Milling & Baking News - February 3, 2004 - 13

F I N A N C I A L

R E S U L T S

Kraft Foods to cut work force by
6% in $1.2-billion restructuring
Continued from Page 1
ﬁscal year ended Dec. 31 was $3,476
million, equal to $2.01 per share on the
common stock, up 2.4% from $3,394 million, or $1.96 per share, in 2002. Net sales
were $31,010 million, up 4.3%.
Net income of Kraft Foods in the
fourth quarter was $869 million, equal to
50c per share, down 7% from $931 million, or 54c per share, in the same period

age from our signiﬁcant cash ﬂow," he
said in a Jan. 28 conference call. "While
this E.P.S. growth is lower than what
we have communicated in the past, I
believe it is realistic in today's operating
environment. We may do better in some
years, but I want to set expectations that
we can consistently deliver because I
believe that consistent earnings growth
together with an increasing dividend

Beyond job cuts and plant closings
A peak into a few pending portfolio changes at Kraft Foods

'The growing importance of health and wellness
has altered buying patterns to a degree I have not
seen before in the food industry.'
- Roger K. Deromedi,
Kraft Foods Inc.
Health and wellness
* Newton bars with yogurt: low in fat and a good
source of calcium. And
* Snackwell's: several extensions of sugar free
line.
* "A number of bigger ideas will be ready in the second half of the year and 2005," Mr. Deromedi said.
Transfatty acids
* Triscuit: zero grams trans fat Triscuit introduction pending.
* "You'll see a continuous roll-out of zero gram and reduced trans fat
cookies and crackers throughout the remainder of 2004 and into 2005," Mr.
Deromedi said.
Natural and Organic
* Back to Nature: new products in several categories will be introduced
under the Back to Nature brand, acquired by the company last September. MBN

last year. Net sales were $8,330 million,
up 6%.
"While Kraft's fourth-quarter results
were in line with our expectations, we
clearly are not satisﬁed with our performance in the quarter or the full year,"
said Roger K. Deromedi, Kraft Foods
chief executive ofﬁcer. "The corrective
actions we began in late 2003 are showing progress, and the stronger steps we
are announcing today will get us back on
track for sustainable growth."
Explaining "sustainable growth," Mr.
Deromedi, who was named sole chief
executive of Kraft in December, gave a
more modest deﬁnition than the 8% to
10% annual earnings gains projected by
Kraft in the past as an annual long-term
earnings growth target. "We believe
we can deliver long-term annual E.P.S.
growth of 6% to 9% per year, driven by
revenue growth, our continued focus on
cost reduction and the ﬁnancial lever14 / Milling & Baking News, February 3, 2004

provides a compelling reason to buy our
stock and hold it for the long term."
Charges associated with the restructuring were predicted by Kraft to aggregate $1.2 billion over the next three
years, with roughly half being non-cash
charges. The initiative is expected to
generate $400 million in annual pre-tax
savings by 2006.
Kraft said the majority of the restructuring costs will be incurred in 2004 and
2005, including $1.1 billion in pre-tax
restructuring charges, primarily for asset write-offs and severance costs, and
$100 million in associated pre-tax implementation costs. The company expects
to spend approximately $140 million
in capital over the next three years to
implement the program.
Other elements of the restructuring
include plans for signiﬁcant increases
in brand building spending, the "transformation of the portfolio in line with

changing consumer and customer
trends," and an expanded global scale
particularly in fast growing developing
markets.
Weakness in the company's biscuit
business was cited as a primary inﬂuence adversely affecting quarterly
results. "Cheese, cold cuts, coffee and
crackers showed solid sequential improvement in consumption and share
trends, while the cookie results remained
weak," Kraft said. "The previously cited
factors impacting the cookie category
performance, including consumers' increased health and wellness focus and
lower contributions from new products,
continued to affect results in the fourth
quarter."
Mr. Deromedi devoted considerable
attention to the difﬁculties Kraft experienced in the biscuits market, calling
cookies the clear "outlier" in what were
otherwise "fairly strong and encouraging results" at the company.
"As we discussed before, there are
multiple drivers for our weak cookie
results: higher pricing, less successful
new products and a variety of health
and wellness concerns," he said. "We
addressed the ﬁrst of these, pricing, in
the fourth quarter, by returning to more
optimal price points. However, this was
only one element on the category issue."
Finding a way to satisfy consumer
demand for healthier products is crucial
for cookie manufacturers, Mr. Deromedi
said. "Healthier snacks are a top priority," he said. "I believe we have the right
technology resources working on the
right solutions. In the ﬁrst quarter we
launch the ﬁrst in a series of healthier alternatives, including Newton bars with
yogurt, which are low in fat and a good
source of calcium. And several extensions of our Snackwell's sugar free line.
A number of bigger ideas will be ready
in the second half of the year and 2005.
We don't expect signiﬁcant improvement of cookie trends in the ﬁrst half,
but we do expect momentum to build
through the year."
Operating income of the Kraft Biscuits, Snacks and Confectionary segment was $887 million in 2003, down
16% from $1,051 million in 2002. Sales
were $4,801 million, down 1.8%.
In the fourth quarter, the group's operating income was $190 million, down
35% from $291 million in 2002. Revenues
were $1,246 million, down 6%.
Cracker volume was down slightly in
2003 with declines in Ritz Bits partially
offset by strength in Wheat Thins, Triscuit and the introduction of Ritz Chips,
Kraft said. "Snacks volume was up
behind strong category growth due to
increased consumer awareness of the
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Milling & Baking News - February 3, 2004

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