Larger restaurant corporations are losing out, but that’s actually a major win for the less expensive fast food chains as we’ve learned over the past few weeks. That’s no big surprise since a $7 dinner at
Panera (
Nasdaq: PNRA) or a $5 meal at
McDonalds (
NYSE: MCD) sounds infinitely more affordable than that $15 plus tip you’d have to spend at TGI Fridays.
Likewise, eating at home has become a much more popular option as well, as evidenced by Kraft Foods Inc.’s (NYSE: KFT) first quarter earnings report.
Despite difficulties last year when Wal-Mart (NYSE: WMT) and large food retailers cut back on new orders, Kraft posted a net income of $660 million or 45 cents a share as compared to $599 million or 39 cents a share same time last year.
While the numbers stand well on their own, it’s important to point out that analysts largely agreed the food giant would make a mere 1 cent gain per share over last year. When too many other companies are settling with better-than-expected losses this quarter, investors would doubtlessly welcome even such a small improvement.
So needless to say, Kraft shares have risen nicely this morning on the much better-than-expected profits
Of course this hardly means that the company has a free ride from here. With the fate of the economy still uncertain, consumers still aren’t spending nearly as much as they could be. In fact, as the McDonalds-TGI Fridays example shows above, what they are largely doing is switching to cheaper versions of their favorites. That means that instead of buying Kellogg’s (NYSE: K) raisin bran, they’ll opt for the Sure Fine imitation, which usually tastes about the same anyway for a lesser cost.
Kraft maintains that it’s holding its own against the up-and-coming competition though. I’m going to have to attribute that to the fact that macaroni and cheese just isn’t macaroni and cheese unless it comes in the dark blue box. A five-year old can tell you that, much less a sophisticated professional like myself.
The kid-friendly brand has also gone out of its way to make it easier on mom and dad this year, cutting prices on nuts, coffee and cheese. And those products that just weren’t doing well enough for one reason or another? Kraft has that under control as well, discontinuing South Beach Living frozen meals and HandiSnacks ready-to-eat desserts.
All of which leads us to one simple conclusion: Kraft is an investment you can really sink your teeth into.
Tuesday, May 05, 2009 - by Jeannette Di Louie, Assistant Editor, Mt. Vernon Research
