3 Companies Set For Big Profits
siraj is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the recession of recent days, the packaged food industry plans to minimize the economic loss through restructuring and cost saving measures. As of now, the economy is coming out of recession; companies in the packaged food industry are likely to grow their business by acquisitions, innovations, and emerging markets at a global level.
Many other factors are involved in fueling the growth for this industry. This industry is predicted to see constant growth. This is because a growing demand for each product is boosting overall food-packaging demand. On the whole, the market demand is led by beverages, meat products, and snack foods.
Additionally, restaurants, particularly quick service casual restaurants, which use pre-packaged items and portion control products, will drive growth in demand. Though, take-out establishments, restaurants, and beverages are using over 75% of food service packaging.
In this article, I picked three star companies operating in this industry. These are Kraft Foods (NASDAQ: KRFT), Kellogg (NYSE: K) and General Mills (NYSE: GIS). These three companies are generating increasing profits year after year. All three companies are making smart moves to generate sustainable growth. Let’s dig into each company for sustained growth and consistent returns.
How Kraft is set for big profits
Kraft is one of the best companies operating in the packaged food industry. Kraft Foods has been showing strong growth for investors since its spinoff from its parent company. At the moment, it is offering a quarterly dividend of $0.50 per share. Combined with solid dividends, Kraft is showing a hefty surge in its share price. In the last year alone, its price went up by 25%.
The company is seeking to sustain these returns for investors. To do this, Kraft is making smart moves to generate increasing cash. It is operating under five business segments. At the end of the latest quarter, all of its business segments were generating increasing profits except for the grocery business.
Its solid brands, including Oscar Mayer, Jell-O, Crystal Light, and Maxwell House are providing it a competitive benefit to grow as a key supplier for retailers. Additionally, its focus on new product innovations and emerging markets are fueling growth to its business. In the latest quarterly results, it showed strong organic growth of 2.1%.
On the other hand, its management is also contributing their part to fuel profitability. At the end of the recent quarter, Kraft managed to achieve 9.2% growth in operating margin when revenue growth was near 2%, representing strong management. As a result, Kraft is anticipating generating $1 billion in free cash flows by the end of this year.
I think Kraft is one of the safest companies in the packaged food industry. Its dividend is safe, as the company is generating increasing profits and hefty free cash flows. Along with cost cutting measures, its strong growth in new emerging markets is adding to increasing profits. On the whole, its solid business model and strong management should be able to sustain returns for share holders.
How Kellogg is set for big profits
Kellogg has been paying regular quarterly dividends over the last 35 consecutive quarters. Recently, it announced an increase in its quarterly dividend by 4.5% to $0.46 per share. Kellogg has been able to increase its payout ratio over the last 10 years and currently is standing at 67%. On the other hand, its share price increased by nearly 30% over the year.
Kellogg was struggling to generate more sales in the past two years. However, with the recent smart moves, Kellogg is back on track to capture its markets. The management has suspended its buyback program in order to strengthen its product portfolio and improve its balance sheet. To do this, it acquired Pringles and Keebler.
These two acquisitions led it to generate 12% growths in its sales. Additionally, the Pringles purchase is helping it to capture the snacks market.
Kellogg is also seeking to improve its balance sheet. Management plans to use the remaining funds for debt reduction. Therefore, it has refinanced long-term debt of $9 billion at low rates.
I think with the recent moves and growth in emerging markets it is creating strong footprints for future growth. Kellogg is well set to reach 8% growth in 2013 with earnings per share growth of 5%-7%. With this strong top and bottom line growth, Kellogg is well set to generate rising returns for investors.
How General Mills is set for big profits
General Mills is a manufacturer and marketer of branded consumer foods. At present, General Mills offers a quarterly dividend of $0.33 per share. Year to date, the stock has grown by nearly 26%. In the last year alone, it has returned $1.9 billion in cash to shareholders through dividends and its share repurchase program.
Over the years, General Mills has shown a solid business strategy, which results in a strong financial situation. During fiscal 2013, its sales went up by 7% to $17.8 billion. New businesses contributed 6 points of net sales growth. General Mills operates under three business segments. All three segments are generating solid growth year after year.
I believe its dividend is safe, as this company has been generating massive cash flows. At the end of the recent year, its cash flows increased by 22%. Its free cash flows are enough to pay dividends. During fiscal 2013, General Mills has generated free cash flows of $2.3 billion when dividend payments stand at only $0.86 billion.
General Mills is set for big profits as its retail and international segments are growing at a high pace. Its growth in emerging markets is also amazing. Its Snacks, Small Planet Foods, Baking Products, and Meals divisions led U.S. retail and international sales growth for the year. Additionally, this company carries low debt to equity, while its current ratios are high. This demonstrates a healthy balance sheet to support returns for investors.
This industry has a lot of potential. Many companies operating in this industry are improving their financials with the improving economy. Companies in this industry are working to capture new emerging markets with cost saving initiatives to boost profits. All three companies I discussed in this piece are on track to generate substantial profits.
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siraj sarwar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!