NEW YORK - Kraft Foods Inc. plans to cut 6,000 jobs, 6 percent of its work force, and shut down 20 plants in a three-year restructuring plan Chief Executive Officer Roger Deromedi unveiled to analysts yesterday.
Deromedi hopes his action, taken during his sixth week on the job as the sole CEO of the largest U.S. food maker, will appease investors and analysts who have endured more than a year of sagging sales and earnings from the maker of Oscar Mayer meats, Oreo cookies, Maxwell House coffee and Planters nuts.
The latest disappointment came yesterday, just before the analyst meeting, when the company reported that its fourth-quarter earnings dropped 7 percent, to $869 million, or 50 cents a share, from a year earlier. Kraft also warned that its 2004 earnings will be lower than previously expected.
But Deromedi expects his restructuring program, projected to save more than $400 million a year by 2006, combined with a renewed focus on marketing, will turn Kraft's fortunes and woo back customers who have fled to cheaper rivals.
He said about 1,300 salaried positions in North America would be cut in the first quarter of 2004, with the remaining cuts to the company's worldwide work force to be completed during the next three years in a restructuring program that will stretch "across all levels."
"It's never easy to decide to close a plant or to eliminate jobs because of the obvious impact it has on the people who have worked hard to make this company successful," Deromedi told analysts and investors gathered in New York yesterday. "However difficult, these actions have been taken with a lot of thought and are in the best interest of the company."
Kraft anticipates that the restructuring will result in pre-tax charges of as much as $1.2 billion over the next three years.
The company immediately identified three plants to be closed: Canton, N.Y.; Farmdale, Ohio; and one in Central Europe. But it was clear that Deromedi was not discounting any possibility as he scours the company for cost savings.
Since taking over sole control at Kraft on Dec. 16, when then-co-CEO Betsy Holden was demoted, Deromedi has moved swiftly to shake up operations. He has already announced the closure of the Rye Brook, N.Y., international base and implemented a new global organizational structure designed to help Kraft compete more effectively in the 150 countries where it already operates.
Holden has been placed in charge of global marketing. Previously, she headed Kraft's domestic operations, which account for more than 70 percent of its $30 billion in annual sales. Deromedi had been responsible for the overseas arm, accounting for about 30 percent of sales.
Last week, several analysts warned that the new boss could make sharp cuts at the company that employs more than 100,000 people and has about 200 processing facilities around the world. Half of Kraft's facilities are in the United States - the largest is a 1.6 million-square-foot facility in Champaign, Ill.
In announcing another quarter of miserable results yesterday, Deromedi said it could take several months before improvement is seen externally.
While fourth-quarter net earnings fell to $869 million, or 50 cents a share, from $931 million, or 54 cents, a year earlier, sales rose 6.2 percent to $8.33 billion in the quarter. A large slice of the jump was because of the weakness of the dollar, which makes Kraft's overseas sales look healthier than might typically be the case. Volume rose just 1.1 percent.
Citing restructuring charges of about 30 cents per share, Kraft lowered its estimate for 2004 earnings to a range of $1.63 to $1.70 per share, while predicting that sales would rise about 3 percent. Analysts had been forecasting $2.01 per share.
After a down year in 2004, Deromedi said, he hoped to be able to hit his long-term target of increasing earnings per share by 6 percent to 9 percent annually in the long-term.
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