28 January 2004

Kraft will shutter 20 plants

Kraft Foods will cut 6,000 jobs over the next three years and close 20 of its plants around the world. Kraft makes Oreo cookies, Oscar Mayer meats, and Philadelphia cream cheese.

The Wall Street Journal reported the restructuring program would result in $1.2 billion of charges during the next three years and yield about $400 million in annual savings by 2006. Between $120 million and $140 million of those savings will be plowed back into the company in 2004 to support its brand-building efforts.

Kraft also reported that its fourth-quarter net income fell 6.7% to $869 million, or 50 cents a share, from $931 million, or 54 cents a share, a year earlier. Revenue rose 6.2% to $8.33 billion from $7.85 billion, helped by a 1.1% increase in volume and favorable currency translation resulting from the weakness of the U.S. dollar.

The fourth quarter closed out a year in which Kraft's market share went down because of private-label competitors in such important categories as cheese, meats, and cookies. Kraft acknowledged it needed to pump more money behind its brands last year when it said it would increase marketing spending by $200 million to $400 million in the second half of 2003.

Some expect that Kraft's performance in the next twelve months will help determine the timing of a long-awaited spin-off of the entire company from its corporate parent, Altria Group Inc., which owns 84% of Kraft.

Altria chief executive officer and Kraft chairman Louis C. Camilleri has publicly hinted at a possible spin-off of the food company. However, the timing of that transaction hinges on both Kraft's performance and on tobacco litigation, which effects Altria's Philip Morris USA unit.