Kraft Foods Inc. (NYSE: KFT) today announced that the company has made steady progress on the four strategies within its Sustainable Growth Plan -- building brand value, transforming the portfolio, expanding global scale, and driving out costs and assets. Kraft unveiled the plan just six months ago.
"We are pleased with the progress we’ve made in building a stronger Kraft through our Sustainable Growth Plan," said Roger Deromedi, Kraft’s Chief Executive Officer. "We’re in the early stages, but with our renewed sense of passion, innovation and speed, we’re confident that we will continue to build value for consumers, customers, employees and shareholders over the long-term."
During an Investor Day at Kraft’s Northfield headquarters, the company presented to more than 100 analysts, investors and members of the media the specific actions it is taking to advance its Sustainable Growth Plan. Deromedi was joined by five other members of the Kraft Executive Team: Betsy Holden, President, Global Marketing & Category Development; David Johnson, President, Kraft North America Commercial; Hugh Roberts, President, Kraft International Commercial; Franz-Josef Vogelsang, Executive Vice President, Global Supply Chain; and James Dollive, Executive Vice President & Chief Financial Officer.
With building brand value as its highest priority, Kraft is focused on delivering to consumers the right bundle of product benefits - taste, innovative packaging, availability, brand image and service - at the right price. To help build brand value, the company has stepped up its investment in marketing. During the second quarter, Kraft improved top-line momentum in categories where its marketing spending increased 10% or more versus last year, with aggregate volume in these categories up 4% and revenues up 7%.
Kraft also continues to enhance its strong retail support programs. This includes further leveraging its Nabisco Direct Store Delivery system to merchandise select Kraft products as well as developing specific products and promotions for emerging channels, such as Dollar Stores, and growing consumer targets, including those consumers seeking natural and organic products. Also, by evolving from profit-weighted, volume-based planning and incentives to revenue-based planning and incentives for the Kraft sales force, the company is focusing further on profitable growth, better aligning with customer objectives and increasing the efficiency of its trade spending. And, as of this month, Kraft completed its migration in the U.S. to consumption-based trade spending for its retail partners. Under this program, trade support funds are paid based on what is purchased in-store by consumers versus what is shipped into warehouses, thereby reducing supply chain costs and increasing the effectiveness of trade spending.
With a new global marketing organization in place, Kraft is transforming its portfolio by focusing more on expanding its brands globally across its Beverages, Snacks, Cheese & Dairy and Convenient Meals sectors. The company is meeting key consumer needs for health and wellness, and convenience, while also responding to shifting demographics, as the population ages, becomes increasingly diverse, and lives in a growing number of one- to two-person households.
Kraft is driving incremental growth through new products by: building underdeveloped segments within Kraft’s current categories, such as single-serve frozen pizza with DiGiorno Microwave Rising Crust Pizza; sourcing volume from adjacent categories, such as salted snacks with Ritz Chips and breath-freshening gum with Altoids Gum; creating or entering new categories, including on-demand hot beverages with its Tassimo system currently launching in France; and penetrating new markets, geographies and channels. At the same time, the team is implementing processes to improve speed to market.
In expanding global scale, Kraft will continue to grow in developed countries by leveraging its leading share positions in core categories, while addressing a challenging retail environment by building superior brand value and accelerating innovation. Kraft also will expand its sizeable business in developing markets by expanding its core categories into large countries with the greatest growth potential. With a combined population of 2.8 billion, the five top developing countries (China, Brazil, Russia, Mexico and India) represent 54% of the developing market population. Yet, they only represent about 34%, or $1.2 billion, of Kraft’s annual revenues in developing markets. Importantly, in Kraft’s focus markets of Mexico, Brazil, Russia and China, the company’s revenues have doubled over the past four years.
Kraft is succeeding in driving out costs and assets, with its previously announced restructuring plan, including the announcement of 12 plant closings year-to-date. The company expects to further its strong productivity track record by continuing to eliminate unnecessary complexity in its supply chain. "Decomplexity" initiatives will include: global sourcing and harmonization of ingredients; reducing the number of individual varieties of products, or "stock-keeping units"; and streamlining product formulas and packaging designs on a global basis. Ultimately, these efforts will enable the company to better leverage innovations and bring products to market with greater speed at a lower cost.
Finally, at its investor meeting, Kraft reviewed its long-term financial outlook. The company reiterated its long-term financial targets for constant currency revenue growth excluding divestitures and including acquisitions in the 3% range, supported by volume growth of 2%-3%, and earnings per share growth of 6%-9%.
Kraft Foods Inc. is the largest branded food and beverage company headquartered in the United States and the second largest worldwide. Kraft Foods markets many of the world’s leading food brands, including Kraft cheese, Jacobs and Maxwell House coffees, Nabisco cookies and crackers, Philadelphia cream cheese, Oscar Mayer meats, Post cereals and Milka chocolates, in more than 150 countries.
Forward-Looking and Cautionary Statements
This press release contains projections of future results and other forward-looking statements. One can identify these forward-looking statements by use of words such as "strategy," "expects," "plans," "anticipates," "believes," "will," "continues," "estimates," "intends," "projects," "goals," "targets" and other words of similar meaning.
One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are based on the company’s assumptions and estimates and are subject to risks and uncertainties. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the company is hereby identifying important factors that could cause actual results and outcomes to differ materially from those contained in any forward-looking statement made by or on behalf of the company; any such statement is qualified by reference to the following cautionary statements.
Each of the company's segments is subject to intense competition, changes in consumer preferences and demand for its products, including low carbohydrate diet trends, the effects of changing prices for its raw materials and local economic and market conditions. Their results are dependent upon their continued ability to promote brand equity successfully, to anticipate and respond to new consumer trends, to develop new products and markets, to broaden brand portfolios, to compete effectively with lower priced products in a consolidating environment at the retail and manufacturing levels and to improve productivity. The company's results are also dependent on its ability to consummate and successfully integrate acquisitions and to realize the cost savings and improved asset utilization contemplated by its restructuring program.
In addition, the company is subject to the effects of foreign economies, currency movements, fluctuations in levels of customer inventories and credit and other business risks related to its customers operating in a challenging economic and competitive environment. The company's results are affected by its access to credit markets, borrowing costs and credit ratings, which may in turn be influenced by the credit ratings of Altria Group, Inc. The company's benefit expense is subject to the investment performance of pension plan assets, interest rates and cost increases for medical benefits offered to employees and retirees. The food industry continues to be subject to recalls if products become adulterated or misbranded, liability if product consumption causes injury, ingredient disclosure and labeling laws and regulations and the possibility that consumers could lose confidence in the safety and quality of certain food products.
The food industry is also subject to consumer concerns regarding genetically modified organisms and the health implications of obesity and trans-fatty acids. Developments in any of these areas could cause the company's results to differ materially from results that have been or may be projected by or on behalf of the company. The company cautions that the foregoing list of important factors is not exclusive. Any forward-looking statements in this press release are made as of the date hereof. The company does not undertake to update any forward-looking statement.