With the acquisition of Cadbury earlier this year, Kraft Foods "became the undisputed world [image-nocss] leader in snacks," it said, a high-growth, high-margin category that now accounts for more than half of the company's total revenue. The combination of Kraft Foods and Cadbury provides the scale necessary to grow sales and distribution in new and existing markets, delivering $1 billion in incremental revenue synergiesin addition to $750 million in cost synergiesby 2013.
Kraft Foods will continue to invest in marketing and innovation for the larger regional "power brands," including Oscar Mayer meats, Jacobs coffee and Tang powdered beverages. At the same time, the company will cultivate local brands, such as A-1 steak sauce in North America, Dairylea cheese in the U.K. and Vegemite spreads in Australia, through flexible business models and nimble marketing.
"Today's Kraft Foods is a global snacks powerhouse with an unrivaled portfolio of leading regional and local brands," said Irene Rosenfeld, chairman and CEO. "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."
She added, "At Kraft Foods, we're hitting our sweet spot. We've built a solid foundation for growth. 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."
The company's portfolio of global Snacks power brandsled by Milka and Cadbury chocolates, Oreo and LU biscuits and Trident gumhas leading market shares in every major region, a full pipeline of innovation and an opportunity to grow its presence in the point-of-purchase "hot zone."
Kraft Foods now offers dozens of brands of chocolate, gum, candy, and snack-size cookies, crackers and nuts through multiple distribution channels, from traditional groceries to convenience stores.
Complementing the company's snacks portfolio are regional and local brands in the beverage, grocery, cheese and convenient meals categories. Roughly 80% of these "heritage" brands hold No. 1 or No. 2 positions in their respective categories and are household names among consumers who tend to be extremely brand loyal, the company said. They also carry high margins and generate strong cash flow.
This combination of global powerhouse snacks brands and 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, it said.
More than half of Kraft Foods' revenue now comes from markets outside of North America, such as Brazil, China, India and Mexico, where GDP and demand growth are strongest. Accordingly, 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 EPS growth of 9 to 11%," said Tim McLevish, CFO. "Delivering on these commitments will make Kraft Foods a sustainable top-tier performer in the global food industry."
Northfield, Ill.-based Kraft Foods is building a global snacks powerhouse and an portfolio of brands. With annual revenues of approximately $48 billion, the company is the world's second largest food company, making products for billions of consumers in approximately 170 countries. The portfolio includes 11 iconic brands with revenues exceeding $1 billion: Oreo, Nabisco and LU biscuits; Milka and Cadbury chocolates; Trident gum; Jacobs and Maxwell House coffees; Philadelphia cream cheeses; Kraft cheeses, dinners and dressings; and Oscar Mayer meats. Approximately 70 brands generate annual revenues of more than $100 million.
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