LeaderShift Blog

Kraft Foods Inc., stung by sluggish sales and skyrocketing commodity costs for everything from coffee to hot dogs, said Monday that it would cut another 8,000 workers and close 20 more factories worldwide.

The cuts follow Kraft's announcement in 2004 that it would cut 5,500 jobs and close 19 factories, and it comes as the nation's largest foodmaker battles higher costs for ingredients and stiffer competition from generic store brands that have become more appealing to consumers watching their budgets.

The Northfield-based manufacturer of Kraft cheese, Oscar Mayer hot dogs and Oreo cookies hopes the latest cuts will help it save $750 million a year, in addition to the $450 million annually from the prior reductions. The two rounds of cuts will cost $3.7 billion in restructuring charges, the company said.

Kraft said the move was necessary to counter the drain on profit from the higher costs, while sales volume is flat.

"In the first half of the year, we saw our category growth rates slow down in the U.S. as higher prices impacted consumption," said Kraft Chief Executive Roger Deromedi.

Kraft's parent, Altria Group Inc., has said it plans to spin off the food company once tobacco litigation facing its Philip Morris USA unit in Florida and Washington, D.C., is settled.

Kraft's current slowdown is a reminder of the sharp drop in sales that occurred in 2003, when consumers revolted against hikes in cheese prices, allowing store brands to capture market share.

This time the drop isn't as sharp, said Deromedi, who expects profit margins to improve in 2006. But he also said the margins would not return to the levels seen in 2000.

"This is a different environment," Deromedi said.

Kraft, like other food companies, has been hit hard by rising commodity costs. It spent $800 million more on raw materials in 2005 than it did the previous year. Kraft also can't pass through price increases to consumers as easily, putting more pressure on profit margins.

Deromedi said the first round of cuts saved 12 percent more than estimated. Of the 19 plants closed, eight were in North America. One was located in Niles, resulting in the elimination of jobs for 393 people.

In the second round, Kraft said it intends to close plants in Australia and Hoover, Ala., but did not announce the other facilities targeted. The planned closures represent 8 percent of the company's workforce and 11 percent of its factories. Worldwide, Kraft operates 175 plants, including 77 in North America, and employs 94,500 workers.

In Illinois, Kraft operates nine plants, including Nabisco plants on the South Side and in Naperville. It employs 8,500 workers in the state, including 1,500 at its headquarters.

Wall Street cheered the cuts in after-hours trading, driving Kraft's stock up 70 cents, to $30.70. Shares had closed Monday on the New York Stock Exchange at $30, up 71 cents.

Many analysts participating in a conference call with Kraft executives Monday said they were surprised at the size and timing of the new round of restructuring, considering the first program wasn't complete.

"How inefficient is the structure and the business if you are able to more forward and take so much versus the first program?" asked Eric Katzman, an analyst with Deutsche Bank.

Deromedi said they had found "additional opportunities" for savings that "two years ago we didn't think we could get at."

He said the company has cut the number of items it sells in the past two years by 20 percent and expects to cut another 10 percent this year.

Bob Boutin, executive vice president of Knechtel Laboratories in Skokie, said Kraft is "still trying to figure what they want to produce and what they don't want to produce.

"They want to have a healthy image, but the healthy stuff is not making the money that the bad stuff does because the costs are so much higher," he said. "They were planning to dump Kraft Caramels and Marshmallows until somebody took another look and saw the amount of money it makes."

But Deromedi said the company isn't focusing on cuts alone. It also is pushing hard for product introductions, which last year accounted for $1.5 billion in new revenue, about 50 percent higher than in recent years.

"The South Beach Diet product line exceeded our expectations, with over $170 million in revenues, and was one of the most successful new product ranges in the food industry last year," he said.

Deromedi also cited the introduction of an Oscar Mayer Roast Beef deli brand that generated $125 million in sales, and new pizzas that produced $200 million in sales as proof.

Kraft announced the cuts in its fourth-quarter earnings call. It reported Monday that profit for the fourth quarter ended Dec. 31 rose 23 percent, to $773 million, or 46 cents a share, up from $628 million, or 37 cents a share, a year earlier.

Revenue rose to $9.66 billion from $8.78 billion a year ago.

For the year, net income declined to $2.63 billion, or $1.55 per share, from $2.66 billion, or $1.55 per share, in 2004. Revenue rose 6 percent, to $34.11 billion.

Lance Announces Hiring of Rick D. Puckett as Executive Vice President and Chief Financial Officer

Lance, Inc. today announced that Rick D. Puckett will be joining the Company as Executive Vice President and Chief Financial Officer on January 30, 2006. Mr. Puckett, a 30-year veteran in corporate financial management, succeeds Clyde Preslar, who left the company in August of 2005 to pursue another opportunity.

