Kraft: Naw, The Consumer Is Not Squeezed...

Posted 2013-02-15 09:25
by Karl Denninger
in Earnings

Kraft reported a fourth-quarter profit of $89 million, or 15 cents a share, down from $319 million, or 54 cents, a year earlier. The most-recent quarter included about $225 million of market-based impacts from post-employment benefits, $135 million of restructuring charges and $46 million of losses from hedging activities.
Revenue dropped 11% to $4.49 billion, while organic revenue, which exclude acquisitions, divestitures and currency effects, fell 7.2%.

In other words they lost 7.2% of their gross business when ignoring the impact of exchanges rates and similar things.

That's bad, but what's far worse is the impact on operating margin which collapsed from 10.1% to 5.8%, a drop of more than 40%.

While the original reaction in the stock was negative it has recovered most of the pre-market losses at this point.

But the warning expressed in these results could not be more clear -- the consumer is tapped out and shifting down-market or simply buying less, and when -- not if -- that comes out in results it will massacre profits; a 40% loss in operating margin would nearly double the P/E of the market!

Now sure, not every company is Kraft. But there are few firms that better capture the general view of non-discretionary purchases among Americans "in one package" when it comes to the grocery store.

Everyone needs to eat, and yes, that is an alarm bell you're hearing.

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