Replies to post #18043 on The Rising Influence of Rising Affluence

[wow_happens28]

Big food processing companies have suffered lately, organic and fresh has got to be hurting them. I posted last summer Dew, that I thought that unlike the 2000-2002 Bear Market when big food did good, not this time and you agreed. Valuations are still maybe too high, in your opinion?

https://stockcharts.com/h-sc/ui?s=GIS&p=D&yr=2&mn=0&dy=0&id=p5177570008c

https://stockcharts.com/h-sc/ui?s=CPB&p=D&yr=2&mn=0&dy=0&id=p4663277795c

https://stockcharts.com/h-sc/ui?s=DF&p=D&yr=2&mn=0&dy=0&id=p0799659042c

https://stockcharts.com/h-sc/ui?s=K&p=D&yr=2&mn=0&dy=0&id=p7536520122c

It helped MKC to move into China and go organic. I am not a buyer here of MKC.

https://stockcharts.com/h-sc/ui?s=MKC&p=D&yr=2&mn=0&dy=0&id=p2025469331c

[wow_happens28]

$K Kellogg on the verge of a comeback

BS article, processed food is still in decline, I will not tough processed food stocks.

https://www.foodbusinessnews.net/articles/13346-kellogg-on-the-verge-of-a-comeback

A multiyear turnaround effort for the maker of Froot Loops is beginning to bear fruit.

Kellogg Co. executives shared the results of recent strategic actions and investments during a Feb. 20 presentation at the Consumer Analyst Group of New York Conference in Boca Raton.

Following five years of declining or flat sales, the embattled Battle Creek, Mich., company is nearing a comeback, said Steven A. Cahillane, chairman, chief executive officer and president.

“It’s never easy to reverse a negative multiyear top-line trend and particularly amidst changing food beliefs, a changing media landscape, changing shopper habits and a very dynamic retailer environment,” Mr. Cahillane said. “… This has required altering our mindset, restructuring our organization, rewiring our processes, rethinking every brand, changing how we think about every channel and reorienting our supply chain and required a lot of investment.”

He added, “We have asked you to endure several quarters of substantial investment, and we still have a couple more to go. This is right for the long term. And once these foundational investments are behind us and we shore up what are some short-term margin drags and that the top-line momentum that we’re seeing continues, then profit and cash flow will indeed follow.”

Actions in the past year have shifted Kellogg’s portfolio toward growth areas such as emerging markets, which represent nearly 20% of the company’s net sales today. In developed markets, investments in brand building, product innovation, new pack formats and channels, and capabilities fueled sales of key brands, including Pringles, Cheez-It, Rice Krispies Treats, Pop-Tarts and Eggo.

“We’ve also expanded our offerings of on-the-go pack formats, so important to winning the key occasion of on-the-go in snacks,” Mr. Cahillane said.

Recent and forthcoming product launches in North America include Cheez-It Snap’d and Pringles Wavy, which bring new textures to established snack brands, plus a range of new Pop-Tarts formats, including Bites, Crisps and Pop-Tarts Cereal. Off the Grid is a new brand of frozen waffles with added protein. Rice Krispies Treats Poppers are bite-size sweet snacks with a chocolatey coating.

“It’s way too early to call success, but I think you’ll agree that this is the best lineup of innovations that we’ve had in many years,” said Christopher M. Hood, president of Kellogg North America.

Product development, he said, has been among the most important behind-the-scenes changes and investments at Kellogg.

“We reorganized our structure,” Mr. Hood said. “We’ve changed our approach, and we’ve set very clear priorities. As a result, the quality of the ideas that we are launching is better than ever, and speed to market is improving.”

He described the latest innovations as “a great mix of new food forms, premiumized offerings, indulgent items, health and wellness items, pack formats and even a couple of new brands.”

Kellogg also aggressively expanded distribution of RXBAR, the protein bar business it acquired in late 2017. During the past year, RXBAR net sales grew 180% as the brand entered more mainstream retail outlets. The company also introduced a new product line, RX Nut Butter, featuring egg white protein and sweetened with dates.

Another step in Kellogg’s return to growth is the proposed sale of businesses including Keebler cookies, pie crusts and ice cream cones, Famous Amos cookies and Stretch Island fruit snacks. Combined, the businesses had net sales of approximately $900 million in 2018.

“It wasn’t an easy decision to explore a possible divestiture of some of our businesses,” Mr. Cahillane said. “We believe that these are great brands. But a divestiture can reshape and further focus our portfolio. We’ll also continue to look for bolt-on acquisitions in white spaces and for scale in emerging markets.

“In short, we’ll continue to shift the portfolio ever more toward growth.”

In fiscal year 2019, Kellogg expects currency-neutral net sales growth of 3% to 4%, flat adjusted operating profit and a decline of 5% to 7% in adjusted earnings per share. The company is targeting long-term growth of 1% to 3% in net sales on a currency-neutral basis, 4% to 6% in adjusted operating profit and 6% to 8% in adjusted earnings per share. The figures do not reflect any proposed divestitures.

