Kraft’s restructure begins to reap rewards

Posted by Daniel Palmer on 30th October 2008

Kraft Foods Inc. has announced positive third-quarter 2008 results as the company executes its three-year turnaround plan.

Strong organic net revenue growth of 7.1 per cent was, in part, driven by pricing actions to offset significantly higher input costs.

Pricing contributed 8.4 percentage points, but an unfavorable mix reduced net revenue by 0.4 percentage points and volume was down 0.9 percent – reflecting the impact of significant cost-driven pricing actions.

“Kraft had a strong quarter in a difficult environment,” advised Irene Rosenfeld, Kraft Chairman and CEO. “Our operating momentum continued with solid top- and bottom-line contributions from all geographies. I am especially pleased that our volumes in the third quarter held up better than expected, despite significant cost-driven price increases and an unsettled economic environment.”

The economic turbulence is of concern, but Ms Rosenfeld believes that their investment in brands is shielding them from the downturn. “As family budgets are squeezed, our ongoing programs to add value to our products through investments in quality, marketing and innovation are paying off,” she said. “Consumers are increasingly coming home to Kraft for delicious food and great value. As a result, we remain confident that we will deliver our 2008 commitments, with strong momentum going into 2009.”

Maxwell House coffee and Kraft macaroni and cheese were among the volume gainers in the US, with marketing investment in core brands like Oreo, Chips Ahoy!, and Ritz, as well as the success of new Kraft Macaroni and Cheese crackers, making a significant contribution to revenue gains.

Their Asia Pacific operations also posted solid results for the quarter after benefiting from “pricing gains across key markets”.

Outlook

Given stronger than expected year-to-date volume performance, Kraft has raised its outlook for 2008 organic net revenue growth to 7 percent, up from a previous expectation of at least 6 percent.

Their restructuring program continues in earnest and they anticipate annualized savings of approximately $1.1 billion by year-end 2008 and $1.4 billion for the total program. To date, cumulative annualized savings from this cost restructuring program totaled approximately $1.0 billion, up from approximately $0.8 billion at the end of 2007.