Kraft Foods has said that productivity gains, which were boosted by product-mix improvements, have begun to flow through to its bottom line.
The company today (15 February) booked a leap in fourth-quarter net income, which rose to US$710m for the last three months of 2009, up from $180m a year earlier, when the company’s result was impacted by restructuring charges.
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Gains were driven by Kraft’s cost-cutting and productivity efforts, the company said in a statement.
Excluding the impact of foreign exchange, Kraft’s organic sales grew just 0.4% in the quarter.
Addressing analysts and investors at the CAGNY conference in Florida, chairman and CEO Irene Rosenfeld said sales volumes had been dented by the economic downturn and the company’s moves to shed unprofitable lines.
“The challenging economic environment has led to weakening consumption around the world. We are expecting a continuation of these trends at least until the back half of 2010,” she said.
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By GlobalDataHowever, she also emphasised that Kraft has seen a sequential improvement in its volume nix throughout 2009 as the group has looked to lower volumes but at higher profitability.
Improved product mix has allowed Kraft to improve its operating margin during the period, Rosenfeld suggested. Kraft’s 2009 operating income margin expanded 450 basis points to 13.7%.
Looking to the coming year, Rosenfeld said that Kraft expected a minimal impact from the company’s moves to stop selling cerain lines.
“We’ve essentially completed our product-line discontinuations and we now have a solid base from which to grow,” she said.
Rosenfeld insisted growth would be fuelled by investment in advertising and brand building.
“We avoided chasing certain US competitors who are chasing unprofitable, unsustainable volumes,” Rosenfeld said.
“Instead we chose to invest in long-term sustainable brand building by increasing our fourth-quarter marketing and consumer advertising,” she said. “We will now be shifting the balance back to NPD from value-based marketing.”
During the fourth quarter, Rosenfeld said that advertising and consumer spend increased to 7.2% of total revenues as the company looked to build its brands in the US and overseas.
