Sub-Industry Outlook Stock Performance

Our fundamental outlook for the S&P Packaged

Foods & Meats sub-industry is neutral. Although we

expect retail food prices to be higher in 2010, we

think that the extent of the rise will be moderate

enough for packaged food companies' U.S. volumes

to be relatively flat. With improved consumer

demand, and benefits from restructuring and other

cost-saving activities, we expect industry profit

margins to widen somewhat in 2010.

Overall, in a relatively weak economic environment,

we believe that underlying demand for food and

beverages holds up relatively well: consumers are

less likely to sharply reduce or defer such spending

than they are for other products. However, in an

effort to cut costs, we have seen a shift toward

consumers trading down to some less expensive

products, and toward more eating at home. We think

that the shift toward eating at home has included

purchases of relatively low-cost takeout food, such

as pizza, at the expense of grocery store sales.

Prepared takeout items feed into consumers' need

for convenience, with less time needed in the

kitchen.

In our view, anticipation of large U.S. corn and

soybean crops in the 2009-10 marketing year has

eased concerns about higher farm prices ahead.

However, we think that some packaged food

companies had already locked in prices on a portion

of their expected future crop needs. Overall, we

think agricultural commodity cost outlook for 2010 is

mixed, including the prospect that sugar, dairy, and

coffee prices will be significantly higher than they

were in 2009. We believe that the U.S. will generally

have adequate crop supplies in the year ahead, and

that U.S. farmers will continue to be major suppliers

to world agricultural export markets.

Longer term, we expect the packaged food industry

to continue to focus on consumer lifestyles and

tastes, including both opportunities in developing

international markets and the interests and needs of

an aging U.S. population. We anticipate industry

growth opportunities will include further

introduction and distribution of products that appeal

to consumers' interest in healthier eating. We

believe that rising standards of living and increasing

world trade liberalization should provide U.S.

packaged food companies with opportunities for

longer-term growth.

Year to date through January 22, the S&P Packaged

Foods & Meat Index rose 0.9%, compared to a 1.9%

decline for the S&P 1500 Index. In 2009, the S&P

Packaged Foods & Meats Index was up 14.8%,

versus a 24.3% rise for the S&P 1500.

--Tom Graves, CFA

GICS Sector: Consumer Staples

Sub-Industry: Packaged Foods & Meats

Based on S&P 1500 Indexes

Month-end Price Performance as of 01/29/10

2005 2006 2007 2008 2009 2010

140

120

100

80

60

40

20

0

Sub-Industry Sector S&P 1500

NOTE: All Sector & Sub-Industry information is based on the

Global Industry Classification Standard (GICS)

Stock Report | Feb 6, 2010 | NYSE Symbol: KFT

Kraft Foods'A'

Sub-Industry : Packaged Foods & Meats Peer Group*: Very Large Food Manufacturers

Peer Group

Stock

Symbol

Stk.Mkt.

Cap.

(Mil. $)

Recent

Stock

Price($)

52

Week

High/Low($) Beta

Yield

(%)

P/E

Ratio

Fair

Value

Calc.($)

Quality

Ranking

S&P

IQ

%ile

Return on

Revenue

(%)

LTD to

Cap

(%)

Kraft Foods'A' KFT 41,973 28.44 30.10/20.81 0.59 4.1 17 27.00 NR 70 4.4 44.7

Cadbury plc ADR CBY 17,743 52.34 56.34/27.58 0.84 1.9 20 NA NR 29 6.8 22.1

ConAgra Foods CAG 10,123 22.83 23.95/14.00 0.75 3.5 13 23.80 A- 98 5.1 42.0

Danone ADR DANOY 33,545 10.95 13.05/8.51 0.76 3.0 14 11.90 NR 25 6.9 55.0

Nestle S A ADS NSRGY 162,380 45.15 50.19/29.12 0.52 2.3 10 NA NR 88 16.4 9.3

Sara Lee Corp SLE 8,717 12.50 12.61/6.80 0.92 3.5 11 12.90 B 94 2.8 55.5

Unilever ADS UL 80,749 28.84 32.41/16.95 0.76 2.3 17 NA NR 93 12.4 29.1

Unilever N.V. UN 81,141 28.98 33.10/16.91 0.79 1.3 17 28.50 NR 76 12.4 29.5

NA-Not Available NM-Not Meaningful NR-Not Rated. *For Peer Groups with more than 15 companies or stocks, selection of issues is based on market capitalization.

Source: S&P.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies,Inc.