As part of the separation that took place in October, Kraft Foods Inc. spun off Kraft Foods Group, Inc., which will hold Kraft Foods’ North American grocery business. Following the spin-off, Kraft Foods Inc. was renamed Mondelez International, Inc.
Featuring brands such as Kraft, Maxwell House, Oscar Mayer, Planters and Jell-O, Kraft Foods Group will be North America’s fourth-largest consumer packaged food and beverage company, with revenues of approximately $19 billion in 2011. Ten of the company’s brands achieved sales of $500 million or more in 2011, while an additional 17 brands posted sales of $100 million or more in 2011. Approximately 80% of Kraft Foods Group’s revenue comes from categories in which the company holds the No. 1 or No. 2 market position.
Kraft Foods Group said future growth will be driven by a four-part strategic plan: making its people its competitive edge, executing with excellence, “turbocharging” its iconic brands and redefining efficiency.
Meanwhile, Mondelez International plans to capitalize on its competitive advantages. Mondelez will include Kraft’s Nabisco business, which features such brands as Chips Ahoy!, Honey Maid, Oreo, SnackWells, Triscuits and Wheat Thins.
“Mondelez International is a unique investment vehicle with several competitive advantages,” Irene Rosenfeld, chief executive officer, told analysts at the Barclays Back to School Conference held Sept. 6 in Boston. “They include leading positions in fast-growing categories; an advantaged geographic footprint; a portfolio of the world’s favorite snacks brands; an excellent new products pipeline with a proven track record of innovation; strong routes to market with significant barriers to entry; and world-class talent and capabilities.”
Ms. Rosenfeld said Kraft loves snacks because they “offer very attractive growth prospects because they’re aligned with many key consumer trends.”
She said Mondelez will have about $36 billion in revenue and about three quarters of sales will come from fast-growing snacks categories — biscuits, chocolate, gum and candy.
While Mondelez will be a global snacks business, North America is expected to play a critical role in driving top- and bottom-line growth.
“In North America we expect to deliver solid growth with significant opportunities to improve margins,” Ms. Rosenfeld said. “While North America represents only about a fifth of our global sales, our business here will continue to be a top-ten food company, with about $7 billion in revenue. And with the spin-off of grocery, we will be a pure play in snacks.”
On the transaction front, Kraft in late August sold a controlling stake in the Back to Nature brand food business to Brynwood Partners VI L.P. Kraft still will hold a minority stake in the business and will have board representation in the joint venture.
The company also was active introducing new products, ranging from easy meal solutions to new beverages with energy benefits.
Kraft expanded its meal solutions offerings with several news products in 2012, including Kraft Sizzling Salads Dinner Kit, Kraft Fresh Take and Velveeta Cheesy Skillets Dinner Kit. The Kraft Fresh Take is made from a blend of Kraft natural cheeses and breadcrumbs seasoned with spice blends such as rosemary and roasted garlic, chili lime and panko, and southwest three cheese.
In the beverage aisle, Kraft added MiO Energy Liquid Water Enhancer in black cherry and Green Thunder flavors, as well as Crystal Light – Energy Powdered Drink Mix in three varieties: citrus, grape and Peach Mango on the Go.
Better-for-you offerings also played a large role in Kraft’s new product introductions in 2012. The company launched belVita Breakfast Biscuits in the United States. The crunchy biscuit baked with whole grains was a popular product in Europe before coming to the United States, according to Kraft. Also on the health front, Kraft launched Kraft MilkBite Milk and Granola Bars, and expanded the Philadelphia Cooking Crème line with two varieties: Reduced Fat Italian Cheese and Herb, and Reduced Fat Savory Garlic. Kraft’s Lunchable Lunch Combinations line expanded with more varieties featuring fruit, including Turkey + Cheddar Flatbread Sandwich with applesauce, Ham + American Flatbread Sandwich with applesauce, and BBQ Chicken Dippers with pineapple tidbits in 100% pineapple juice.
Finally, several products capitalized on the indulgent trend. Kraft introduced Philadelphia Indulgence Spreads, which combine chocolate (dark, milk and white) with the rich creaminess of Philadelphia Cream Cheese.
For the six months ended June 30, overall net income at Kraft Foods was $1,842 million, or $1.04 per share, up 4% from $1,775 million, or $1.01 per share, in the same period a year ago. Net sales were $26,379 million, down narrowly from $26,451 million.
Looking to the future, Kraft Foods Group expects to deliver steady, reliable growth with a strong focus on cash flow to fund a highly competitive dividend and reinvestment in people, innovation and brand-building. The company said it will consistently aim to accomplish several goals:
• 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 e.p.s. growth;
• Mid-single digit dividend growth; and
• Free cash flow of at least 85% of net income.
Kraft Foods outlined some of its 2013 projections. Productivity improvements and overhead savings are expected to drive 2013 e.p.s. of approximately $2.60 on a GAAP basis, Kraft said. Meanwhile, free cash flow is expected to be about 70% of GAAP net income — below the long-term target of at least 85% due to an extra tax payment in 2013 of approximately $200 million.