CEO: Kraft in a 'much stronger position' to grow
Kraft Foods Inc. Chief Executive Officer Irene Rosenfeld said that the U.S. economy is growing at a slower pace than the world's second-largest food company anticipated.
"The recovery in the U.S. has been a little slower than we might have expected," Rosenfeld, 57, said today in an interview on Bloomberg Television's "InBusiness" with Margaret Brennan. "Our business is well-situated in difficult economic times."
Kraft, based in Northfield, generates about half of its sales from North America after buying U.K. confectioner Cadbury Plc for more than $20 billion this year. North American sales declined 1.3 percent in the second quarter, excluding acquisitions and other items, as Kraft lost market share in cheese and cookies. U.S. consumers are restricting spending amid unemployment of more than 9 percent.
Kraft fell 26 cents to $31.33 at 12:02 p.m. in New York Stock Exchange composite trading. The shares had climbed 16 percent this year through yesterday.
U.S. economic growth will slow to 2.5 percent next year from a projected 2.7 percent this year, according to the median forecast of 59 economists surveyed by Bloomberg News this month.
Last month, Kraft lowered its so-called organic net revenue growth forecast for 2010 to 3 percent to 4 percent, down from at least 4 percent previously. Rosenfeld plans to increase promotional spending in the third quarter to try to increase sales and win back market share.
Warren Buffett StakeWarren Buffett, Kraft's biggest investor, trimmed his stake 1.4 percent last quarter, while Nelson Peltz's Trian Fund Management, Jana Partners LLC and Eton Park Capital Management shed their holdings entirely."They did overpay for Cadbury, and I still think their portfolio is too broad and hard to manage," said David Kolpak, who helps oversee $43.7 billion at Victory Capital Management in Cleveland and has held Kraft shares previously. "They will continue to underperform food companies like General Mills and PepsiCo."A "number" of investors have expressed skepticism over the cost savings and revenue benefits from the Cadbury acquisition, Rosenfeld said in the interview today."I understand there is skepticism about our ability to realize value from a combination of Kraft and Cadbury," Rosenfeld said. "Time will tell. As we deliver against the targets we have laid out, I think we will make our case quite clearly."'Stronger Position'Last month, Kraft increased its estimate for cost savings from the Cadbury integration to at least $750 million from $675 million, and raised the anticipated cost of merging the companies to approximately $1.5 billion from $1.3 billion.Kraft is "in a much stronger position to grow" after the purchase of Cadbury, Rosenfeld said.The acquisition created the world's biggest confectioner, adding Cadbury's Creme Eggs to Kraft brands including Toblerone chocolate.Organic revenue growth, which excludes items such as purchases, will be 5 percent or more in 2011, Kraft said yesterday at an investor conference.The transaction will produce $1 billion in additional revenue by 2013, the company said then. About 85 percent of additional sales will come from Kraft's snacks business, which accounts for 51 percent of total sales and includes cookies, chocolate and gum.Rosenfeld said in a separate interview yesterday that Kraft could "conceivably" exceed the $1 billion forecast."It's a pivotal time for them -- there are still skeptics out there," said Ted Moore, a fund manager at Fifth Third Asset Management in Cleveland, which has $18 billion under management including Kraft shares. "The cost-synergy story was well understood, but the market was underestimating the revenue synergy opportunities."