Kraft Foods Reports Solid Progress on Growth Strategy

06/09/07 Irene Rosenfeld, Chairman and CEO of Kraft Foods has highlighted the solid progress the company has made during the first six months of executing its long-term growth strategy. She presented this update at the Lehman Brothers Back-To-School Consumer Conference in Boston, MA. Rosenfeld also announced that Kraft increased guidance on full-year diluted earnings per share (EPS) to $1.60 to $1.62 on a reported basis, and to $1.80 to $1.82, excluding items that affect comparability. This increase reflects the company's confidence in its growth initiatives, the pace of its previously announced stock buyback program and its lower-than-expected tax rate in 2007.

Kraft remains confident in its 2007 outlook. Last month, the company raised its organic net revenue growth expectation for the year to 4%-plus. And now, Kraft raised its guidance on full-year diluted EPS to $1.60 to $1.62 on a reported basis, from a previous range of $1.55 to $1.60. The company increased guidance on diluted EPS, excluding items affecting comparability, to $1.80 to $1.82 from a previous range of $1.75 to $1.80.

Rosenfeld also reported that the company remains on track to deliver $1 billion in savings from its total $3 billion, multi-year restructuring program.

"We're making good progress on the four strategies that will help return Kraft to reliable growth...and our investments are beginning to pay off in stronger top-line momentum," Rosenfeld told the investor community.

Kraft's four growth strategies are: rewire the organization for growth; reframe the company's categories to make its portfolio more relevant to consumers; exploit Kraft's sales capabilities; and drive down costs without compromising product quality.

Much of Rosenfeld's presentation focused on the priority investments Kraft is making to reframe its categories and how these investments are paying off. The company is spending an incremental $300-$400 million in 2007 on product quality improvements, new products and increased marketing. As noted, Kraft expects to spend at the high end of this range, with the bulk of its investment coming in the second half of the year.

"We're spending on programs to accelerate our revenue growth as quickly as possible, deliver sequential improvement in our market share performance and set the stage for improved profit margins beginning in 2008," Rosenfeld said. "Our key 2007 initiatives are driving organic growth in every geography. We're stepping-up growth in North America, changing the growth trajectory of the EU after years of decline and maintaining our momentum in developing markets."

In North America, the company is focusing its incremental investments on five large, highly profitable categories -- macaroni & cheese, pizza, biscuits, cheese and coffee -- where Kraft has iconic brands, most with strong relative market share positions.

In the European Union, the company is taking a back-to-basics approach to building its core brands, particularly in its large chocolate and coffee categories. And, in developing markets, Kraft is coupling this back-to-basics approach with expanded distribution in traditional trade channels in key markets.

Kraft is making significant changes to its leadership, reward systems and structure to rewire the organization for growth. Over the past year, the company has built a new management team, with roughly half of its top executives new to Kraft or new to their position. In addition, Kraft has linked its annual incentive program more directly with business unit performance and its long-term incentive program with key drivers of value creation -- organic revenue growth, operating income growth, cash flow and total shareholder return.

In addition, Rosenfeld said that Kraft's top 120 leaders are implementing a new structure built on three core elements:
• accountable business units;
• shared services that leverage the scale of the company's global portfolio; and
• a streamlined corporate staff.
 
Kraft expects to complete the roll-out of this new structure by early 2008. The primary objective of this initiative is improved effectiveness. However, as the company streamlines its headquarters locations, there will be some job eliminations.