Market watchers have dubbed interest in Kraft‘s IPO “curiously strong” considering the general malaise surrounding food stocks on Wall Street.
Controlled by tobacco giant Phillip Morris since 1998, Kraft is hoping to launch the third largest IPO in US history when it floats up to 20% of its stock for up to US$5bn late next month, and analysts are welcoming a confident performance at a time when other food giants are riding a wave of consolidation in a bid to remove themselves from the public market and raise more capital through cost-saving mergers and synergies.
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Kraft’s appeal is numerous, and exists despite the negative associations being made with Phillip Morris’s current tobacco-litigation judgments. For instance, it posts a long-term earnings growth rate of around 15%, higher than that of the food sector as a whole, and this is set to continue as the company focuses on high margin impulse products such as cookies and crackers. These serve to boost incremental earnings, in contrast to the rather than the more mundane “fixed-consumption” goods of rivals, such as washing powder.
Kraft’s brands are still diverse however, and while its recent acquisition of Nabisco Holdings added annual snack food earnings of around $8bn, the marketing strategies behind older products such as Tang and Jell-O has ensured their continued popularity.
At the end of the day, much of the IPO outcome will be down to price. A favourable comparative price will encourage investors, and meanwhile many analysts argue that any interest in Kraft will batter the stocks of its main sector rivals, which include Campbell Soup and H.J. Heinz. Campbell declined to comment on the effects of Kraft’s public offering, but Heinz remained positive, a spokesman is quoted in the Wall Street Journal as saying the IPO will merely “create more excitement and attract new capital to the food industry.”
By Clare Harman, just-food.com editorial team
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