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Kraft (KFT Free Kraft Stock Report), the second-largest food company in the world (behind Nestle (NSRGY)), has reported strong second-quarter results, despite rising commodity input costs and lingering weakness in Europe. Indeed, share net of $0.68 for the period, while a penny shy of our estimate, was up nearly 10% on a year-over-year basis. It also topped Wall Street's consensus view of $0.66, and Kraft shares rose nicely in early morning trading on the news.

The earnings advance was supported by favorable pricing trends, productivity gains, and aggressive measures to control costs. Additionally, revenue growth from ongoing businesses remained solid, at 3.4%, even though, because of product pruning and a shift in Easter-related shipments, the increase was not as strong as the mid-single digit gain recorded during the March period.

This is a credit, we think, to Kraft's brand-building investments during the tenure of CEO Irene Rosenfeld. (She moved into the corner office in June of 2006.) The acquisition of British confectioner Cadbury, completed in early 2010, has helped breathe new life into the top line, too. While highly controversial at the time, that blockbuster deal gave the company a vast presence overseas, something it had been lacking. And it added a handful of pretty powerful brands to Kraft's portfolio, including Cadbury Dairy Milk chocolates, Halls lozenges, and Trident chewing gum.

In other corporate news, Kraft is moving ahead with plans to split into two separate public companies, and has set October 1st as the spinoff date. The first company (to be called Kraft Foods Group and trade under the symbol KRFT) will encompass the mature North American grocery business, which will likely remain a cash cow and offer defensive-minded investors an above-average dividend yield. And the second (to be called Mondelez International and trade under the symbol MDLZ) will consist of the faster-growing international snacks division. That business ought to trade at a higher price-to-earnings multiple than most other participants in the packaged food industry, considering its large exposure to emerging markets, most notably China, and the ongoing strength of the biscuits and candy categories.

We continue to expect Kraft, as now constituted, to post share net of $2.50 and $2.75 in 2012 and 2013, respectively. What's more, we still like this Dow-30 component for longer-term, conservative-minded investors, given our opinion that the current quotation does not adequately reflect the true value of the company's diverse businesses. The upcoming split should succeed in unlocking substantial shareholder value here, since the market will then be better able to assess the worth of the global snacks division and the domestic, cash-rich grocery unit.

About The Company:Kraft Foods is the largest branded food and beverage company headquartered in the United States and the second-largest worldwide. The company markets many of the world’s leading food brands, including Kraft cheese, Maxwell House and Jacobs coffee, Nabisco cookies and crackers, Philadelphia cream cheese, and Oscar Mayer meats. While North America accounted for 46% of the top-line mix in 2011, the food giant’s products are currently sold in more than 170 countries around the world. Among its more noteworthy acquisitions was the purchase of Nabisco in December of 2000 and Cadbury in February, 2010. 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.