Is the Kraft Foods ( KFT) three-year turnaround plan finally paying off?

Two years into that oft-cited turnaround plan, Kraft was upgraded by BMO Capital Markets analyst Kenneth Zaslow to outperform from market perform citing the weakening U.S. dollar, changes in management and cheaper ingredient prices.

Kraft is focusing on new products and key brands, as well as relaying a message of value to consumers -- an effort to improve sales, which were down 6.5% to $9.4 billion in the first quarter.

Zaslow wrote that he expects Kraft to outperform the S&P 500 and generate a more than 15% return in the next 12 months.

There have already been signs of a turnaround. During the quarter that ended in March, profit jumped 10% to $660 million, or 45 cents per share.

Under the reins of CEO Irene Rosenfeld, Kraft has been cutting costs and fine-tuning its business

Record high ingredient costs are leveling off, which should also provide a relief. Zaslow said key commodities like cheese, milk, coffee and wheat have declined more than 10% from last year.

And sales are still strong for brands like DiGiorno pizza, Ritz crackers, Oscar Mayer Deli Fresh Lunchmeat, Velveeta Mac & Cheese and Oreos, he wrote.

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