"Never give a sucker an even break and never wise up a chump" — P.T. Barnum
Krafts’s (KFT) shares are up 7% on a rumor that Nelso Peltz has bought 3% of the company and wants to have talks about focusing on the firm’s more profitable products. A couple of months ago, the stock got boiling on a rumor that Warren Buffett liked the company.
Kraft is not in a great set of businesses. In the last quarter, revenue rose about 5% to $8.6 billion. Earnings dropped 30%. The company’s costs for the commodities it buys to make its products are rising. Increasing prices to consumers is tough. Companies like ConAgra (CAG), General Mills (GIS), and Kellogg (K) want those customers, too.
Altria (MO), Kraft’s former parent, tried to get the company to perform better for years. They found out that selling cigarettes beats peddling food hands down.
Maybe Peltz will buy a piece of the company. But, he may face the same resistance that Carl Icahn faced at Motorola (MOT). Kraft’s fairly new CEO, Irene Rosenfeld, thinks she knows what she is doing. Her board is likely to give her some time.
But food is not a great business, no matter who wants to own the company.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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