* Delivers forecasts for split company over two days
* Kraft long-term EPS growth in mid to high single digits
* Management to recommend annual dividend of $2/share
* Cautioned Thursday about currency impact on Mondelez
* Kraft shares down 5.5 pct
By Martinne Geller and Brad Dorfman
Sept 7 Shares of Kraft Foods Inc, which
is splitting into two companies next month, fell 5.5 percent on
Friday after it forecast 2013 profits below Wall Street
expectations, hurt by a strong dollar and additional costs.
Kraft plans to spin off its North American grocery business
on October 1 into a company called Kraft Foods Group that will
make Planters peanuts, Oscar Mayer lunch meat and Velveeta
cheese. The remaining company, which will sell Oreo cookies,
Cadbury chocolate and Trident gum, mostly overseas, will be
called Mondelez International.
Kraft executives met with investors on Thursday to discuss
the growth strategy of Mondelez and on Friday to discuss Kraft
In both cases, the company gave earnings forecasts for 2013
that were disappointing, said S&P Capital IQ analyst Tom Graves.
"For the global snacks business, I was disappointed that
currency translation is going to affect them as negatively as
indicated. And for the North American grocery business I was
hoping for a more favorable impact from cost reduction efforts,"
"That being said, I still think the split up of the company
is a good thing," Graves added, noting that it lets managers
focus on the different traits of the businesses and gives
investors opportunities to invest in either growth or income
Kraft said on Friday it expects earnings of about $2.60 a
share in 2013, including restructuring charges of about 26 cents
a share. It said on Thursday that it expected earnings of $1.50
to $1.55 per share in 2013 for Mondelez.
These were the first forecasts given for each company, and
as such, the average analyst estimate for the combined company
is not exactly comparable.
But for Mondelez, Barclays analyst Andrew Lazar said the
starting base for earnings in 2013 will be some 10 percent lower
than Wall Street forecasts.
Kraft also said there would be extra costs associated with
the split, including overhead to run two companies, that will
hurt earnings in the near term.
In the longer term, Kraft expects earnings-per-share growth
in the mid to high single digits for Kraft and in the double
digits for Mondelez. The long-term growth rates were in line
with Wall Street estimates, analysts said.
TIME TO SHINE
In Friday's presentation to Wall Street analysts, Kraft
Foods Group executives said they would focus on generating cash
for shareholders, including a $2 per share annual dividend,
which was higher than analysts expected.
The company will also look to cut costs, with measures such
as tiered wage scales, cutting the size of its corporate office,
and pruning the number of product varieties it offers.
Tony Vernon, who will be chief executive of Kraft Foods
Group, said half of every dollar saved would go to shareholders
and half would be reinvested in the company, for things like
marketing and innovation.
Vernon also said he wants to create "a renaissance" in the
North American food and beverage industry, which has been
squeezed in recent years by higher commodity costs and weak
consumer spending. He said the spin-off will let the company's
large, mature brands shine.
"When you're sharing the stage with Oreo in China there's
not a whole lot of room to make Oscar Mayer shine as much as it
should," Vernon said in an interview.
The company did not set a specific revenue target but said
organic revenue, which strips out the impact of divestitures and
foreign exchange, would be at or above the growth rate of the
North American food and beverage market.
Edward Jones analyst Matt Arnold applauded Kraft's focus on
returning cash to shareholders, given the North American
company's concentration in a low-growth market.
"Return on invested capital is the right approach. The whole
mindset there is to get the most out of what you have," Arnold
Kraft shares, which have gained some 13 percent this year
through Thursday, closed down $2.33, or 5.5 percent, at $39.99