Lance President and Chief Executive Officer, David V. Singer, commented: "We are excited to have Rick join our senior management team. His depth of experience, knowledge of the industry and proven leadership capabilities will play an important roll in defining Lance's future."

Prior to joining Lance, Mr. Puckett served as Executive Vice President, Chief Financial Officer and Treasurer for United Natural Foods, Inc., the country's largest wholesale distributor of natural and organic products, headquartered in Dayville, Connecticut. Before joining United Natural Foods in 2003, Mr. Puckett spent five years with Suntory Water Group, Inc., a bottled water distribution company based in Atlanta, Georgia, where he held positions as Chief Financial Officer and Chief Information Officer. Previous to his position at Suntory, Mr. Puckett held senior financial positions with consumer products distribution and telecommunications manufacturing companies.

Lance, Inc. manufactures and markets snack foods throughout most of the United States and other parts of North America.

Cadbury Sells Beverage Unit to Two Firms

LONDON, Nov. 21 - Another set of well-known brands was snapped up by private equity buyers on Monday when Cadbury Schweppes agreed to sell its European beverages unit, including the Orangina and Schweppes soft drinks, for 1.85 billion euros ($2.2 billion).

Lion Capital and the Blackstone Group will take control of Orangina, a pulpy, bubbly orange drink popularized in the early 1970's. The two groups will also buy the Schweppes line in Europe. Schweppes's founder, Jacob Schweppe, first distributed carbonated mineral water from a London factory in 1790.

Also included in the sale are regional soft drinks like the Pampryl juice brand in France and La Casera, a Spanish producer of a carbonated lemonade that is mixed with wine or beer. The Schweppes brand soft drinks will continue to be produced and sold by Cadbury in the United States, Australia, Mexico and Canada.

The sale allows Cadbury to concentrate on its confectionary business in Europe and its American soft drink brands, which include 7Up and Dr Pepper, the company said. It will use the proceeds to reduce the group's net debt, which was £4.3 billion ($7.8 billion) in June.

Cadbury has struggled for growth in its drinks business in Europe, even after committing cash to buy brands. It tried and failed to sell all of Schweppes in 1999. For the fiscal year ended in January, the European drinks group had £653 million in sales ($1.2 billion), down 5.6 percent from the year before, and operating profit of £116 million.

"We bring a real focus on the business," Lyndon Lea, a partner at Lion Capital, said. "We want to spend more" on the brands, he said. The group will be run as a stand-alone business, with Javier Ferran, a Lion Capital director and former Bacardi Group executive, as chairman. Blackstone and Lion Capital are taking equal stakes in the business.

The two private equity groups beat out rivals by offering slightly more than market expectations, and having the financing in place to do the deal quickly. Lion has taken control of other consumer brands in the past, including Jimmy Choo shoes and Perrier Jouët Champagne.

The deal needs the approval of European regulators and employee representatives in France, Germany and Belgium. Lion expects the transaction to close early next year.

Reckitt to Buy Boots Unit to Gain Clearasil, Nurofen

Oct. 7 -- Reckitt Benckiser Plc, the maker of Lemsip cold-relief capsules, won an auction to buy Boots Group Plc's health-care unit with a 1.93 billion-pound ($3.43 billion) offer, gaining products including Clearasil acne medicine.

Reckitt, based in Slough, England, beat out companies including GlaxoSmithKline Plc and Bayer AG. Reckitt, also the maker of Lysol disinfectants and Veet hair remover, will spend 150 million pounds restructuring the business and expects annual savings of 75 million pounds in three years, it said today in a statement.

The transaction will almost double health-care revenue at Reckitt, which is making its first acquisition since 2003. The price is higher than for equivalent transactions such as Bayer's purchase of the Roche Consumer Health business in 2004 and Novartis AG's acquisition of Bristol-Myers Squibb Co. non- prescription drugs including Excedrin earlier this year.

``Their appetite was perhaps stronger than the others in the auction process and that was reflected in the price,'' said Brian Gallagher, who manages $1.3 billion at Gartmore Investment Management in London. ``They've got to go away and deliver now.''

Reckitt shares rose 50 pence, or 2.9 percent, to 1,758 pence at 9:16 in London. Chief Executive Bart Becht said on a conference call that Reckitt has been looking at the Boots business for at least 10 years.

Boots gained 8.5 pence, or 1.4 percent, to 630.5 pence. The Nottingham, England-based company, which earlier this week agreed to merge with Alliance Unichem Plc, said it plans to return 1.43 billion pounds of the proceeds to investors via a 200 pence-a-share special dividend.

Cost Savings

``From Reckitt's point of view, it's a perfectly sensible deal,'' said Richard Workman, an analyst at Oriel Securities Ltd. in London. ``There are clearly some cost-saving opportunities and they have a good track record at generating those savings.'' Workman has a ``hold'' rating on Reckitt.

