Kraft Foods (KFT), the newest Dow component, reported earnings that were much better than expected. The company was able to increase net income 10% from a year ago, and earnings per share of 45 cents easily beat analysts estimates.
“Kraft Foods is benefiting for the two things that help beat earnings estimates. Cost control and somewhat higher pricing.” CNBC’s Squawk on the Street 5/5/2009
Well when they say it like that, it sounds so simple. Kraft was worried that sales would slip in quarter because of increased competition from private-label and store brands, and the company issued a warning to investors that sales may fall up to 5%. So, Kraft tried to counteract those challenges by cutting costs and slightly raising prices, and the strategy paid of in the last quarter. Revenue was up 2.3% on the higher prices and after the cost cutting, the gross margins increased from 32.9% to 34.7%. North America was the driver of the strong results as profits were up 16% on organic growth of 1.3%.
Ockham currently rates Kraft Foods as Undervalued, and the stock still looks attractive even after its 5% rise today compared to historical price-to-sales and price-to-cash flow ranges. Even though the company has lowered earnings guidance already this year, the company reaffirmed that lowered guidance in the release today. The better than expected results and the improving margins are a great sign for the company and we are confident in reaffirming our Undervalued stance.