Kraft Foods Inc. (KFT) laid out the initial outlook for its soon
to be spun-off North American grocery business, Kraft Foods Group,
which faces a slow-growth packaged-food sector where consumers
remain frugal. The business will be charged primarily with widening
margins and returning cash to shareholders through fat
dividends.
Kraft in August set an Oct. 1 date for its separation into a
global snacks company called Mondelez International and its legacy
North American grocery business, which will retain the Kraft Foods
name.
Kraft Foods Group will house brands like Kraft, Oscar Mayer and
Maxwell House and as its own entity will be North America's fourth
largest consumer packaged food and beverage company, with revenue
of about $19 billion last year.
Kraft said for the North American grocery business it "plans to
create a more nimble, less-layered organization and unleash the
skills and creativity of its people by breaking down
walls--literally and figuratively--at the company." It said
incentive plans will be redesigned to incorporate stock ownership
more broadly to reinforce the alignment between employee and
shareholder interests. It added that it will step up investment in
talent acquisition and a newly created "Kraft University."
Other priorities Kraft outlined for the new company include
making "big bet innovations" to create new products and reformulate
existing products. It also said it would step up its marketing
efforts and emphasized that it will free up cash in order to make
these investments.
Kraft Foods Group Chief Financial Officer Tim McLevish said
"Cash will be king at Kraft," adding that it will be the "fuel to
grow our business."
The new company expects per-share earnings for next year of
about $2.60, including interest expense of around $520 million and
restructuring costs of about $240 million. It expects to recommend
an annual dividend of $2 a share to the board.
It said free cash flow is expected to be about 70% of net
income, below its long-term target of at least 85% due to an extra
tax payment in 2013 of about $200 million.
Long term, it is also aiming for organic revenue growth at or
above the North American food and beverage market rate of growth;
mid-single digit operating income growth mid-to-high single digit
per-share earnings growth and mid-single digit dividend growth.
Late Thursday, Kraft 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.
Mondelez is expected to be 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's shares were recently down 3.8% to $40.70 in recent. The
stock is up about 20% in the past 12 months.
Write to Saabira Chaudhuri at saabira.chaudhuri@dowjones.com
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