Reckitt is paying 3.6 times revenue for the unit, which includes Nurofen painkillers and Strepsils throat lozenges, Becht said. Bayer paid 2.4 times sales for the Roche business, and Novartis paid 2.6 times sales for the Bristol-Myers Squibb unit.

``We're paying for a top-quality portfolio,'' Becht, 49, said on the call. ``Excedrin is the No. 5 brand in the U.S. Here we're talking about Nurofen being the No. 1 analgesic in Europe, Strepsils being No. 1 globally and Clearasil being No. 1 globally.''

Reckitt, the world's largest maker of kitchen and bathroom cleaners with brands including Dettol and Easy-Off, wants to expand its health and personal-care business, which brings in about 15 percent of sales. Boots, the biggest U.K. drugstore operator, is selling its drug-making unit ahead of its planned merger with Alliance Unichem.

Earnings Enhancing

``An opportunity like this doesn't come along every day,'' Reckitt Chief Financial Officer Colin Day said on the call. ``We're comfortable with this deal, we know this business and we believe we know what to do. This wasn't an impulse decision.''

Becht said the transaction will be ``immediately earnings enhancing'' before the costs for restructuring the business. The company expects to cut working capital at the unit by 130 million pounds a year by 2008, he said.

In July, Reckitt raised its goal for annual profit on sales of new products such as Cillit Bang degreaser. Earnings have gained every year since 1999, when the company was created by Reckitt & Coleman Plc's purchase of Benckiser NV.

The company plans to continue with its 300 million-pound-a- year share buyback program in 2006, according to the statement.

Pharmacy Group

Boots put the unit up for sale to focus on its 1,400 U.K. drugstores, where revenue is falling as competition from rivals including supermarkets intensifies. Proceeds in excess of 400 million pounds will be returned to investors, Boots said Oct. 3 when it announced plans to merge with Alliance Unichem.

``This disposal allows us to focus on our plans to create a world class pharmacy-led health-care group,'' Boots Chief Executive Richard Baker said in a statement.

Boots expects the sale to complete in ``early 2006'' and will pay the dividend ``as soon as practicable thereafter.''

The Boots unit had a pretax profit of 87.8 million pounds on sales of 522.7 million pounds in the year ended March 31, making it the company's most profitable.

Reckitt Benckiser was advised on the transaction by Merrill Lynch & Co. Goldman Sachs Group Inc. acted for Boots.

Unilever to Sell 2 Hair Care Brands

Unilever, the owner of Dove soap, Magnum ice cream and Surf detergent, is understood to be selling two hair care brands in the US as part of its drive to refocus the wide-ranging consumer products group and revive sales.

The Anglo-Dutch company has sent out an information memorandum on Finesse and Aquanet to potential buyers and is thought to have hired Deutsche Bank to handle a possible sale. Finesse, which makes shampoo and other hair products, and Aquanet hair spray could raise about $100m (pounds 56m), according to a banker quoted by Dow Jones news wire. The move comes a week after Unilever announced a strategic review of its west European frozen food business, which could lead to a sell off of Birds Eye in the UK, Findus in Italy and Iglo, which operates in Germany, the Netherlands and other northern European countries. The assets could raise EUR2bn (pounds 1.35bn).

Unilever does not disclose sales numbers for individual products, but it said in its 2004 annual report that sales of US-based hair products stagnated because of 'portfolio problems'.

Unilever's broad review comes as large consumer groups are shedding non-core assets. HJ Heinz is selling its seafood and frozen food brands in Europe. Sara Lee is in talks with buyers over its European apparel business and Pernod Ricard, the French drinks group, is selling Allied Domecq's quick service restaurants division, which it acquired earlier this year as part of its takeover of the UK drinks group.

The Right Guard deodorant business, which is operated by The Gillette Co., is being put up for sale, according to a report from The Daily Deal.

Procter & Gamble Co. is putting the business up for sale to win approval for its $57 billion purchase of the Boston-based manufacturer and retailing giant, said the report.

Gillette (NYSE:G) manufactures Right Guard, which has annual sales of about $150 million.

The auction for the business is slated for next month and is expected to sell for $225 million to $300 million, said the Deal.

Procter & Gamble (NYSE: P&G) spokesman Doug Shelton said he could not comment with regard to the report.

The Deal said likely bids may come from consumer products companies such as Unilever, Colgate-Palmolive Co., Church & Dwight Co., L'Oreal SA and Beiersdorf AG.

It's been expected that P&G would sell Right Guard to win Federal Trade Commission approval for its Gillette purchase because combined the companies have a market share of 43 percent in men's deodorant, the Deal said, citing data from Information Resources Inc.