“We have productivity initiatives underway, and we’ve implemented revenue growth management actions, and we are very focused on improving the returns on our investments,” said Fareed A. Khan, senior vice-president and chief financial officer. “We restructured our organization for more efficiency and effectiveness, and our proposed divestiture will simplify and focus our portfolio and resources. And soon, foundational investments will start to diminish, and top-line growth will start to drive operating leverage.

“So while we’re in an investment phase, the building blocks for profit growth are definitely in place.”

[wow_happens28]

KHC Kraft Tests How Much Costs Can Be Cut as Tastes Change

At least they are waking up to the change from high carb, high sugar foods and processed meats changing to organic, low carb, and unprocessed fresh foods is happening. I still won't touch this stock.

https://www.nytimes.com/2019/02/22/business/dealbook/3g-capital-buffett-kraft-heinz.html

The reputations of some of the world’s most powerful investors rest on a huge but humdrum challenge: getting consumers excited again about Kraft macaroni and cheese.

Kraft Heinz, the food giant that also makes Jell-O and Oscar Mayer meats, surprised Wall Street on Thursday when it announced poor earnings, a multibillion-dollar write-down and an accounting investigation by the Securities and Exchange Commission. Kraft’s shares plunged 28 percent on Friday, lopping more than $16 billion off the company’s stock market value.

3G Capital, the Brazilian investment firm that led the merger of Kraft and Heinz in 2015 and steers the combined company, has taken a big financial hit on its 22 percent stake in Kraft. Warren E. Buffett’s Berkshire Hathaway has an even bigger stake in Kraft and lost an estimated $4 billion on Friday.

The real pressure, though, is on 3G. Though little known on Main Street, 3G has enormous influence over some of America’s most famous brands.

Investors had bought into the idea that 3G’s stringent, cost-cutting approach to running companies would succeed over the long run. But Kraft’s problems suggest that unremittingly squeezing expenses can make it harder to stay competitive.

Kraft Heinz may soon need to spend more. Consumers are increasingly drawn to products they perceive to be healthier and fresher over processed products. Kraft Heinz will have to show that it can win them back with innovative new products and engaging marketing. And that could weigh on future profits.

“They did not anticipate this major change in consumer tastes, and they really focused their efforts instead on cost-cutting and doing acquisitions,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business.

Kraft is not the only company where 3G’s approach is being tested. The firm’s partners have leadership positions at Anheuser-Busch InBev, which makes Budweiser. Long before 3G’s investment in Kraft Heinz, its leaders were testing their cost-cutting strategies at the company that eventually became Anheuser-Busch InBev. The beer maker’s shares are down nearly 30 percent over the last 12 months.

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3G also effectively controls Restaurant Brands International, whose brands include Burger King and Canada’s Tim Hortons.

Ken Goldman, an analyst at JPMorgan Chase, asked Kraft’s chief executive on Thursday night during an investor call whether the company’s belt-tightening had damaged its brands. “We still believe strongly that our model is working and has a lot of potential for the future,” Bernardo Hees, the chief executive, replied. On Friday, Mr. Goldman concluded in a research note, “It is reasonable to question the entire 3G strategy.”

The write-down Kraft announced on Thursday totaled $15.4 billion. In taking the hit, the company reduced the value on its balance sheet of certain operations in the United States and Canada and the Kraft and Oscar Mayer trademarks. The company also jarred investors by announcing that it would slash its dividend. And the S.E.C. inquiry could stir up doubts in investors’ minds about how Kraft records its costs.

The company booked $25 million of costs in the fourth quarter that should have been recorded in earlier periods. Kraft said it was taking steps to improve its controls and added that it was continuing to cooperate with regulators.

“In absolute terms, $25 million is not a big number, but it puts into question management’s credibility,” said Jon A. Baumunk, an accounting lecturer at San Diego State University’s Fowler College of Business.

Kraft’s troubles could be another headache for Mr. Buffett, who has drawn criticism as an important supporter of the firm over the years.

3G and Mr. Buffett merged Heinz with Kraft in a more than $45 billion deal that created the fifth-largest food and beverage company in the world. “The 3G people have done marvelous purchases,” Mr. Buffett said in 2015.

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But Mr. Buffett and 3G have seemed like a strange pairing. Mr. Buffett has long bashed private equity investors and their business model. He also has fostered a reputation for allowing the businesses that Berkshire purchases to operate with little interference and has not pushed for big job cuts. That would seem to stand in contrast to 3G’s cost-cutting practices.

In his annual letter to Berkshire’s shareholders for 2015, Mr. Buffett defended 3G. He contended that like Berkshire, 3G wanted to hold businesses for the long term, which distinguished it from a typical private equity investor.

Over the coming quarters, Kraft will have to show that it can compete in a market in which consumers want products they think are healthy and do not appear to be mass-produced. Other companies have had some success on this front, Mr. Kass, the business professor, said, pointing to some of PepsiCo’s food products. “Pepsi has been realizing that growth is going to come from new products that are perceived to be healthier and nutritious,” he said.

And some analysts see evidence that suggests Kraft could still turn things around. It has had some success reviving interest in its Capri Sun and Oscar Mayer lines, said Christopher Growe, an analyst at Stifel who covers Kraft.

“There is hope here,” he said.