Kraft (KFT) has given investors a peek into its North American grocery business, one of the two companies that will emerge when the food giant splits into two.
Kraft is splitting into two new companies — a grocery business and a global snacks business — under the rationale that they can be more nimble and pursue more direct strategies after a divorce. The “grocery” brands include Kraft Cheese, Maxwell House coffee and Oscar Mayer.
The split also gives investors a more direct way to play their own strategies. The grocery business will likely pay a healthy dividend and steadily grow cash flow, while the snacks business could be a more powerful growth engine.
A filing released late on Monday showed that the grocery business made revenue of $18.7 billion in 2011, and brought in $2.3 billion in free cash flow, up from $380 million the year before, Marketwatch notes. But earnings fell 2.5% in 2010, and operating margin slipped as commodity costs rose.
The grocery company will also assume $10 billion in debt and $4.4 billion in pension liabilities.
Clearly, the new business will face the same difficult commodity environment that other food retailers face. But if that free cash flow keeps growing, a healthy dividend might be in store for investors.
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