Does Kraft's split present any opportunities?
Kraft Foods (KFT) recently divided its operations between two new entities: Kraft Food Group (KRFT) and Mondelez (MDLZ). This split is comparable to Altria's move a couple of years ago to separate North American operations and international business. With the split I wondered if either new entity presented a compelling investment opportunity. I didn't dive too deep and instead chose to apply the Cash Return on Invested Capital (CROIC) metric to both companies. CROIC is defined as: Net Income plus Depreciation less Capital Expenditure divided by Total Stockholders' Equity plus Total Liabilities less Current Liabilities, or (NI+Depr-CapEx)/(TSE+TL-CL).
MDLZ's performance over the trailing twelve months (TTM) yields a CROIC of just 2.28% while KRFT's 2011 performance (I couldn't find reliable TTM data) is 9.5%. Of the two companies it seems as though KRFT's performance is stronger. Both new companies show stronger CROIC than ConAgra (CAG) at 0.56%, but weaker than Kellogg (K) at 17.7%. It's probably not a bad idea to sit back and monitor the performance of these two companies over the next couple of quarters before making a decision either way on them.