Kraft Foods Inc. (KFT) is splitting up in two Companies

Kraft Foods Inc. (KFT) is splitting up in two Companies ...

NEW YORK (Dow Jones)--Kraft Foods Inc. (KFT) is splitting up in two, putting its global snacks and North American grocery businesses in separate baskets.

The surprise move, announced Thursday, comes after Kraft last year became the second largest global food company with its acquisition of Cadbury PLC.


Now 18 months into the Cadbury integration, Kraft says it finds itself with two classes of brands that can be best managed separately, and also attract investors who either want to bet on the global growth aspirations of snacks or on the slower growing but steady grocery business in North America.

"We have built two strong, but distinct, portfolios," Chief Executive Irene Rosenfeld said.

Its proposed global snacks business will include Kraft's European business and developing markets units, as well as snacks and confectionary businesses in North America. With about $32 billion in estimated revenue, it will house the likes of Oreo cookies, Cadbury chocolates and Trident gum, all which have greater prospects for growth in emerging markets and to sell more to consumers on the go.

The North America grocery business, with the likes of Kraft cheeses, Maxwell House coffee and Jell-O snacks, lacks the growth potential but comes with stronger margins and more reliable sales. It will have an estimated $16 billion in revenue.

The company expects to conduct the split before year-end 2012 through a tax-free spin-off of the North American grocery business to shareholders. Kraft shares rose 7.3% to $36.80 in recent premarket trading.

Among other companies in recent months that have announced plans to split are Fortune Brands Inc. (FO), Sara Lee Corp. (SLE), Motorola Inc. and a number of energy companies.

Higher commodity costs have dented food makers' results recently, as their ability to pass along the cost to consumers is limited amid weak consumer confidence and high unemployment.

For the second quarter, Kraft reported a profit of $976 million, or 55 cents a share, up from $937 million, or 53 cents a share, a year earlier. Operating earnings rose to 62 cents, driven by currency and operating gains, while net revenue climbed 13% to $13.9 billion, helped by price increases. Analysts polled by Thomson Reuters were looking for 58 cents and $13.2 billion, respectively.

Gross margin slipped to 35.1% from 38.3% on higher commodity costs.

Kraft also raised its guidance for the year, projecting operating earnings of at least $2.20 to $2.25 and organic net revenue growth of at least 4% to 5%. The prior view had been for at least $2.20 in earnings and organic net revenue growth of at least 4%, excluding the impact of accounting calendar changes.

"Despite rising input costs and a volatile economic environment, aggressive cost management coupled with strong revenue growth gives us confidence that we will deliver top-tier performance for the year," Chief Financial Officer David Brearton said.

-By Paul Ziobro, Dow Jones Newswires; 212-416-2194; paul.ziobro@dowjones.com

--Lauren Pollock contributed to this article.

www.online.wsj.com