Analysis of Kraft Foods Inc.

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Analysis of Kraft Foods Inc.

Executive Summary

The following report is an evaluation of Kraft Foods Inc. from both an internal and external perspective using fundamental and technical analysis. Kraft Foods Inc. is a worldwide food company operating within the Packaged Foods industry. With annual revenues in excess of $49 billion they are the second largest firm in the industry, controlling 8% of the total market.

Fundamental analysis reveals that Kraft is a healthy company with growing revenues, and increasing margins. Technical analysis confirms much of what can be seen from a fundamental perspective but expands on it to show that Kraft is heavily debt financed and operates at a risky level of liquidity, which could be troublesome should they continue their aggressive strategy of growth through acquisitions.

From a financial perspective it can be seen that Kraft’s share price was affected quite heavily by the financial crisis, where their share price hit an all time low of $21. Since then they have recovered strongly and throughout the crisis they recorded increasing earnings per share as well as return on equity.

Comparing Kraft to its competitors reveals that they struggle to create as much value from their raw materials as some other companies in their industry do. They are also much less liquid than the industry leaders, Nestle. One thing they do very well is turnover their inventory, doing so nearly seven times per year.

Through this analysis both internally and externally it can be seen that Kraft performs strongly as a company. In certain categories they are leaders in their industry and have grown rapidly in recent years. They face stiff competition from other players in the industry however, and it is recommended that they slow their aggressive growth strategy in the short term to focus on reducing costs to improve current margins.

Kraft Food Inc. is an American confectionery, food and beverage conglomerate, established by J. L. Kraft in 1903. Since its conception, Kraft has grown into a worldwide company offering its brands in over 170 countries. Despite its rapid expansion, Kraft has stayed true to their roots with more than 40 of their brands being over a century old. Today they are headquartered in Northfield, Illinois, and have European headquarters in Switzerland. With a turnover of $49.2 billion in 2010, Kraft is the number one food company in the US and number two worldwide behind Nestlé.

The portfolio of brands for Kraft Food Inc. includes Kraft, the world´s largest-selling cheese brand, cookie and cracker producer Nabisco, and milk-dunking favourite Oreo. In August 2011 the company announced plans to split into a North American grocery business and a faster growing global snacks company. Exhibit 1 shows a selection of Kraft’s portfolio of brands.

Throughout its history, Kraft has been heavily focused on mergers and acquisitions of other brands as a way of ensuring consistent growth. In 1990 Kraft Food Inc. (KFI) bought Jacobs Suchard AG, who produced Toblerone, Milka, Coté d´Or chocolates and Jacobs coffee. In 1992 KFI bought five more companies in Central and Eastern Europe including Terry´s Group. One year later Freia Marabou was bought for an amount of $1.3 billion, which paved the way for Kraft to enter the Scandinavian market. Most recently, Kraft gained a lot of publicity for their purchase of UK candy giants Cadbury in 2010. It is easy to see that acquisitions of new brands is a key component of Kraft’s strategy for growth, and despite being such a large company, they show no intention of slowing down.

This report will use fundamental and technical analysis techniques to analyse Kraft’s performance from a top down approach. All figures provided have been calculated using information from Bloomsberg Business Week, Morningstar Financial as well as Kraft’s publically available information unless specified otherwise. The period examined was from 2007 to...
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