Chief executive Irene Rosenfeld, speaking at a Lehman Brothers Holdings Inc. conference in Boston, told analysts and investors she also will tie executives' pay to profit to perpetuate growth.
Northfield-based Kraft said increasing sales, share buybacks and lower taxes will lift 2007 profit to as much as $1.82 a share. Previously the foodmaker projected profit of no more than $1.80 a share, which is what analysts had forecast.
"It is first and foremost about accelerating our growth," Rosenfeld said. "This initiative will clearly include redeployment and headcount reductions."
The company ended 2006 with 90,000 employees globally, including 41,000 in the U.S., according to a regulatory filing.
Rosenfeld, who until last year ran PepsiCo Inc.'s Frito-Lay division, wants Kraft to catch up to foodmakers such as Kellogg Co. that earn more from each sale. She told analysts that Kraft will shift executives from research and development and manufacturing, and make them more accountable for growth in units that make Cracker Barrel cheese and Tang juice and account for a quarter of sales.
Kraft will revamp its long-term incentive pay by linking compensation for the top 180 executives to growth of profit, cash flow and revenue excluding acquisitions as well as shareholder return, spokeswoman Claire Regan said. The company will start giving stock options as part of its pay program for 2,800 employees, giving them extra compensation as long as the shares rise. The incentive pay changes in January.
The company also said it will link pay to ad agencies to revenue growth from their marketing, rather than the amount spent to promote individual brands.
Kraft's operating margin of 14% last quarter trailed Kellogg's 17.2% and General Mills Inc.'s 14.6%. Operating margin is the percentage of sales divided by costs of goods sold and selling, general and administrative expenses.
Alexia Howard, a Sanford C. Bernstein & Co. analyst in New York, said Kraft's margin will start widening next year, helped by cost cuts started by Rosenfeld's predecessor, Roger Deromedi, in 2004. The introduction of 70 new products this year, including reduced-calorie Crystal Light beverages and microwavable macaroni and cheese, will spur demand, Howard said in a note to investors.
Rosenfeld said rising commodity costs are "a significant challenge." Kraft said increased dairy and grain costs would erode its profit margin, which it said will narrow to 13.8% this year from 15.3% in 2006.
Farmers are growing more corn for use in ethanol, leaving less acreage for planting wheat and soybeans. Wheat prices have jumped about 58% this year after global consumption exceeded production for the seventh year in the past eight. Soybean prices have gained about 32% after U.S. farmers cut acreage by 15% to the lowest level in 12 years.
Corn has risen about 11% this year. The rising cost of corn, also used to feed dairy cows, has pushed up the price of milk.
Shares of Kraft added 45 cents, to $32.60, Wednesday on the New York Stock Exchange.
From the September 10, 2007, Prepared Foods e-Flash