Kraft Foods' Strong 2011 Presents Solid Base for 2012 Split

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Kraft Foods' Strong 2011 Presents Solid Base for 2012 Split


NEW YORK -- Coming off a strong last year, Kraft Foods is well-positioned to split into two separate companies later this year, according to company executives speaking at the Consumer Analyst Group of New York (CAGNY) conference today.

"We delivered in 2011, and we'll deliver again in 2012," said Irene Rosenfeld, Kraft Foods chairman and CEO. "Our strong operating momentum provides a solid springboard as we prepare to launch two industry-leading public companies later this year."

North America President Tony Vernon, who will become CEO of the grocery company following the separation, said net revenues grew 5.1 percent in this region last year. Focused investments in power brands drove organic net revenue growth of 4.8 percent. This performance outpaced most peers and drove Kraft's categories faster than the industry average.

Higher revenue, coupled with improved productivity and lower overheads, provided the funds to continue investing in effective marketing and successful innovation. For example, new product revenue rose to 9 percent of total North America sales last year, up from 6.5 percent in 2009, he detailed.

"Our momentum is palpable," Vernon said. "We have tremendous opportunities ahead to drive industry-leading results. With the foundation we're laying now, both our grocery and snack businesses will be well-positioned for success as stand-alone operations."

CFO Dave Brearton noted that the company will incur one-time restructuring, transition and transaction costs of $1.6 billion to $1.8 billion as it prepares to separate into two companies later this year. In addition, the company estimates that it may incur between $400 million and $800 million of potential debt breakage and financing fees as it executes a migration of debt to the North American grocery company.

The new North American grocery company, which will have roughly $18 billion in sales, will retain the Kraft Foods name. By growing with its categories and capturing significant cost savings opportunities, the business is expected to deliver strong margins and substantial free cash flow with a highly competitive dividend payout, Rosenfeld said.

The new global snacks company, whose proposed name will be announced in March, will have sales of about $35 billion. With a diverse geographical profile and significant exposure to high-growth developing markets, it is expected to deliver strong revenue growth and top-tier earnings growth while paying a modest dividend, she added.

In executive appointment news, Patrick Hare, director of industry development, Kraft Foods, separately announced that Tom Corley, currently senior vice president of U.S. sales, has been appointed president of sales for the new Kraft Foods grocery company. He will report to Mike Hsu.

In addition, Don Quigley will become president of sales for the U.S. snacks organization, reporting to Mark Clouse. He will join Kraft Foods on March 1 from Kimberly Clark, where he currently holds the position of president, global consumer sales.

Both appointments will be effective April 1.

Until the companies separate later this year, Kraft Foods will continue to report as one company. It expects to file its initial Form 10 with historical carve-out financials early in the second quarter and receive tax rulings from the U.S. Internal Revenue Service around the middle of the year. Organizational structures and personnel decisions will be finalized by mid-year, so that both companies can hit the ground running when they launch before the end of 2012.