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Kraft to Cut 6,000 Jobs, Close 20 Plants

By DAVE CARPENTER
AP Business Writer

January 27, 2004, 5:59 PM EST

CHICAGO -- Kraft Foods Inc. said Tuesday it will eliminate 6,000 jobs, or 6 percent of its work force, and close 20 plants worldwide over the next three years as part of a restructuring that follows more than a year of disappointing sales and earnings for the biggest U.S. food company.

About 1,300 salaried positions in North America will be eliminated in the first quarter, with the remaining cuts occurring by 2007, the maker of Oreo cookies, Jell-O desserts and Oscar Mayer hot dogs said.

The moves were disclosed in Kraft's fourth-quarter earnings release Tuesday, which detailed the company's latest earnings disappointment: a 7 percent drop in profits from a year earlier, to $869 million, and a warning that 2004 earnings will also be lower than expected.

The job cuts have been expected since the Northfield, Ill.-based company shook up its top management last month and announced other changes after several quarters of sluggish sales, particularly for cookies and pizza.

Chief executive Roger Deromedi, who was given sole control of the company last month when co-CEO Betsy Holden was removed from that post and put in charge of global marketing, had signaled his intent to take Kraft in a different direction to try to snap out of the slump in sales and new products.

On Jan. 8, he reorganized Kraft's business units and said it would take a more global focus in a strategy aimed at making it more nimble. That move entailed shifting some units to new locations and giving top executives new roles. The job cuts associated with the shake-up were not disclosed until Tuesday.

Three plants to be included initially include ones in Canton, N.Y.; Farmdale, Ohio; and central Europe, the company said without elaborating.

"While Kraft's fourth-quarter results were in line with our expectations, we clearly are not satisfied with our performance in the quarter or for the full year," Deromedi said. "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."

The company anticipates that the restructuring will result in pre-tax charges of as much as $1.2 billion over the next three years and generate an estimated $400 million in annual savings by 2006.

Kraft has about 50,000 employees in the United States and slightly more than 100,000 worldwide.

At the same time it is laying off employees, Deromedi also said the company will spend $500 million to $600 million more on marketing in 2004. He said Kraft intends to focus on healthier snacks and other new products, stronger marketing and a better strategy to meet consumers' health and wellness concerns.

"Low-carb diets like Atkins and South Beach, the focus on trans-fats, concerns about obesity and increased demand for organic and natural products are requiring a shift in how we market and what we market," he told analysts at a meeting in New York. "And just as important, as lifestyles change, the need for convenience continues to grow."

But company executives also bear some of the blame for Kraft's woes, he acknowledged -- raising prices last year in response to rising costs while misjudging the extent to which consumers have become more price-conscious.

"While we faced strong head winds in 2003, we did not manage through them as effectively as we should have," he said.

Net earnings for the last three months of the year amounted to 50 cents a share, matching the consensus estimate of analysts surveyed by Thomson First Call. That compared with a net profit a year earlier of $931 million, or 54 cents a share.

Revenues grew to $8.3 billion from $7.8 billion, up 6 percent thanks to a boost from the weak dollar.

Citing the restructuring, Kraft lowered its estimate for 2004 earnings to a range of $1.63-$1.70 per share. Analysts were forecasting $2.01 per share.

For the full year, net income was $3.48 billion, or $2.01 per share, up 2 percent from $3.4 billion, or $1.96 per share, in 2002. Revenues climbed 4 percent to $31 billion from $29.7 billion.

Kraft's stock closed down 35 cents at $32.13 per share on the New York Stock Exchange before the report was released -- down 13 percent in the past year. It fell 34 cents in the extended session.

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On the Net:

www.kraft.com