Sell Kraft Foods, Cramer said Thursday. The company is “in terrible shape,” and that third-quarter earnings beat was “bogus.”
Kraft delivered what seemed like better-than-expected profits on Nov. 3, but the results came solely from the bottom line, meaning cost cuts. Revenues, the better gauge of a business’ strength, declined 6%, while analysts predicted a loss of just 2%. Cramer called the quarter “about as tasty as Velveeta.”
But management took it one-step further with the same kind of mathematical kung fu that Under Armour tried a couple of weeks ago. Kraft raised its 2009 earnings guidance by 4 cents a share, despite beating Q3 estimates by 7 cents. So Kraft was effectively guiding down for the fourth quarter, Cramer said. Those numbers imply that the company’s Q4 earnings will come in at 41 cents a share, which is 7 cents below the Street’s expectations.
Behind the earnings trouble is a business with declining fundamentals, Cramer said. Competitors are elbowing in on Kraft’s territory, as the company kept or added market share in just 34% of its retail business, down from 45% a year ago.
Cramer’s big gripe was Kraft’s botched bid for Cadbury, a move he always considered a mistake. Hain Celestial and its stable of health foods made a better takeover candidate, he said. Regardless, after the disappointing quarter, Kraft management will have to convince both Cadbury’s shareholders and its own that the deal could work. And given Cadbury’s strong earnings, the price will probably go up.
So who’s at fault? Cramer put the blame squarely at the feet of CEO Irene Rosenfeld. KFT has dropped 13% to $27.03 since she took over on June 26, 2006, he said, “and things aren’t improving – they’re getting worse.” The situation is so bad, in fact, that he added Rosenfeld to the Mad Money Wall of Shame for her poor performance. She’ll stay there until she resigns.
“It would be the best thing she could do for the stock,” Cramer said.
In the meantime, Kraft Foods is going in the Sell Block. Investors who want a play from this group should buy General Mills or Kellogg instead.
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