Kraft Foods details new global growth strategy

by Bryan Salvage
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NEW YORK – Kraft Foods Inc., parent company of Oscar Mayer and other major food brands, told analysts in New York it expects to deliver organic revenue growth of 5% or more, margins in the mid- to high-teens and earnings per share (E.P.S.) growth of 9% to 11%, making it a top-tier performer in the global food industry.

"Today's Kraft Foods is a global snacks powerhouse with an unrivaled portfolio of leading regional and local brands," said Irene Rosenfeld, chairman and chief executive officer. "This unique and complementary combination, together with our significant presence in high-growth developing markets, will deliver consistent growth in the top tier of our peer group. By leveraging our scale, making strategic investments in marketing, sales and innovation and establishing a world-class cost structure, we will take our performance to the next level."

Thanks to its acquisition of Cadbury earlier this year, Kraft Foods became the undisputed world leader in snacks, a high-growth, high-margin category that now accounts for more than half of the company's total revenue. The company has an exceptional portfolio of global Snacks power brands with leading market shares in every major region, a full pipeline of innovation and a clear opportunity to grow its presence in the point-of-purchase "hot zone."

Complementing the company's snacks portfolio are strong regional and local brands in the beverage, grocery, cheese and convenient meals categories. Approximately 80% of these "heritage" brands hold No. 1 or No. 2 positions in their respective categories. They also carry high margins and generate strong cash flow.

Kraft Foods will continue to invest in marketing and innovation for the larger regional "power brands," including Oscar Mayer meats. At the same time, it will cultivate local brands throughout the world through flexible business models and nimble marketing.

Combining global powerhouse snacks brands and iconic heritage brands provides Kraft Foods with a unique capability to invest profit from stable cash-generating businesses into high-margin categories and fast-growing developing markets, Rosenfeld said.

More than half of Kraft Foods' revenue now comes from markets outside of North America, such as Brazil, China, India and Mexico, where G.D.P. and demand growth are strongest. By 2013, the proportion of business in developing markets will increase from a quarter of total revenue to roughly one-third.

Additional savings over the next three years from procurement, manufacturing and logistics will drive productivity gains in excess of 4% of cost of goods sold. These productivity gains, combined with flat overhead growth and pricing to offset input costs, will contribute to the expansion of gross margin.

"This combination of factors gives us great confidence that our company will generate organic revenue growth of 5% or more, margins in the mid- to high-teens and E.P.S. growth of 9% to 11%," said Tim McLevish, chief financial officer. "Delivering on these commitments will make Kraft Foods a sustainable top-tier performer in the global food industry."
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