Kraft Foods unveiled a four-part plan on Tuesday that calls for making its products more enticing to consumers, and cutting costs as it tries to boost lagging sales and profits.
The long-awaited strategic plan from Kraft's new chief executive, Irene Rosenfeld, comes a little more than a month before parent Altria Group
Kraft has things to fix, but should should hit its stride by 2009, Rosenfeld said in a statement.
"I think people were looking for a silver bullet, but it's just hard work," said Thomas Russo of Gardner, Russo & Gardner, which manages about 1.2 million shares of Kraft.
The plan calls for Kraft to invest $300 million to $400 million on marketing, research and development and other plans this year, and to increase marketing spending again in 2008.
Separately, the company said its board approved a $5 billion stock buyback program thorugh March 2009.
In recent years, the Northfield, Illinois-based company, whose products range from Oreo cookies to Oscar Mayer bacon and Maxwell House coffee, has closed factories, cut jobs and sold off brands to focus resources on businesses like cheese, snacks and beverages.
The changes have come as Kraft and other food manufacturers face on-the-go consumers who want convenient snacks and meals, but also healthier fare.
Now, Kraft wants to "rewire" its organization for growth, make its products more relevant to consumers, better use its sales strategies and cut costs.
Sees Sales Growth Of 3% to 4%
Kraft has struggled in recent years with sluggish sales and higher prices for ingredients and energy. In 2006, net revenue fell 3% and net earnings fell 19.3%.
But through last week, Kraft shares had risen about 12 percent since Rosenfeld was named CEO in June 2006.
Kraft said it expects sales, excluding the impact of acquisitions, divestitures, currency fluctuation and certain asset costs, to rise 3% to 4% this year.
The company forecast 2007 earnings of $1.75 to $1.80 a share excluding restructuring costs. Analysts, on average, expected $1.92 a share excluding special items, according to Reuters Estimates.
In 2006 the company earned $1.94 a share before special items and posted net profit of $1.85 a share.
For 2008, Kraft again expects organic revenue growth of 3% to 4% and said operating income growth should be greater than that.
The company said it plans to reinvest in its business in 2008, including more marketing spending, toward a long-term target of 8% to 9% of net revenue.
Citigroup analyst David Driscoll said in a research note that Kraft's spending increases are significantly above his expectations.
Driscoll, who has a "hold" rating on Kraft, said he does not see much short-term positive news, as Kraft did not mention share repurchases despite next month's planned spin-off from
Altria.
"Net, we don't see a lot here for investors to get excited about owning shares of Kraft," Driscoll wrote.
Rosenfeld has said the company needs to spend more on marketing and develop new products that go beyond extensions of existing lines.