The word ‘Monde’ is the Latin word for ‘world’ while ‘delez’ means delicious. The board of directors has already approved the new name and it will be submitted for shareholder approval at the annual meeting to be held on May 2012. Once the name is approved, the snack company will trade under the symbol of “MDLZ”.
We currently have a Neutral recommendation on Kraft Foods. The stock carries a Zacks #3 Rank (a short-term ‘Hold’ rating).
Overall, we are encouraged by Kraft’s strategy of continued cost management, price increases, expansion into emerging markets and continued strong momentum from its designated Power Brands. Further, the split of its North American business is expected to allow Kraft to focus on its distinct strategic priorities and allocate resources optimally. However, we remain concerned about rising input costs and vulnerability to currency translations.
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