Changes underway at Kraft

by Monica Watrous
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NORTHFIELD, Ill. — Sweeping changes are underway at Kraft Foods Group, beginning with management. After company earnings tumbled 62 percent in the recent fiscal year, Kraft’s chairman and newly named chief executive officer has reshuffled his leadership team.

John Cahill, who replaced Tony Vernon in December, on Feb. 12 announced the reorganization and hinted at streamlining and other strategic moves in the months ahead.

“I’m not going to provide a lot of details or plans at this time, but I certainly would like to try to help you understand at least my preliminary thinking,” Cahill told investment analysts participating on a conference call. “Let me start with what I think will change and what I think will be the same at Kraft.”

But first, a look at the results for the fourth-quarter and full year: Poor marketplace execution and macroeconomic headwinds led to a quarterly loss of $398 million, which compared with net income of $931 million for the year-ago period. Net revenues for the quarter rose 2.2 percent to $4,696 million from $4,595 million.

Net income for the year ended Dec. 27, 2014, totaled $1,043 million, equal to $1.75 per share on the common stock, down from $2,715 million, or $4.55 per share, for fiscal 2013. Net revenues for the year were relatively flat at $18,205 million, which compared with $18,218 million the year before.

“On the whole, I think you’d agree that 2014 for Kraft, and for that matter, the broader food industry, was both difficult and disappointing,” Cahill said. “At the same time, looking at our 2014 results helps us know where to focus as we finalize and begin to implement our plans for the future.”

Going forward, Kraft intends to strengthen productivity and invest in disciplined marketing and innovation behind such brands as Oscar Mayer and Jell-O. Executives said Kraft failed to build share across all categories in 2014, instead holding flat for 60 percent of its businesses in the United States and losing share in the remaining 40 percent. The good news? Higher prices to offset commodity increases during the year were largely accepted by customers, and new innovations, including P3 protein packs and McCafe coffee, have been well-received, Cahill said.

Yet consumers are changing, and Kraft has not kept pace.

“What I expect will be different is a greater pace of change; an intense focus on execution; greater return-on-investment discipline around advertising, trade and capital spending; and innovation rooted in more robust fact-based consumer insights.

“As I mentioned earlier, we announced some leadership changes today in order to strengthen our execution.”

Two have stepped up, and three are set to exit the company. George Zoghbi, currently vice chairman of operations, R&D, sales and strategy, has been named chief operating officer. Zoghbi will oversee Kraft’s US business units, including sales and marketing service, in addition to leading the company’s integrating supply chain and working with operations to drive productivity and deliver innovation and marketing plans.

Chris Kempczinski, who currently leads the company’s Canada business unit, will assume expanded responsibilities in a newly created role as executive vice president of growth initiatives and president of international. He will work with Zoghbi to formulate strategy, including mergers and acquisitions, and develop innovation platforms, in addition to leading Kraft Canada and oversee international markets.

Teri List-Stoll, executive vice president and CFO, will leave her role at the end of the month and will serve as a senior adviser to the company. James Kehoe has been named executive vice president and CFO. Kehoe has spent more than two decades with Kraft in roles spanning numerous businesses and corporate functions. Most recently, he was executive vice president and chief financial and administrative officer at Gildan Activewear Inc., an apparel company in Canada.

Deanie Elsner, executive vice president and chief marketing officer, also will leave at the end of the month. Jane Hilk, executive vice president and president of enhancers and snacks, will fill the position in the interim.

Finally, Chuck Davis, executive vice president of research, development, quality and innovation, will leave the company after his successor is named.

Over the coming months, Cahill plans to work with the management team and become more immersed in the business.

“Now I may continue to make some decisions along the way, but I plan to use this time to really get under the hood, and spend time with our customers and business partners to develop a well-informed comprehensive plan that will accelerate the pace of change and put Kraft on a clear path to long-term sustainable growth,” Cahill said. “I look forward to coming back to you with additional perspective on our business and our potential.

“My target is to provide our plans to investors in the second quarter.”
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