• Immediately accretive to the Fund's cash available for distribution,based on the number of Units being issued in connection with the acquisition
• Conservative funding structure with reduced leverage
• Growth in KCP's contract manufacturing and retailer branded capabilities
• Enhanced presence in the expanding aerosol category, strengthening
• KCP's position as a supplier of aerosol packaged products
• Existing management team at APG to remain with KCP post-acquisitionand convert a portion of their current stake in APG into KCP units

In addition to KCP's existing currency hedge arrangements, the Fund intends to enter into certain additional currency hedge contracts, consistent with its current strategy, designed to significantly protect the Fund's distributions from currency fluctuations and further enhance the Fund's ability to meet unitholder expectations.

With 15 vertically integrated manufacturing facilities strategically located throughout North America, KCP (operating as KIK Custom Products) is one of North America's largest custom manufacturers of both National Brand and Retailer Brand consumer products. KCP's product lines include Laundry, Household Cleaners, OTC Medicated and Health and Beauty Care, all supported by KCP's in-house technical expertise and value-added services.

KCP produces leading National Brand products for Fortune 500 companies including Gillette, Johnson & Johnson, L'Oreal, Procter & Gamble, Unilever, Dial, Colgate-Palmolive, SC Johnson and 3M, and Retailer Brand products for top retailers including Albertson's, Kroger, Loblaws, Safeway, Target, Wal-Mart, Walgreens, and food service leader Sysco.

NEW YORK - Bristol-Myers Squibb Co. said it reached an agreement to sell its U.S. and Canadian consumer medicines business to Novartis for $660 million in cash. The division, which reported $242 million in sales last year, includes Excedrin for headaches, the cold and flu medicine Comtrex and Keri moisturizers. Novartis' consumer products division, which reported second-quarter sales of $1.8 billion on Thursday, includes Ex-lax laxative, Maalox antacid, Theraflu adult cold and flu treatment and Triaminic for children's coughs and colds.

Novartis spokesman Nehl Horton said the deal will improve the company's over-the-counter offering and give it more clout with distributors.

He noted that Excedrin is one of the top 10 selling brands in the over-the-counter market. Horton said the brand had sales of $161 million last year, and with additional marketing power, it can be a real growth driver for Novartis' consumer division.
Bristol-Myers has been shedding non-core assets as part of a strategy to focus on developing drugs for just 10 disease areas.

Earlier this year, it announced that it was seeking a buyer for the U.S. and Canadian consumer business and sold a cancer drug distribution unit. Three years ago, it sold the Clairol hair care line.

Bristol-Myers shares rose 17 cents to close at $25.07 on Thursday. Novartis shares traded in the United States rose $1.08, or 2.3 percent, to close at $48.28.

On Thursday, Novartis, which has its North American headquarters in East Hanover, posted a second-quarter net profit of $1.65 billion - up 9 percent because of strong sales of its prescription drugs.
The company earned $1.51 billion in the same period last year.

Second-quarter sales rose 12 percent to $7.8 billion from $6.97 billion in the second quarter of 2004, as strong sales across all divisions offset restructuring costs.
Second-quarter profits were higher than analysts' expectations.

Net profit for the first six months of the year rose 12 percent to $3.12 billion from $2.78 billion.

"In the first half-year, our broad health care portfolio delivered good results," chairman and CEO Daniel Vasella said. "Overall, we are on track to achieve our objectives for 2005."

The company expects almost 10 percent growth in sales for the full year and a higher operating profit than in 2004, it said.

Procter & Gamble Co. said that after its acquisition of Gillette Co. closes this fall, two Gillette executives will assume management posts while several other officers will help with the transition.

P&G said Mary Ann Pesce, currently president of Gillette's global personal care division, will become president of new business development. A. Bruce Cleverly, president of Gillette's global oral care group, will be appointed president of the combined company's global oral care business.

P&G also said Charles V. Bergh, P&G's president on special assignment, will be named president on special assignment of blades and razors. Global oral care president Charles E. Pierce will become president of P&G oral care, P&G added.

P&G's planned $57 billion blockbuster merger with Gillette is pending final approval from the Federal Trade Commission after European regulators and shareholders of both companies cleared the deal earlier this month.

Colgate Palmolive Co. is closing a historic soap-making plant in Kansas City, KS, that currently employs around 250 people. The New York-based company said in a statement it is outsourcing the production of bar soap to "an established U.S. third party starting in third quarter 2005." The company said it will close the plant in late 2006 when all production had been switched to the new provider.

Colgate said the move is part of a four-year restructuring announced in December. With the personal products industry struggling with higher costs, the company said it would cut its worldwide work force by about 12 percent, or 4,400 jobs, and close a third of its factories during the four-year period.