Kraft Foods to Split Into Two Companies

Kraft Foods Inc. announced Thursday morning that the company is splitting in two, making their global snacks and North American grocery into separate businesses.

The move comes just 18 months after Kraft’s acquisition of Cadbury PLC, making Kraft the second biggest global food company.

Company Chairman and CEO Irene Rosenfeld said these “strategic actions” puts Kraft in a position to have two companies with “great leadership, resources and strong market positions to realize their full potential.”

Kraft's global snack business currently carries brands like Oreo, Cadbury and Trident Gum. The North American grocery business offers Kraft macaroni and cheese, Oscar Mayer, Philadelphia cream cheese and Maxwell House coffee.

Kraft expects to create these companies through a tax-free spin-off of the North American grocery business to Kraft Foods shareholders. The two new companies are expected to launch by the end of 2012.

The grocery industry under Kraft Foods nets approximately $16 billion in revenue and would continue to carry American beverages, cheese, freezer dinners and grocery segments. It would also contain the non-snack groups in Canada and food service.

The North American grocery business will also sell Jell-O snacks. The company lacks growth opportunity, but comes with much stronger margins and dependable sales, reported the Wall Street Journal.

The purchase of LU biscuit from Danone and Cadbury PLC has helped Kraft build up its snack business over the years.

Kraft said the snacks company would include Kraft Foods Europe and developing markets units, the North American snacks, and confectionary businesses. The non-snacks portion would include mainly powdered beverages and coffee.

Kraft’s snacks business has an estimated revenue of $32 billion, with three-quarters coming from international operations and 42 percent from emerging markets.

Company earnings reported Thursday show Kraft organic net revenue should increase at least five percent in 2011, up from a previous four percent growth estimate.

Kraft posted a net revenue of $13.9 billion in the second quarter, up 13.3 percent from last year.

Rosenfeld says the company has benefited from a “virtuous cycle.”

“We’re successfully managing higher input costs through pricing and productivity and we’re well-positioned to continue our momentum and take the next step in our transformation,” she said.

Kraft company shares are also up 55 cents per share, a two-cent increase from last year’s 53 cents. The company also predicts 2011 operating earnings of at least $2.25 per share – a prior projection showed at least $2.20.

Kraft Foods hired Centerview Partners, Evercore Partners and Goldman Sachs as its financial advisors.