NORTHFIELD, Ill. -- Kraft Foods Inc. reported its 2005 results and announced an expanded restructuring program as part of its Sustainable Growth Plan. Fourth-quarter results reflected solid momentum in several areas including better price realization, improved U.S. market shares, strong product mix and new product contributions, the company said.
The Northfield, Ill.-based food, beverage and snack maker also announced a plan to cut an additional 8,000 jobs, or 8% of its workers, and close 20 production plants worldwide, said the Associated Press. Kraft [image-nocss] is in the midst of a three-year cost-cutting program begun in early 2004 that has laid off 5,500 workers and shuttered 19 plants. The latest moves would result in a total of about 13,500 layoffs and nearly 40 closed facilities by the end of 2008. When complete, Kraft said the cuts should save $700 million annually, bringing its total savings to $1.15 billion.
Further cost reduction is a necessity in the current environment, CFO Jim Dollive told analysts during a conference call.
"While 2005 was a difficult year for Kraft and several of the challenges we faced will continue in 2006, I am pleased by our progress in many areas, particularly in our fourth quarter U.S. market shares," CEO Roger K. Deromedi said in a press release. "The actions we've taken over the past two years have improved our Brand Value propositions and are enabling us to drive out costs even more aggressively."
In the fourth quarter and on the full year, the company made good progress against its Sustainable Growth Plan in several key areas:
Top-line growth consistent with guidance. Reported revenue growth of 10% in the fourth quarter and 6% for the full-year represents approximately 3% growth in ongoing constant currency revenues in both periods. Improved U.S. market share performance. For the company's top 25 categories in the U.S., aggregate dollar market share including Wal-Mart was up 0.4 percentage points (pp). in the fourth quarter, the company's best quarterly performance in over three years. For the full year, aggregate dollar market share was up 0.1 pp, impacted earlier in the year by pricing actions, but overall continuing a solid turnaround in performance that began in mid-2004. Positive product mix. The mix contribution to revenue growth was 2.7 pp on the quarter and 2.2 pp on the year, with six of seven business segments delivering positive mix in both periods, reflecting increased focus by the organization on revenue versus volume growth. Strong new product results. New product momentum continued in the quarter, resulting in full-year revenues of about $1.5 billion. Most notably, the 2005 launch of the South Beach Diet product line exceeded the company's expectations, achieving about $170 million in 10 months. Favorable restructuring results. The cost restructuring program announced in January 2004 remained on track, with fourth-quarter and full-year savings in-line with expectations, while charges were favorable to previous projections.However, two primary factors offset this progress:
Higher commodity costs. Commodity costs were up approximately $200 million versus prior year in the fourth quarter, resulting in a full-year increase of more than $800 million. Pricing actions only partially offset the impact of these higher costs in 2005, as the company's price increases generally lagged the related cost impacts, and the company made strategic decisions not to price certain brands in order to maintain competitiveness. Flat volume. Fourth-quarter volume was down approximately 2%. Factors contributing to the volume softness included the company's focus on mix improvement, its SKU reduction program, the discontinuation of slower-moving and lower profit product lines and the impacts of pricing and competition.Fourth quarter net revenues were $9.7 billion, up 10% versus prior year. In addition to the benefits from favorable currency and an extra week, growth was driven by pricing in multiple categories and countries and positive mix across most of the portfolio, partially offset by the impact of divestitures.
Revenue growth was particularly strong in U.S. Beverages and U.S. Convenient Meals. For the full year, revenues were up 6.0% to $34.1 billion, reflecting pricing, positive mix and currency, in addition to the benefit of the extra week. Full-year ongoing constant currency revenues were up 5%.
Operating income was essentially flat to prior year at $1.2 billion in the fourth quarter.
For the full year, commodity costs increased more than $800 million versus the prior year. Full-year consumer marketing spending increased approximately $130 million versus the prior year.
Net earnings were up 14.2% to $773 million in the fourth quarter, and up 8.8% to $2.9 billion on the year. Earnings per share were up 15% in the fourth quarter to 46 cents, while full-year earnings per share were up 11.0% to $1.72.
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