Kraft Foods shares fall on lackluster quarter

The Associated Press

Kraft Foods Group Inc.'s shares fell Thursday after the company reported a lackluster third-quarter.

THE SPARK: The food maker's net income increased 7 percent on cost-cutting measures but its revenue fell on weaker sales, due in part to its split from Mondelez International a year ago. The company earned 70 cents per share on an adjusted basis on revenue of $4.39 billion. Analysts polled by FactSet were anticipating 68 cents per share on revenue of $4.58 billion.

THE BIG PICTURE: The two companies split last year, giving Kraft the North American grocery brands such as Miracle Whip and Oscar Mayer, and Mondelez the international snack brands such Oreo and Cadbury. Last year, Kraft shipped stock to retailers early as a precaution ahead of a systems changeover as part of its spinoff from Mondelez. So it booked more revenue that quarter than it otherwise would have.

THE ANALYSIS: Janney Capital Markets analyst Jonathan Feeney said in a research note that weak customer demand, particularly among cash-strapped low-and middle-income households, also weighed on the company's sales volume. This is part of what is driving Kraft's response to innovate and revive some of its more established brands.

However, he said that the company's pricing strategy and focus on sustainable growth should ensure that its brands remain relevant in the changing marketplace. He also noted that aggressive cost savings goals and an updated compensation structure should benefit the company's cash flow.

Feeney reiterated a "Hold" rating on the stock.

SHARE ACTION: Shares fell $1.23, more than 2 percent, to $54.21 by midmorning amid a broader market uptick.