COMPANY DESCRIPTION

Kraft Foods Group manufactures and markets food and beverage products, including refrigerated meals, refreshment beverages, coffee, cheese, and other grocery products, primarily in the U.S. and Canada, under a range of brands. Co.'s product categories span breakfast, lunch, and dinner meal occasions, both at home and in foodservice locations. Principal brands include Kraft, Maxwell House, Gevalia, Kool-Aid, Crystal Light, MiO, Cracker Barrel, Velveeta, Cheez Whiz, Polly-O, Athenos, Breakstone's, Knudsen, Oscar Mayer, Claussen, Boca, JELL-O, Cool Whip, Stove Top, Jet-Puffed, Velveeta Cheesy Skillets, Shake ‘N Bake, Planters, Miracle Whip, Good Seasons, A.1, Bull's-Eye and Grey Poupon.

 

ECONOMIC MOAT

Moat of branded products.  Merger with Heinz will dig deeper moat.

 

OUTLOOK

Kraft Foods Group has agreed to merge with ketchup king H.J. Heinz Co. (Heinz has been owned by Brazilian private equity firm 3G Capital Partners and Warren Buffett's Berkshire Hathaway since 2013.) The blockbuster deal, which may ultimately be valued at more than $40 billion, would create the fifth-largest food and beverage company in the world.

 

Kraft shareholders would get one share in the new company, plus a special cash dividend of $16.50, for each share of KRFT held. Berkshire Hathaway and 3G Capital have pledged to contribute $10 billion to the deal in order to fund the special cash dividend. The transaction appears well-timed. Indeed, the merger, expected to be completed in the second half of 2015 (there will probably be few regulatory hurdles) and to be earnings accretive to Kraft by 2017,

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STRENGTHS

  • Diversified product offering complemented by a strong brand portfolio

  • Strong manufacturing and distribution capabilities

  • Strong cash reserves 

WEAKNESSES

  • Reliance on large retail customers

  • Product recalls 

THREATS

  •  Intense competition

    Increase in food safety regulations

  • Rising labor wages in the US 

OPPORTUNITIES

  • Growing demand for health and wellness products and services

  • Growing foodservice market

  • Rising immigrant population and the growing purchasing power of the Hispanic population 

     

     

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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