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Staff and wire reports
 Thursday, January 29, 2004 &nbsp;&nbsp;&nbsp;&nbsp;Page: 1C 





About 40 Kraft Foods employees in the company's Hanover Industrial Estates
office will lose their jobs this week as the nation's largest food company
makes drastic cuts in the wake of sluggish sales and poor results for new
products. &nbsp;&nbsp;&nbsp; 
 The local cutbacks represent about 10 percent of the 380 Kraft workers in
the office facility operated by Altria, Kraft's parent company, spokeswoman
Donna Sitkiewicz said Wednesday. &nbsp;&nbsp;&nbsp; The growing trend toward healthier eating is taking a bite out of sales and
profits at Kraft, officials said Wednesday, a day after the job cuts were
announced. &nbsp;&nbsp;&nbsp; 
 The maker of Oreo cookies, Velveeta cheese and Oscar Mayer meats disclosed
plans Tuesday to cut 6,000 jobs (6 percent of its work force) and close up to
20 plants worldwide by 2007. &nbsp;&nbsp;&nbsp; 
 The announcement came as the Northfield, Ill.-based company reported a 7
percent decline in fourth-quarter profits - the latest in a series of
financial disappointments - and said 2004 earnings also will come in below
expectations. &nbsp;&nbsp;&nbsp; 
 Workers at the local Altria/Kraft office perform human services support,
headquarters support and information technology services for Altria and
customer services work for Kraft. &nbsp;&nbsp;&nbsp; 
 Kraft isn't alone in its struggles in the food business. American
consumers' increased health concerns have put the entire packaged food
industry under severe pressure to change quickly. Worries about the artery
clogger ``trans fat,'' rising obesity and the trend toward low-carbohydrate,
high-protein diets have hurt sales of cookies and some other packaged foods. &nbsp;&nbsp;&nbsp; 
 ``The growing importance of health and wellness has altered buying patterns
to a degree I have not seen before in the food industry,'' Kraft Chief
Executive Roger Deromedi told analysts in New York. ``Low-carb diets like
Atkins and South Beach, the focus on trans fat, concerns about obesity and
increased demand for organic and natural products are requiring a shift in how
we market and what we market.'' &nbsp;&nbsp;&nbsp; 
 But Kraft also has hurt itself through overpricing, new-product fizzles and
a failure to recognize sooner the ``fundamental shift'' Deromedi says has
occurred with consumers and retailers, who now put a higher priority than ever
before on price and value. &nbsp;&nbsp;&nbsp; 
 ``When we took pricing actions early last year in response to rising costs,
we misjudged the magnitude of the value trend, and it took us too long to
react with more competitive pricing,'' he said. &nbsp;&nbsp;&nbsp; 
 ``While we faced strong head winds in 2003, we did not manage through them
as effectively as we should have,'' Deromedi added. &nbsp;&nbsp;&nbsp; 
 About 1,300 of Kraft's salaried positions in North America will be
eliminated in the first quarter, with the remaining cuts occurring over three
years. Three plants being shuttered initially are ones in Canton, N.Y.;
Farmdale, Ohio; and Budapest, Hungary. &nbsp;&nbsp;&nbsp; 
 The job cuts have been expected since Kraft shook up its top management
last month and announced other changes after several quarters of sluggish
sales, particularly for its cookies. &nbsp;&nbsp;&nbsp; 
 Deromedi, who was given sole control of the company last month when co-CEO
Betsy Holden was removed from that post and put in charge of global marketing,
had signaled his intent to take Kraft in a different direction to try to snap
out of the slump in sales and new products. &nbsp;&nbsp;&nbsp; 
 On Jan. 8, he reorganized Kraft's business units and said the company would
take a more global focus in a strategy aimed at making it more nimble. That
move entailed shifting some units to new locations and giving top executives
new roles. The job cuts associated with the shake-up were not disclosed until
Tuesday. &nbsp;&nbsp;&nbsp; 
 The company anticipates that the restructuring will result in pretax
charges of as much as $1.2 billion over the next three years and generate an
estimated $400 million in annual savings by 2006. &nbsp;&nbsp;&nbsp; 
 Kraft has about 50,000 employees in the United States and slightly more
than 100,000 worldwide. &nbsp;&nbsp;&nbsp; 
 At the same time it is laying off employees, Deromedi also said the company
will spend $500 million to $600 million more on marketing in 2004, focusing on
healthier snacks. &nbsp;&nbsp;&nbsp; 
 Analysts responded cautiously, noting that Kraft's heavy marketing spending
last year did not bail the company out of its troubles. &nbsp;&nbsp;&nbsp; 
 ``We were encouraged by the restructuring announcement and that management
did not significantly lower the bar on earnings,'' Evan Morris, a food
industry analyst for UBS, wrote in a note to investors Wednesday. ``But we see
no real change to the company's strategy and believe some of the operating
assumptions are still too optimistic.'' &nbsp;&nbsp;&nbsp; 
 Net earnings for the last three months of the year amounted to 50 cents a
share, matching the consensus estimate of analysts surveyed by Thomson First
Call. Revenues grew to $8.3 billion from $7.8 billion, up 6 percent thanks to
a boost from the weak dollar. &nbsp;&nbsp;&nbsp; 
 Citing the restructuring, Kraft lowered its estimate for 2004 earnings to a
range of $1.63-$1.70 per share. Analysts were forecasting $2.01 per share. &nbsp;&nbsp;&nbsp; 
 Kraft shares rose 50 cents to $32.63 in afternoon trading on the New York
Stock Exchange. It debuted at $31 when the company went public in June 2001. &nbsp;&nbsp;&nbsp; 
 On the Net: &nbsp;&nbsp;&nbsp; 
 www.kraft.com &nbsp;&nbsp;&nbsp; 
 &nbsp;&nbsp;&nbsp;

40 Local Kraft Workers Losing Jobs The Move Comes As The Food Giant Reorganizes After Recent Weak Sales Performance.