Process and Operations

Kraft to cut another 8,000 jobs, close 20 more plants


Jan 31, 2006

On Jan. 30, the same day it reported a 14 percent rise in fourth quarter profit, Kraft Foods Inc. said sluggish sales and rising commodity costs would force it to cut another 8,000 jobs "at all levels of the organization" and close 20 more factories worldwide.

The Northfield, Ill.-based company said the new cutbacks, which should occur through 2008, should save $750 million a year. Both the plant closings and the savings come on top of pullbacks announced in 2004, which were recently completed and which closed 19 factories and eliminated 5,500 jobs. Those reductions should save the company $450 million annually.

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

"In the first half of the year, we saw our category growth rates slow down in the U.S. as higher prices impacted consumption," said Kraft CEO Roger Deromedi. He said the company spent $800 million more on raw materials in 2005 than it did the previous year, and passing on price increases to consumers has been difficult.

In this new round or cuts, Kraft said it intends to close plants in Australia and Hoover, Ala., but did not announce any other targeted facilities. The planned reductions represent 8 percent of the company's workforce and 11 percent of its factories. Worldwide, Kraft employs 94,500 workers at 175 plants, 77 of them in North America.

Deromedi said the first round of cuts saved 12 percent more than estimated. Of the 19 plants closed, eight were in North America.

Meanwhile, sales in the fourth quarter grew 10 percent to $9.7 billion with net earnings of $773 million. While that was up 14 percent, operating income was actually down a hair. For the full year, revenues were up 6 percent to $34.1 billion.

Kraft's parent, Altria Group Inc., has said it plans to spin off the food company once tobacco litigation facing its Philip Morris USA unit is settled.