Kraft extends layoffs, closings

THE BALTIMORE SUN

CHICAGO -- Preparing for the day when it again will be an independent company, Kraft Foods Inc. announced yesterday that it would cut 8,000 more workers and close 20 more factories around the world.

The cuts, which follow the 5,500 layoffs and 19 factory closings last year, are coming as the nation's largest food maker battles higher costs for ingredients and stiffer competition from generic store brands that have become more appealing to consumers watching their budgets.

The manufacturer of Kraft cheese, Oscar Mayer hotdogs and Oreo cookies said it hoped the new cuts would help it save $750 million a year - in addition to the $450 million from earlier cuts.

Both rounds of cuts will cost the company $3.7 billion in restructuring charges, the company said.

Kraft said the cuts were needed to counter the drain on profits from the high cost of coffee and meat packaging, among other expenses, while sales volume is dropping.

"Higher pricing has impacted volume, both in North America and internationally," said Kraft chief executive Roger Deromedi, who could become the first CEO of the newly independent Kraft later this year.

"In the first half of the year, we saw our category growth rates slow down in the U.S. as higher prices impacted consumption," Deromedi said.

Kraft's parent, Altria Group Inc., has said it plans to spin off the food company once it settles tobacco litigation facing its Philip Morris USA unit in Florida and the District of Columbia.

Kraft's slowdown was a reminder of the sharp drop in sales that occurred in 2003 when consumers revolted against boosts in cheese prices, allowing store brands to capture market share.

This time the drop isn't as sharp, Deromedi said, adding that profit margins should improve this year.

But he also said the profit margins would not return to the levels seen in 2000.

"This is a different environment," he said.

Deromedi said the first round of cuts saved 12 percent more than estimated. Of the 19 plants closed, eight were in North America. One of those plants was located in Niles, Ill., resulting in the elimination of jobs for 393 people.

In the second round, the company intends to close plants in Broadmeadows, Victoria in Australia and Hoover, Ala., but did not announce the other facilities it plans to close. The planned closures represent 8 percent of the company's work force and 11 percent of its factories. Worldwide, Kraft operates 175 plants, including 77 in North America, and employs 94,500 workers.

In Illinois, the company operates nine plants, including a large Nabisco plant in Naperville. It employs 8,500 workers in the Chicago area, including 1,500 at its headquarters.

In after-hours trading, the company's stock rose 2.3 percent to $30.70. The stock had closed yesterday on the New York Stock Exchange at $30, up 71 cents, or 2.4 percent.

Kraft announced the closures in its fourth-quarter earnings report. It reported yesterday that profit for the fourth quarter ending Dec. 31 rose 23 percent to $773 million, or 46 cents a share, up from $628 million, or 37 cents a share, a year earlier.

Revenue rose to $9.66 billion from $8.78 billion a year ago.

For the year, net income declined 1.2 percent to $2.63 billion, or $1.55 a share, from $2.65 billion, or $1.55 a share. Revenue for the year rose 6 percent to $34.1 billion, from $32.1 billion.

John Schmeltzer writes for the Chicago Tribune.

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