High prices of food and energy are raising production costs for consumer-goods giants, yet the global economy is recovering, giving people more money to buy snacks, household-cleaning items, personal-care goods and a host of other items brought to you by Kraft (KFT) and Unilever (UN).
Analysts nevertheless have downgraded Kraft, whose stock is seen in need of a breather. JPMorgan Chase moved KFT to neutral from overweight.
"The company's performance in its North American market continues to languish, with market-share and product-velocity issues that will not be quickly resolved, in our view," JPMorgan analyst Terry Bivens writes in a note to clients.
Morgan Stanley downgraded the company's stock as well, while Zacks has reiterated a neutral rating on the shares.
Kraft executives are pushing ahead with a plan to bring consumers back. The company will make its premium-coffee brand, Gevalia, available in supermarkets, mass merchandisers, and other retail outlets across the United States beginning in August. Kraft helped Starbucks (SBUX) build its store presence, a deal that’s falling apart as the coffee chain fights to take it over.
Consumers currently buy Gevalia online in the United States. "Gevalia is known and loved by millions who've purchased it online because it delivers on its promise of rich, smooth taste that's never bitter," says Domenic Borrelli, vice president of U.S. coffee for Kraft.
"By tapping into our global coffee pipeline, we'll have more products and innovations to come. We intend to continue to win in the coffee category in the U.S.," he says.
Unilever, meanwhile, is preparing for a new and improved consumer economy. The company has agreed to pay $150 million in fines to end a European Union probe into price fixing of laundry detergent, and it sees business opportunities in Asia.
Unilever recently sold $45 million in bonds denominated in renminbi, the Chinese currency. "This bond brings a new source of high-quality funding to fuel those growth plans by increasing our investment in China. We are delighted with the terms of the financing," says Graeme Pitkethly, Unilever’s group treasurer.
Unilever also sold to Colgate-Palmolive its Sanex unit, a maker of personal-care items, for more than $955 million while buying Colgate-Palmolive's Colombian laundry-detergent brands for $215 million.
"Our focus is on bolt-on acquisitions that can strengthen our existing portfolio and geographic presence and help Unilever move closer to achieving our overall ambition of doubling the size of the business,” says Michael Polk, Unilever’s president for categories.
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