Kraft Foods’ chief touts opportunities from split into 2 companies
Chairman and CEO Irene Rosenfeld says grocery, snacks firms will compete from positions of strength in respective markets.
“We’ve invested quite heavily in snacking because I saw it as a clear growth opportunity that really seems to have no boundaries as you look around the world,” Kraft CEO Irene Rosenfeld said. (William DeShazer, Chicago Tribune / February 5, 2010)
By Emily Bryson York, Chicago Tribune reporter
February 22, 2012
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Executives of Kraft Foods Inc.worked a crowd of Wall Street analysts Tuesday, looking to convince the group that the two companies it plans to create when it splits later this year will be more competitive than the larger company is today.
“We see the opportunity to accelerate our performance by operating these two companies independently,” Kraft Chairman and CEO Irene Rosenfeld said during a presentation at the Consumer Analyst Group of New York conference. “Both will compete from a position of strength in their respective markets, and both will be well-positioned to outperform their peers and deliver attractive shareholder returns.”
The Northfield-based maker of Oreo, Wheat Thins, Capri Sun and Oscar Mayer products plans to split into an $18 billion North American grocery business and a $35 billion global snacks company by Dec. 31.
With a portfolio of growing products like Oreo, Trident and Tang, the outlook for the global snacking company is bright, Rosenfeld said.
“We’ve invested quite heavily in snacking because I saw it as a clear growth opportunity that really seems to have no boundaries as you look around the world,” Rosenfeld said in an interview with the Tribune. “Snacking seems to be much more universal as you look from one market to the next.”
The ability to build the business as consumers are more on the go “will only continue,” she said, adding that shoppers are buying snacks in more places than traditional grocery stores, such as kiosks and convenience stores, which represents higher-margin business.
Kraft forecast 2012 net revenue growth of about 5 percent, including a hit of up to 1 percentage point from “product pruning” in North America.
The North American grocery business, to be headed by Tony Vernon, faces several concerns, including that it will be laden with debt after the split, will hold a slower-growing portfolio of older brands and will be confined to North America, a mature market.
“The bias is driven by developing markets’ growth,” said Vernon, who currently serves as president, North America. “When you see emerging markets growing double digits — I think that’s where the bias stems from.”
Vernon cited recent successes tied to new products and increased marketing for a handful of “power brands” that, among other things, offer attractive margins and strong potential for growth. He singled out Philadelphia Cream Cheese, a 135-year-old brand that posted 11 percent sales growth in 2011, and Oreo, a 100-year-old brand that recorded a 12 percent sales increase.
“It doesn’t matter the age of a brand when you’re talking about leading brands that offer great opportunities to consumer to explore new tastes or eat healthier,” Vernon said. “So, frankly, I don’t buy any of the bias.”
He added that Kraft’s North American growth isn’t just expanding in supermarkets but also in nontraditional outlets where consumers are spending more of their food dollars, including dollar and drugstores.
To accomplish the split, the company will incur one-time charges of $1.6 billion to $1.8 billion. Kraft Chief Financial Officer David Brearton said the company is also expecting to incur between $400 million and $800 million in fees as it migrates debt to the North American grocery company.
Kraft declined to provide additional information regarding the charges.
Earlier Tuesday, Kraft forecast earnings growth of at least 9 percent this year, even as it prunes its portfolio of North American brands. The company did not provide specifics as to what products will be sold off.
Kraft also reported fourth-quarter results Tuesday that met analysts expectations. Net income was $830 million, or 47 cents per share, up from $540 million, or 31 cents per share, a year earlier. Revenue rose 6.6 percent, to $14.7 billion.