CHICAGO - (Business Wire) Zacks.com releases the latest Analyst Interview. Today
’s interview is with senior analyst Steven Ralston, who discusses
Colgate-Palmolive (NYSE: CL),
Estee Lauder (NYSE: EL),
Kraft Foods (NYSE: KFT),
Berkshire Hathaway (NYSE: BRK.A) and
Altria Group (NYSE: MO).
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Are there certain types of consumer staples companies that should trend better than others these days?
Generally speaking, food companies generate earnings growth at a mid-to-high single-digit rate. Beverage companies, however, are structurally able to grow faster at the high single-digit to low double-digit rate. But, personal product companies can grow earnings a percentage point or two above beverage companies. The earnings of these personal product companies, like Colgate-Palmolive (NYSE: CL) and Estee Lauder (NYSE: EL), have the potential to stand out during a recession.
On which companies are your strongest Buy recommendations?
Though Kraft Foods (NYSE: KFT) has an above-average exposure to commodities, including cheese, coffee, meats, energy, and packaging, management is implementing a three-year Turnaround Plan and is focused on brand-building and new product initiatives. The program enabled the company to generate organic revenue growth of 3.6%, 4.1%, 6.2%, and 6.2% in first, second, third, and fourth quarters of 2007, respectively. This is the best organic top-line growth generated by the company since 2001.
In the first quarter of 2008, organic sales growth accelerated again to an 8% rate. Obviously, this has not gone unnoticed by astute investors. Six weeks after we initiated our Buy opinion, Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) reported that it had acquired an 8.6% stake in Kraft Foods and became the company's largest shareholder. And just yesterday, Berkshire Hathaway reported that it had acquired another 5.9 million shares in the first quarter of 2008.
Since being spun-off from Altria Group (NYSE: MO) in March 2007, Kraft’s management has become more focused on the company’s operational challenges. In order to strengthen the company’s presence in various categories and to enhance the company’s position in both developed and developing markets, Kraft has acquired several of companies. Additionally, management has focused the portfolio of brands through divestitures.
Kraft Foods generates strong cash flow that allows management to re-invest in the company and return value to shareholders. Last year, the Board authorized a $5 billion share repurchase program, which will bolster earnings growth.
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