(KFT) Kraft Foods Sees Lobbying Charges Shrink

Kraft Foods Inc. (KFT) reported that it spent $640,000 during the third quarter 2011 on issues related to transportation, agriculture, trade and other matters. The lobbying charges shrunk 1.5% from $650,000 spent during the third quarter of 2010 and 12.3% from $730,000 spent in the second quarter of 2011.

According to the filing with the House clerk’s office, Kraft lobbied Congress, the U.S. Department of Agriculture, the White House, the Food and Drug Administration, and other agencies from July through September.

As a major food producer in the United States, Kraft’s business is affected by agriculture policy, trade policy, and other government activity and regulations. Kraft spent a lot of money on the issues such as marketing to children.

Kraft and other peer companies have adopted voluntary compliance with advertising guidelines related to children, which are exposed to a vast number of TV ads for food products such as sodas, cereal, candy, and fast food. The companies believe that advertisements strongly influence children’s preferences and food requests.

Therefore, they should now work towards marketing techniques so as to advertise such products which are beneficial for children. In addition, the companies will put in efforts to have all the nutritional information and benefits of food properly labeled on its packages.

On November 2, Kraft posted robust third-quarter 2011 earnings of 58 cents per share, surpassing the Zacks Consensus Estimate of 56 cents per share by 3.6% and by 23.4% from 47 cents in the prior-year quarter. Management credited the benefits of increased investments in marketing and innovation, effective advertising and focus on End-to-End Cost Management for strong results in the quarter. Operating gains, favorable foreign currency and discrete tax items also contributed to the profit.

Following the strong results, Kraft revised its 2011 operating earnings guidance to at least $2.27 from at least $2.25.

Kraft’s plan to spin off its North American grocery business to its shareholders and split itself into two independent public companies is on track. It will split into a high-growth global snacks business with estimated revenue of approximately $32 billion and a high-margin North American grocery business with estimated revenue of approximately $16 billion.

Global snacks will consist of the current Kraft Foods Europe and Developing Markets units as well as the North American snacks and confectionery businesses. The North American grocery business would consist of the current U.S. Beverages, Cheese, Convenient Meals and Grocery segments and the non-snack categories in Canada and Food Service.

Kraft is stated to drive confidence from the belief of continuing strong business momentum in the challenging environment of weak consumer and category growth as well as significant input cost inflation.

We remain encouraged by the company’s investments in quality upgrades, promotions and marketing as well as initiatives taken to improve margin and productivity by reducing manufacturing and overhead costs and enhancing operational efficiencies by modernizing plants and information systems.

However, higher commodity costs, increased marketing expenses, competition from private labels and presence of tough competitors like Unilever Plc. (UL) and ConAgra Foods Inc. (C concern us.

Currently, we prefer to rate the stock as Neutral. Further, Kraft Foods holds the Zacks #3 Rank, which translates into a short-term Hold rating.

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