Kraft to lay off another 8,000 workers

Tuesday, January 24th 2006, 12:06 pm
By: News On 6

CHICAGO (AP) _ Two years after Kraft Foods Inc. launched a broad cost-cutting effort to boost profits, the nation's largest food manufacturer has decided it must trim even more.

The maker of Oreo cookies and DiGiorno pizza on Monday announced a three-year plan to slash an additional 8,000 jobs, or 8 percent of its workers, and close 20 production plants worldwide.

The announcement came even as Kraft reported fourth quarter financial results that surpassed Wall Street's expectations.

Kraft is in the midst of a three-year cost-cutting program begun in early 2004 that has laid off 5,500 workers and shuttered 19 plants. The latest moves would result in a total of about 13,500 layoffs and nearly 40 closed facilities by the end of 2008.

When complete, Kraft said the cuts should save $700 million annually, bringing its total savings to $1.15 billion.

``Further cost reduction is a necessity in the current environment,'' Chief Financial Officer Jim Dollive told analysts during a conference call.

The soaring cost of meat, coffee, packaging and other commodities has eaten away at the bottom line of Kraft and other food companies over the last year. Kraft on Monday said its 2005 commodity costs soared more than $800 million above what it paid in 2004.

CEO Roger Deromedi said Kraft has raised prices to offset higher commodity costs, which has helped, but the higher prices also have sapped volume.

Some analysts said the size of the restructuring is alarming given how deep Kraft has already cut into operations.

``It's a very large number. It almost feels like the entire kitchen sink went into this restructuring program,'' Citigroup Inc. analyst David Driscoll said.

Deromedi said the original restructuring is going well and is on pace to produce $450 million in annual cost savings by year's end _ $50 million more than projected. But he said Kraft continues to find room for downsizing.

``As we continue to simplify the organization ... there was significant additional opportunities we found that, I'll be honest, two years ago we didn't think we could get at,'' Deromedi said.

He said Kraft would use the savings to strengthen its brands. The company has been working to improve its product mix by shedding low-margin items in favor of more profitable ones, healthier offerings.

Kraft said it would trim its product line by another 10 percent, atop a 20 percent cut since 2004. The company said it intends to shut plants in Broadmeadows, Victoria in Australia and Hoover, Ala., but did not announce the other facilities it plans to close.

Kraft is 86 percent owned by Altria Group Inc., the parent of tobacco company Philip Morris. Altria has repeatedly stated it plans to spin off Kraft once it settles outstanding litigation hanging over the tobacco business. Kraft officials did not discuss a potential spinoff during Monday's conference call.

Kraft's 2004 restructuring came just after a shake-up in top management that followed more than a year of disappointing sales and earnings. At the time, Kraft executives blamed the poor results on American consumers' increased health concerns, which had put the entire packaged food industry under severe pressure to change.

The company's troubles cost marketing expert Betsy Holden her job of co-CEO and head of North American operations in December 2003. That left Deromedi solely in charge.