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.