Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

Previous Posts

Tuesday, July 25, 2006

Widely Held Stocks: Kraft Finally Delivers For Altria


Several years back, when tobacco lawsuits were coming hot and heavy, Philip Morris got the idea that it could get into another business to save the company if its cigarette business got burned in the courts. With a huge pile of cash on hand, it bought itself Kraft Foods. The new company, which calls itself Altria for some unknown reason, still owns 86% of Kraft.

The problem with the theory behind combining the companies is that tobacco litigations has turned out well for cigarette companies, and Kraft has gone to the dogs.

In the first quarter of the year, according to the Altria 10-Q, operating income from tobacco was $3.083 billion. The food busines brought in $1.060 billion in operating income. The problem is that tobacco income was three times food income, but tobacco revenue is only 25% bigger than food revenue. Opps.

Well, Kraft has finally started to deliver the groceries for Altria. For the quarter ending June 30, net income rose 44.5% to $682 million. The company even raised EPS guidance for the year form a range of $1.55 to $1.60 to a higher range of $1.78 to $1.83.

Kraft still has a lot of work to do. It has weaknesses, especially in its cheese and foodservice business.

But, Altria shareholders have reason to be happy with Kraft for the first time in a long time. And, Altria, which has had a run from $66 to a 52-week high of $80, where it trades now, could go even higher.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

Powered by Blogger