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Kenneth J. Dickson
Kraft Foods Inc. (KFT): Ready to gobble or throw this one up?
Even in a recessionary period, we need to eat. Kraft Foods reminds us of its traditional products, keeps new ones coming and delivers value along the ‘food’ chain.
Only recently was it spun off from its much bigger (and more troubled) brother, we’re looking at a company that can be found in many millions of larders across the globe.
Kraft Foods (NYSE: KFT)
Kraft Foods began as a door-to-door cheese business in 1903 Chicago. James L. Kraft had a tough first year, losing a horse and $3,000.
He persevered, however, and was joined by his four brothers in the J.L. Kraft and Bros. Company, as it came to be known. By 1914, their thirty one varieties of cheese were being sold throughout the country and with wise marketing and product development they opened a cheese factory in Illinois.
A big part of their success was due to the successful invention of a processed cheese that didn’t have to be refrigerated and they patented the process in 1916.
The American military bought about six million pounds of that product during WWI and Kraft bought its first Canadian cheese company in 1919 with a portion of their profits.
Who’s the big cheese now?
Kraft has always been innovative, going public in 1924 and buying different cheese companies. The cream cheese we all enjoy today began with the Phoenix Cheese Company which Kraft acquired in 1928; by 1930 the company had forty percent of the United States cheese market!
Not bad for a company that lost so much as a sole proprietorship in its first year. Indeed, many others would have given up after experiencing such a dismal start.
The Kraft brothers kept acquiring companies to complement its product-National Dairy Products, producer of Breyers ice cream and Breakstone’s cottage cheese and sour cream joined the Kraft family in 1930.
Also in the 30’s Kraft began diversifying their products with such lines as salad dressings, macaroni and cheese dinners which we’ve all grown up with, margarines and caramel candies.
Diversifying and diverging
Kraft Brothers changed their name during World War II to reflect their diverse products, calling themselves Kraft Foods. After the way they invested in advertising and more product development.
Sliced processed cheese and process cheese sauce appeared in the 1950’s, during which James Kraft died knowing he was leaving a wonderfully profitable yet socially enriching empire.
The company thrived when television became popular, sponsoring the Kraft Television Theater. The product advertised on the program, McLaren's Imperial Cheese, was in so much demand that groceries couldn't keep their customers supplied!
Kraft Foods subsequently launched jellies, preserves, barbecue sauces, marshmallows and a number of other products. You would be hard pressed to pass even one grocery shelf without a Kraft product on it.
It now encompasses Nabisco, Wrigley, Pet snacks, Juice drinks, candy, syrup and a vast number of other popular products. It’s very visible in global culture and its variety of products make the company a guaranteed investment. After all, everyone needs food and most people love good, wholesome foods such as Kraft Foods markets at reasonable prices.
The Larder of Yesterday: The Fridge of Tomorrow
Kraft Foods has been and remains a good, solid investment for the conservative investor as well as someone with a more diversified portfolio. The company now markets products in over 150 countries worldwide and the list of household names that they own covers everything from coffee to vegemite.
In recent years it was held back by the poor performance of its sibling, Altria from which it was spun off beginning in 2001. The final severance came just in 2007 when the final tranche of shares were given away to Altria shareholders.
Prior to the spin-off, Altria had merged KFT with several large rivals over the years, including Nabisco and Philip Morris Foods. The yield has been rising since 2001 but one negative is the large debt that is currently on its books.
Yahoo! Finance cites Kraft's debts at over US$30 billion, which is encouraging them to divest some assets to pay down debt. A wise move in this coming recession. KFT was recently added to the Dow Jones Industrial Average after AIG was removed.
I don’t personally own any shares in Kraft, but I do note that Warren Buffett has acquired a large stake. A stake that goes well with his purchase of other US and international staples, like Coca-Cola, and See’s Candy.
Would you buy this stock? What do you think about the debt ratio? Is it too high or not? Comment me a reply or contact me!
Disclaimer - SST does not currently own this stock! He is currently considering investing in some of the Dow Stocks especially with the current sale... and is waiting for an opportune entry point.
Finished with Kraft Foods, then why not read about other Dow Stocks!