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Kraft Lifts The Lid On Its Grocery Business

SAN FRANCISCO (MarketWatch)--Kraft Foods Inc. (KFT) is giving investors an inside look at its North American grocery business, the first glimpse of what the unit will look like after it is separated from the company's snacks business. Bearing brands such as Kraft Cheese, Oscar Mayer meats and Maxwell House coffee, the unit to be called Kraft Foods Group has posted increased revenue for two consecutive years, generating 2011 sales of $18.7 billion, according to a regulatory filing late Monday. However, earnings and margins have been nicked by commodity costs. Earnings from operations, which excludes divestitures, fell 2.5% to $1.8 billion last year. Earnings were $2 billion in 2009; operating margin dropped to 15.7% last year from 16.6% in 2010 and 17.2% in 2009. Kraft announced last August that it planned to split into two independent companies by separating its global-snacks unit from its grocery business. The spinoff is scheduled to be completed by year-end. Shares of Kraft have surged 22% since the company unveiled its spinoff plans. The transaction must be approved by regulators. Kraft's stock was down 0.2% at $38.31 a share in afternoon trading Tuesday. Following the spinoff, the grocery company will assume $10 billion of debt and shoulder $4.4 billion of pension obligations. It wasn't clear from the filing if the debt will be inherited from Kraft's current $27 billion debt load. Wal-Mart Stores Inc. (WMT) is its largest customer, making up 24% of total sales. Advertising expenses as a percentage of total sales were 3% in 2011 and will likely go up, according to J.P. Morgan analyst Ken Goldman. The same measure is 9.8% at Kellogg Co. (K), 7.9% at General Mills Inc. (GIS) and 6.8% at Hershey Co. (HSY), he said. Kraft has told investors to expect the grocery-foods business to deliver strong cash flows and pay a competitive dividend. While it is too early in the separation process to deduce what the future dividend will be, Kraft did show in the filing what the business was generating in free cash flow--money that can be used to pay a dividend. Free cash flow (operating cash flow minus capital expenditures) rose to $2.3 billion in 2011 from $380 million in 2010. It was $2.5 billion in 2009. -By Matt Andrejczak; 415-439-6400; AskNewswires@dowjones.com Order free Annual Report for General Mills, Inc. Visit http://djnweurope.ar.wilink.com/?ticker=US3703341046 or call +44 (0)208 391 6028 Order free Annual Report for The Hershey Co. Visit http://djnweurope.ar.wilink.com/?ticker=US4278661081 or call +44 (0)208 391 6028 Order free Annual Report for Kellogg Company Visit http://djnweurope.ar.wilink.com/?ticker=US4878361082 or call +44 (0)208 391 6028 Order free Annual Report for Kraft Foods, Inc. Visit http://djnweurope.ar.wilink.com/?ticker=US50075N1046 or call +44 (0)208 391 6028 Order free Annual Report for Wal-Mart Stores, Inc. Visit http://djnweurope.ar.wilink.com/?ticker=US9311421039 or call +44 (0)208 391 6028

Stock News for Kraft (KFT)
DateTimeHeadline
06/18/201213:40:20Kraft Offers to Exchange Up to $3.6 Billion in Debt
06/12/201208:24:25DE Master Blenders Seeks to Become No 2 Maker of Coffee, Tea
06/08/201210:50:11Kraft Foods Will Transfer Listing to Nasdaq
06/08/201210:05:20Kraft Foods Will Transfer its Exchange Listing to Nasdaq
05/31/201216:56:10Corporate Bond Volume Tops May Forecasts Despite Volatility
05/30/201214:55:46Kraft Issuing $6 Billion Of Bonds As Treasurys Rally
05/18/201216:04:39Kraft Lowers Prices On Maxwell House, Other Coffee Brands -Reuters
05/18/201210:05:31Kraft: IRS Confirms Tax-Free Status Of Spinoff
05/15/201218:54:34Ackman's Pershing Square Slashes Kraft Stake By Nearly 27%
05/15/201217:58:10Buffett's Berkshire Shows New Stakes In General Motors, Viacom
05/04/201214:47:10US Stocks Tumble After Jobs Report; Nasdaq Faces Year's Biggest...
05/03/201216:55:15Kraft 1Q Profit Up 1.8% As Revenue Strengthens, Margins Weaken
05/03/201212:24:36Ackman's Pershing Square Funds Gain 1% In April
04/17/201215:44:24Demand Rises For Rainforest Alliance Coffee And Other Crops
04/13/201202:29:48European 1Q Cocoa Grindings Fall 0.1% On Year - ECA
04/12/201215:38:38Kraft Ends Athenos Greek-Yogurt Line, Exits Fast-Growing Space
04/10/201214:12:10EARNINGS PREVIEW: Consumer-Product Cos Take Steps To Defend Market...
04/06/201217:56:10Kraft Recalls Batch Of Planters Peanut Snacks
04/03/201215:46:12Kraft Lifts The Lid On Its Grocery Business
04/03/201210:07:22Kraft CEO's Total 2011 Compensation Up 13.5% To $21.9 Million

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