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Kraft's Top-Line Pressures Continue

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On March 20, 2014, we issued an updated research report on Kraft Foods Group, Inc. .

On Feb 13, the consumer food company reported soft fourth-quarter fiscal 2013 results, missing the Zacks Consensus Estimate for both revenues and earnings.

Nevertheless, earnings of 45 cents per share grew year over year driven by easy year-ago comparisons and lower costs. Sales also increased 2.3% as better volumes offset weaker pricing. Also, Kraft saw decent market share improvements in 2013.

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

However, Kraft’s top line has been soft ever since the split from Mondelez International Inc. (MDLZ - Free Report) due to broader macro pressures. Several of its product categories — salad dressings, powdered beverages and ready-to-eat desserts — have been soft for the past few quarters due to lower consumption and increased competition. Changes in consumer preferences, their shopping behavior and tough consumer spending environment are hurting retail sales.

Moreover, the first-quarter earnings are expected to be soft due to shift in Easter timing, weak holiday sell-through leading to higher inventory levels with retailers and rising cheese costs.

Furthermore, the North American food industry is facing headwinds from weak job market and the recent cut in federal food assistance offered through the Supplemental Nutrition Assistance Program, formerly known as food stamps. The headwinds are likely to persist in 2014.

In addition, increasing competitive pressures, challenging industry conditions and lack of exposure outside the U.S. concern us.

Other Stocks to Consider

Kraft carries a Zacks Rank #3 (Hold). Other better-ranked stocks in the food industry include J&J Snack Foods Corp. (JJSF - Free Report) and Diamond Foods, Inc. . Both the companies carry a Zacks Rank #2 (Buy).

In-Depth Zacks Research for the Tickers Above

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Mondelez International, Inc. (MDLZ) - free report >>

J & J Snack Foods Corp. (JJSF) - free report >>

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