How Will The Day Shape Up for Kraft?

Analysis of Kraft’s Upcoming Quarterly Results

Kraft will report earnings after the bell today, May 6^th.  Current Street consensus has first-quarter revenue increasing 16.5% year-over-year and EPS stable at $0.45.  My estimates, on the other hand, are slightly higher on both measures, with revenue expected to come in at $11.16 Bil and EPS at $0.48. 

The first step in my analysis was to create regression models that could accurately predict last quarter’s (Q4) sales figure.  The usual suspects were once again used, including First-Order, Autoregression, Dummy Coding, and Deseasonal models.  Each model was compared to actual sales and an average was created.  This average overestimated the data at first, but when I removed the effects of Autoregression, the result was only 0.005% off, as can be seen by Figure 1.  This is remarkably close!  I then used these same statistical models to predict the upcoming quarter's sales number.  The result was $11.16 Bil.  Figure 2 shows how this estimate was formed. 

From this point, I then proceeded to create a common-size income statement by compiling data from the past eight quarters.  After pouring over hundreds of pages of past company filings, I arrived at my current line-by-line income statement.  Based upon the resulting Net Income figure, EPS came to $0.48, or $0.03 above current Street consensus. 

Figure 1

Q4 Accuracy
Model	Prediction	Percent Err.	W/ St. Err.	Percent Err.
First-Order	$10,684.8	3.09%	$11,243	-1.98%
CFO	$10,754.0	2.46%	$11,325	-2.72%
Deasonal	$10,691	3.03%	$11,382	-3.23%
Dummy	$10,752	2.48%	$11,325	-2.72%
AVERAGE	$10,720	2.76%	$11,319	-2.66%
	AVERAGE	$11,019	0.05%

          

Figure 2

Q1 Prediction
Model	Prediction	W/ St. Err.
First-Order	$10,935.4	$11,479
CFO	$11,038.3	$11,589
Deasonal	$10,735	$11,405
Dummy	$10,754	$11,305
AVERAGE	$10,866	$11,444
	AVERAGE	$11,155

While I am predicting that costs will rise quarter-over-quarter, the increase in sales should overcompensate.  We’ll find out for sure at approximately 3:00 pm CST this afternoon.

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