Kraft Foods Inc. (NSYE: KFT) will split into two separate publicly traded companies. The company announced Thursday it will seperate its North American grocery business from its global snacks operation, in the aim of deriving more clarity and shareholder value.
The maker of Kraft cheese, Oscar Meyer lunch meats, Oreo cookies, and Planters nuts acquired Cadbury PLC a year and a half ago. The deal helped grow Kraft's global snack business.
"We have built two strong, but distinct, portfolios," said Kraft chief executive officer Irene Rosenfeld, in a statement. "Our strategic actions have put us in a position to create two great companies, each with the leadership, resources and strong market positions to realize their full potential."
Kraft's snack business has an estimated $32 billion in revenue. After the split, it will consist of current Kraft Foods Europe and developing markets units in addition to the North American snacks and confectionery businesses, the company said.
Kraft said before the market's opening bell Thursday in conjunction with reporting second-quarter earnings that Kraft will be split through a tax-free spin-off of the North American grocery business to company shareholders. Kraft expects the plan to be completed by the end of 2011.
Kraft reported second-quarter earnings of $976 million, or 55 cents a share, up from $937 million, or 53 cents a share, in the same period the previous year.
Analysts were expecting Kraft to post operating earnings of 58 cents a share on revenue of $13.08 billion.
Kraft raised its 2011 outlook, saying it expects operating earnings of at least $2.25 per share from at least $2.20 per share. The company expects organic revenue growth of at least five percent now from a previous estimate of four percent.
"The global snacks business has tremendous opportunities for growth as consumer demand for snacks increases around the world," Rosenfeld said. "The North American grocery business has a remarkable set of iconic brands, industry-leading margins, and the clear ability to generate significant cash flow."
Kraft said, however, that the company's successful efforts to build two distinct, sizable businesses through "a series of strategic acquisitions" had resulted that Kraft shareholders will best "benefit from being run independently of each other."
The move coincides with leading retailers including Wal-Mart and Target are increasing the sizes of their grocery sections to benefit from the growing trend of one-stop consumer shopping.
Centerview Partners and Goldman Sachs advised Kraft on the deal. While the company said the deal could be completed by the end of the year, it noted that the split could take more than a year. Kraft also said it aimed to capitalize each of the two business in a manner consistent with achieving an investment grade bond rating for each.
Kraft shares were up on pre-market trading Thursday on the news 2.68 percent to $35.22.