Kraft Foods yesterday (30 January) announced that despite a 23% rise in fourth quarter earnings, the company was going to broaden its ongoing Sustainable Growth Plan by cutting an additional 8,000 jobs, approximately 8% of the workforce, and closing as many as 20 production facilities by 2008.
Under the original three-year cost-cutting programme, initiated in 2004, Kraft had announced the closure of 19 production plants with the loss of 5,500 jobs. To date, the company says that these measures have saved $260m over two years. The company says that the broadened restructuring plans will save an additional $700m in incremental pre-tax savings.
The company, thus far, has announced the closure of production facilities in Victoria, Australia and Alabama, US. Its European division will also undergo significant restructuring. Kraft said it would trim its product line, which has already been reduced by 20% since 2004, by a further 10%.
Kraft predicts that the new cuts will add $2.5bn in pre-tax costs to the original initiatives, bringing the total cost to $3.7bn.
Earnings for the October-December period totalled $773m, or $0.46 per share, and revenue rose 10% to $9.66bn. The company reported acceptable top-line growth, an improved US market share performance, positive product mix, strong new product results, solid growth in developing markets and financial results from its restructuring programme.
However, the company identified two key factors that have hampered growth. Increased production costs were driven by the high cost of commodities, which rose by $200m for the fourth quarter and $800m for the full year. These costs were only partially offset by price increases. Sales volume was essentially flat to the previous year, and fourth-quarter volume declined by approximately 2%. Kraft said that this was due to the company’s focus on mix improvement, its SKU reduction programme, the discontinuation of various product lines and the impact of pricing and competition.