--Kraft unveils long-term growth plans for Mondelez snack
unit
--Sees organic sales growth of 5% to 7% and double-digit
per-share earnings growth, excluding currency translation
--First year as standalone unit faces challenges from slow gum
sales, foreign exchange hit
(Updates with details throughout from company presentation to
investors.)
By Paul Ziobro
Kraft Foods Inc. (KFT) late Thursday laid out the initial
outlook for its snacks business Mondelez International, whose first
year as a standalone company will be marked by a weak gum category
offsetting stronger sales of chocolate and biscuits, as well a
severe hit from unfavorable foreign exchange rates.
Kraft, which is spinning off its North American grocery business
on Oct. 1., projected that Mondelez will post long-term organic
sales growth of 5% to 7% and operating earnings growth in the
double-digit percent range.
But it faces some challenges in its first year out of the gate.
Organic sales are expected to be at the low end of the range, as
price increases will provide less of a boost to the top line. The
projection of per-share earnings of $1.50 to $1.55 is also below
long-term growth rates, as Kraft faces a 15-cent a share headwind
from unfavorable exchange rates.
"The weakening of some of our key [foreign exchange] rates
versus the dollar has been tremendous," Kraft Chief Financial
Officer David Brearton said Thursday at a Barclays conference.
Kraft shares were down 1.4% in late trading to $41.71, as
executive executives who are staying with Mondelez laid out the
opportunities and challenges for the new company as it sets out on
its own. Kraft plans to hold a meeting on grocery unit Kraft Foods
Group Friday.
Mondelez is expected to the faster-growing of the two companies
Kraft is splitting into, as snacks like Oreo cookies, Cadbury
chocolates and Trident gum have rosier prospects to expand into
developing markets, like China, India, Brazil and Russia.
Kraft Chief Executive Irene Rosenfeld, who will lead Mondelez,
said the snack brands can capitalize on consumers around the world
looking for more on-the-go eating options. Snacks, she said, are
also can be sold in more places in a store than traditional
packaged food, and be placed where they can lure consumers as
impulse buys.
Kraft's biscuit and chocolate businesses have thrived lately,
helped by expanding Oreo into countries like China and India and
Lacta chocolate in Brazil.
Gum, however, has been the laggard, with sales down 1% in 2011
and growth slowing to a crawl. Some of those challenges have been
Kraft's doing, as it cut back marketing and rolled out too many
variations of its brands like Trident, said Jim Cali, head of
Kraft's gum and candy business. But it has also been hurt by teens
having less spending money and high unemployment, since about 26%
of gum is chewed at work and 16% on the way to work.
"If you don't have a job, you're probably chewing less gum," Mr.
Cali said.
Mondelez plans to boost advertising behind gum, and will also
focus on just three Trident varieties globally. To try to win back
teens, Kraft recently unveiled Stride ID, a gum with candy swirls.
It is also coming out with packs at different sizes and prices. Mr.
Cali expects the business to return to mid-single-digit growth, but
did not provide a timeframe.
Mondelez will also have to navigate a challenging environment in
Europe, where consumer confidence is suffering amid the sovereign
debt crisis. Kraft has fared well in Europe lately as its focused
resources on its top brands, which deliver a greater profit,
although the company expects growth to slow from what it saw in the
first half of 2012, Tim Cofer, who will head Mondelez's European
business, said.
--Tess Stynes contributed to this article.
Write to Paul Ziobro at paul.ziobro@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires