Amid continued investor scepticism about the lethargic results generated by the ongoing companywide overhaul, Kraft Foods has announced the appointment of Irene Rosenfeld as CEO. Rosenfeld replaces Roger Deromedi, who has mutually agreed with the board to leave the company to “pursue other interests”.
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The management change comes as the world’s second largest food company struggles to deal with tough market conditions arising from high commodity costs, increasing competition from private label and changing consumer attitudes to health and diet. There has also been much speculation that Kraft is preparing to spin-off from its parent company the Altria Group – a possibility that now looks increasingly likely.
Deromedi, 53, had worked at Kraft for 28 years, serving as chief executive officer since 2001, a position that he shared with Betsy Holden as co-CEO until 2003.
He had been overseeing an ambitious programme to restructure operations and refocus the company’s portfolio. Earlier this year, Kraft announced a major expansion to the restructuring plan unveiled in 2004, increasing targeted annual savings from US$400m by 2006 to $1.15bn by 2008, reducing its workforce from 102,000 to 88,000 and closing 40 production plants.
Deromedi said at the CIES food conference in Paris last week that Kraft was halfway through refocusing its portfolio and had divested brands that account for approximately $1.7bn in annual sales. In total, Deromedi intended to sell brands representing 5% of the company’s $34bn annual revenue.
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By GlobalDataDespite progress in these cost-cutting measures and increased focus on high-margin core-brands, Kraft’s financial performance has lagged and sales volumes have remained flat. Addressing Kraft’s annual stockholders meeting at the end of April, Deromedi observed: “While our financial performance lagged our improving business fundamentals … I’m confident that strong execution of our guiding principles will deliver improved financial performance in 2006 and beyond.”
Announcing the new appointment, board chairman Louis C. Camilleri said of Deromedi: “As CEO of Kraft, Roger brought a global perspective, emphasised a commitment to acting responsibly, and charted a course for growth that, I believe, will benefit Kraft for years to come.”
In an effort to give the company an instant boost, the board of directors has handed the reins over to another long-time Kraft executive. Rosenfeld most recently served as chairman and CEO of the Frito-Lay division of PepsiCo, but she is no stranger to Kraft having previously spent more than 20 years at Kraft and General Foods.
“Irene is one of the most talented and respected executives in the consumer goods industry and we are thrilled that she is coming home to Kraft. She has repeatedly demonstrated her ability to drive innovation throughout her career. Her decisiveness, personal warmth, and emotional intelligence are invaluable assets. Irene has a wealth of experience in all of Kraft’s businesses and is uniquely qualified to lead Kraft during these challenging and exciting times,” Camilleri said.
That the change is linked to the company’s intention to separate from majority owner Altria was signalled by Camilleri, who is also Altria’s CEO.
“While the fundamentals of the business continue to improve, we are confident that Irene will accelerate the execution of Kraft’s growth strategy, build value for shareholders and lead Kraft when it becomes a fully independent company,” he said.
A Merrill Lynch investor note highlighted the link between Deromedi’s replacement, investor impatience with lethargic results and the imminent spin-off: “While we believe that former CEO Deromedi has made substantial progress with the difficult tasks of restructuring and repositioning the company, we believe that investor patience has been wearing thin as financial results have lagged expectations. We believe that the board was likely looking for new leadership ahead of the anticipated spin-off of Altria’s 86% stake in Kraft, and that Ms Rosenfeld brings an in-depth understanding of the company,” it stated.
However, analysts do not see the change at the top driving any tangible modification to the company’s restructuring plans.
“While we cannot rule out the possibility that Ms Rosenfeld may unveil another restructuring programme or earnings rebasing, as is often the practice of incoming CEOs in the food industry, we believe that her mandate from the board is to execute on substantial restructuring programmes already underway,” Merrill Lynch analysts Leonard Teitelbaum and Eric Serotta observed.
Nor do Teitelbaum and Serotta see any likely link between Deromedi’s departure and Kraft’s second quarter results, due to be reported in mid-July. “We believe that the process of bringing Ms Rosenfeld back to Kraft has likely been in the works for several months. Also, with less than a week left in the second quarter, we believe that the company would have used this opportunity to pre-announce if EPS were tracking significantly below expectations,” the Merrill Lynch analysts observed.
Immediately following the announcement, Kraft shares rose six cents to $31 at close of trade yesterday. Following last year’s disastrous 21% decline in share value, Kraft shares have regained some ground this year – remaining flat since the company went public in 2001 at the initial price of $31.
