Kraft and Mondelez as Competitors
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On October 1, former publicly traded company Kraft Foods Incorporated officially completed its split into two separate public companies, Kraft Foods Group (NASDAQ: KRFT) and Mondelez International (NASDAQ: MDLZ). Kraft Foods Group took on the US grocery business, shifting their focus to a solely based North American market. Mondelez assumed the responsibility of the former company’s international operations, and has also retained the food brands that have made Kraft Food so famous over the years, like Cadbury, Oreo and Tang. Since the split in early October, analysts have theorized which of the public companies offers the best option for investors long-term. Mondelez has received a large amount of interest in recent weeks. Halloween just past and has produced a fair amount of speculation over whether now is the time for investors to consider Mondelez shares. This is due to the sheer amount of retail business during the Halloween season; Americans alone are expected to spend upwards of $8 billion during the season.
When looking at the two companies, one could see why investors may initially be drawn to Mondelez over Kraft. Mondelez retains the most popular core products of the former business and 40% of its revenue comes from emerging markets in Asia, Latin America and Europe. Focusing on emerging markets growth was a move their competitor PepsiCo (NYSE: PEP) made, a move that pushed their sales upward as a result. If growth trends continue, Mondelez could find themselves with similar success to PepsiCo in this area and could potentially represent 50% of the global packaged food market within five years.
In addition, Mondelez CEO Irene Rosenfeld confirmed in an interview with CNBC that Mondelez would continue to grow through “tack-on” acquisitions, to aid the company in moving from one market to the next. But where Mondelez is showing growth, Kraft may be a safe option for investors, or the tortoise that slowly but surely wins the race. Some of Kraft’s strengths lie in the face that the company has retained the famous brand name and are showing a level of financial strength in key areas when compared to Mondelez. Kraft Foods has a higher profit margin of 10.08%, compared to 6.62%, and significantly less debt to its name. Kraft Foods owes just $6 billion, a small figure compared to Mondelez who is in the hole for almost $31 billion.
Overall, both companies are showing strengths in different areas and could appeal to a different set of investors. Since their September launch in the NASDAQ market, Kraft Foods Group saw an overall return of +0.44% and is still sitting in the green. Mondelez, on the other hand, saw a plummet in share value in late September and is currently in the red overall, with a return of -6.5% since the spin-off. However, Rosenfeld’s growth strategy in place, many analysts believe Mondelez will be able to turn their position around. At this stage, it is too early to say how Kraft and Mondelez will be affected in the long term by their split from corporate head Kraft Foods.
Either Kraft or Mondelez could be a potential investment opportunity for investors with different strategies for success. In the case of Kraft Foods, the company may only be seeing single digit growth, but so far it has managed to maintain its position in the market. This could potentially indicate that Kraft Foods may be a safer option for the risk-cautious investor. On the other hand, Mondelez may be a great investment opportunity for the investor who looks for companies with an aggressive growth strategy, and are willing to take a few risks in the hopes a return will be far more spectacular.
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mthiessen has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services recommend PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.