Kraft Foods Inc CEO Irene Rosenfeld is breaking up the food giant she helped create through multibillion-dollar deals, with a plan to split Oreo cookies and Cadbury chocolates from Kraft cheese and other groceries.North America's largest packaged foods company said on Thursday it expects a tax-free spin-off of the North American grocery business to be completed by the end of 2012. It also reported better-than-expected second-quarter earnings and raised its full-year outlook.
Kraft shares were up 6.1 percent at $36.40 in premarket trading. Kraft is the latest consumer goods company to separate its units in order to focus them better and offer shareholders distinct investment opportunities. Fortune Brands Inc, which also reported earnings on Thursday, and Sara Lee Corp are also spinning off units.
A year and a half after buying Britain's Cadbury, Kraft said its snack business and North American grocery business now "differ in their future strategic priorities, growth profiles and operational focus." The snack business, with annual sales of $32 billion, operates in high-growth emerging markets with products like Oreo and Lu cookies, Cadbury and Milka chocolates, Trident gum and Tang powdered drinks. The Lu business, purchased from France's Danone, was another high-profile acquisition under Rosenfeld.
The North American grocery business, with annual sales of $16 billion, is focused in more mature markets but has high profit margins with products like Kraft, Velveeta and Philadelphia cheeses, Maxwell House coffee and Capri Sun drinks. That company will also include non-snack categories in Canada and Kraft's food service business.
Separately, Kraft reported second-quarter adjusted earnings of 62 cents per share, topping analysts' average estimate of 58 cents, according to Thomson Reuters I/B/E/S. Net revenue was $13.9 billion, up 13.3 percent, driven by growth in all regions. Organic revenue rose 7.1 percent, with price increases contributing 5.5 percentage points of that rise, and the rest coming from volume and mix of products. The company also said it now expects 2011 operating earnings of at least $2.25 per share and organic revenue to grow by at least 5 percent. Its prior forecast called for earnings of at least $2.20 per share and revenue growth of at least 4 percent.
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