Kraft Foods Earnings Preview: First Quarter 2009

Kraft Foods [[KFT]] is scheduled to report their first quarter 2009 results before the market opens on Tuesday, May 5. Based on our analysis, we at are expecting KFT to report disappointing results that fail to meet Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $9.62 billion and EPS of $.39. This would represent a 7% decline in revenues from last year’s $10.37 billion in the same period. The current analyst consensus estimates calls for revenues of $9.74 billion and EPS of $.40. On February 4, the company provided full year 2009 earnings guidance of $1.88 per share.


While we believe that Kraft’s management tried to be conservative with their 2009 guidance, there is a strong possibility that they won’t be able to achieve their earnings expectations this year. Kraft’s premium products seem to be poorly positioned in the current recessionary environment where consumers are willing to trade down in order to cut their costs. Therefore, we are expecting Kraft to report further volume declines as private label products increase their market share.


Share Performance

Since the beginning of the year, Kraft’s shares are down 17%. In 2008, Kraft’s shares fell less than 18% as the stock outperformed the 34% decline in the Dow Jones index.



Shares are now trading at 11x consensus 2010 EPS estimates. This is slightly below the relative valuations of their peer group. Kraft’s shares currently appear to be trading at their fair value. There likely is some potential downside risk to their 2009 earnings guidance, but income investors should like their 5.2% dividend yield which we expect the company to maintain.


Recommendation: Hold with a $23 price target.


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