Despite its stable of brands many of us grew up with, mega-food company Kraft (NYSE:KFT) said late Tuesday that it will cut jobs and shutter plants to improve profitability. Dramatic as it may be, it shouldn't come as a huge surprise to investors, since rumors to this effect rumbled through the mill last week.
The company, which is still majority owned by former parent Altria (NYSE:MO), said it will eliminate 6,000 jobs, or 6% of its workforce, and close 20 plants in its restructuring efforts. This will result in $1.2 billion in charges.
For quite some time, problems have been on the horizon for Kraft. Not least of which are simply changing trends in Americans' diet, including many people power-walking away from processed foods and high-carbohydrate fare. In addition to the cost-cutting measures, one of Kraft's major themes was its plan to come up with healthier snacks to lure consumers as well as earmark $500 million to $600 million in marketing expenditures to push its products.
Recently, shoppers seem to have lost an appetite for several of Kraft's offerings, such as instant pizzas DiGiorno and California Pizza Kitchen. Cookies, which include Oreos, Chips Ahoy, and Snack Wells, have been extremely weak, and the company has taken criticism for mispricing. This is no new news, considering some of these issues were at play when Kraft reported lackluster third-quarter earnings in October.
With its collection of cereals, crackers, cold cuts, and cheeses, including names like Post, Triscuit, Oscar Mayer, and Velveeta, Kraft competes with a variety of behemoth food providers, including the likes of General Mills (NYSE:GIS) and Kellogg (NYSE:K).
Kraft's fourth-quarter earnings came in at $869 million, or $0.50 per share, as compared to $931 million, or $0.54 per share, in the year-ago period, representing a 7% drop in profits.
Going forward, the company said that while the charges linked to restructuring will be a drag on earnings this year, it intends to achieve earnings-per-share growth of 6% to 9% over the long term. This is a slight downward revision to its previous belief that it would deliver earnings growth of 8% to 9% for 2005 on. Kraft expects earnings of $1.63 to $1.70 per share in 2004, including $0.30 per share in charges; analysts were previously expecting earnings of $2.01 per share.
Though none of this should come as any surprise to anyone who has been watching Kraft closely, it still adds up to some tough times ahead for the company. But anyone hoping for a pleasant surprise on his or her plate was disappointed.
Will Kraft's efforts be successful? Or has it already missed the boat when it comes to offering healthier snacks? Discuss the issues with other Fools on the Kraft discussion board.
Alyce Lomax welcomes your feedback via email.
