Kraft bolsters grocery business ahead of spin-off
The food company is pushing its Planters brand and launching new initiatives to address the challenges of a maturing market.
However, after extending the Planters brand to peanut butter in 2011, the company could look to follow Smucker's footsteps in innovation. In February, Smucker's introduced two new hazelnut flavors to expand its current offerings in the specialty nut butter market, which it claims is growing more quickly than the overall peanut butter market.
Planters' market share of the U.S. peanut butter market, which is worth an estimated $1.8 billion, increased from 1.8% last year to mid-single digits. Overall, the Planters brand witnessed a 7% increase in revenues in 2011.
In 2011, the company was able to increase the conversion productivity in 28 of its 57 plants at a double-digit rate through Lean Six Sigma. Moreover, overhead, as a percentage of revenues declined 60 basis points to 11.4%, which meant an overall savings of $100 million for the entire year.
The grocery segment is one of the most important divisions within Kraft as the EBITDA (earnings before interest, taxes, depreciation, and amortization) margins are almost double those of the other divisions.
We expect a slight increase in the margins in the near term as the full effect of the productivity initiatives begins to feed through to its EBITDA margins.
Kraft competes with players like PepsiCo (PEP), General Mills (GIS) and Kellogg (K). We currently have a price estimate of $34.68 for Kraft Foods.
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