Kraft’s Cheesy Share Buyback(KFT)

Kraft Foods Inc. (KFT-NYSE) has announced that its Board of Directors has approved a $5 billion share repurchase program, which will replace the current repurchase authority.  The repurchase program will become effective immediately following the distribution of the approximately 89% of Kraft’s outstanding shares owned by Altria (MO-NYSE). The details are a bit different and there is going to be some time value taken out of this distribution, buyt this is Kraft’s anticipation of how to put in a perceived floor in their stock when so many new recipients of shares sell into the market.  The distribution will be made on March 30, 2007, to Altria shareholders of record as of 5:00 PM EST on March 16, 2007 (that is the "record date"). The repurchase program will last two years and is not to expire until March, 2009.  So while this is a huge buyback, you probably shouldn’t expect to see $5 Billion worth of shares on teh bid day after day.

This is after the company announced cost cutting plans and a retargeting of its food categories.  It already said it would increase its revenue by 3-4% and will invest up to $400 million this year in research, marketing and other efforts.  It also gave guidance earlier at the same investor conference of $1.50 to $1.55 EPS for 2007 (prior to a $0.25 charge, so $1.75 to $1.80) compared to street estimates of $1.90 to $1.94 for 2007.

KFT shares did pop a tad on this, but are still down 2% at $34.28 after this news.  What’s the oldest trick in the book of rectifying a bad guidance outlook?  At the end of the presentation announce "Oh yeah, and we’ll be spending a ton of our cash on trying to keep the shares propped up!".

Jon C. Ogg
February 20, 2007