dcrednek (79.35)

Does Kraft's split present any opportunities?

October 09, 2012 – Comments (0) | RELATED TICKERS: KRFT , MDLZ

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.