Chicago: Kraft Foods Inc will need to show progress in cutting costs and improving organic revenue when it reports earnings on Tuesday, in a bid to convince Cadbury shareholders it is a viable deal partner.
Lower commodity prices and cost controls helped other consumer-staples companies beat analyst estimates in recent weeks, including Kellogg Co, Clorox Co and General Mills Inc. They also came in slightly ahead of muted revenue expectations.
If that trend holds for Kraft -- which is due to present a formal takeover bid for UK confectioner Cadbury by 9 November-- it could boost the company’s shares and make for a more compelling offer.
“The trend has been for food companies across the board to beat the number,” Edward Jones analyst Matt Arnold said. “I haven’t seen many companies in consumers staples post a miss lately.”
Kraft is likely to stick by its initial cash and stock proposal to Cadbury shareholders that was disclosed on 7 September, sources familiar with the situation told Reuters.
That deal was valued at 745 pence a share, or £10.2 billion ($16.7 billion), at the time. The proposed bid was worth 733.4 pence, or £10.06 billion ($16.5 billion) Monday afternoon based on the decline in Kraft shares.
The world’s No. 2 foodmaker is scheduled to post third-quarter earnings after the New York Stock Exchange closes at 4pm EST (2100 GMT).
Letting the Numbers Do the Talking
Kraft chief executive officer Irene Rosenfeld is not expected to take questions about the Cadbury bid when she talks to analysts about earnings on Tuesday, a spokesman said.
But the results will help set the stage for Kraft’s bid.
The maker of Velveeta cheese and Oreo cookies is expected to post earnings of 48 cents a share in the quarter, according to Thomson Reuters, up from 44 cents a year earlier, with lower commodity costs and its own cost-cutting measures helping boost profits.
But revenue is expected to fall to $10.32 billion from $10.46 billion, hurt by divestitures and strength in the dollar compared with a year earlier.
Cadbury chairman Roger Carr dubbed Kraft a “low growth conglomerate” in his letter to Rosenfeld rejecting the initial offer and analysts say Kraft will need to show sustainable growth prospects to overcome that perception.
In the past three quarters, Kraft has actually disappointed analysts in terms of revenue, with sales coming in 2%, 3% and 4.6% below expectations, according to Thomson Reuters.
Earnings per share have been better, with the company reporting earnings of 4.4% more than analysts expected in the second quarter and 13.3% more than expectations in the first quarter.
Kraft’s earnings’ report comes almost two weeks after Cadbury reported a 7% rise in underlying sales for the third quarter, beating even the most bullish forecasts.