Kraft Foods Group Inc. announced financial results that reflected the impact of significant pricing actions to offset record-high commodity costs, mixed execution across the business portfolio as well as a number of factors, which are not expected to repeat, that influenced both the fourth quarter and full year.

“While there were some positive developments in the fourth quarter, we did not deliver to our potential in 2014, with the macro environment and our execution affecting our results,” said Kraft Chairman and CEO John T. Cahill. “I believe our brands and our people are an unbeatable combination, but as we look at 2015 and beyond, we need to leverage those strengths against a plan that accelerates the pace of change, improves execution and puts Kraft on a clear path to long-term, sustainable growth.”

In the fourth quarter, net revenues grew 2.2 percent and Organic Net Revenues were up 3.4 percent. Organic growth was driven by positive net pricing of 1.9 percentage points to offset higher input costs, as well as volume/mix gains of 1.5 percentage points from growth in the Refrigerated Meals, Exports and Canada businesses.

The company also had an operating loss of $614 million and EPS loss of $0.68 were driven by a non-cash loss of $1,364 million, or $1.43 per diluted share, from market-based impacts to post-employment benefit plans. The loss from market-based impacts to post-employment benefit plans was driven by a combination of lower discount rates and updated published mortality assumptions, partially offset by favorable asset returns.

Excluding market-based impacts to post-employment benefit plans in both years, operating income grew at a low single-digit rate and EPS grew at a double-digit rate. Operating income growth was primarily driven by lower advertising and overhead costs, as well as the absence of recall costs versus the prior year quarter.

A net benefit was also realized from a combination of lower manufacturing costs, primarily driven by productivity gains, and higher net pricing that more than offset higher commodity costs. EPS growth was further enhanced by a lower tax rate versus the prior year quarter.

For the fiscal year, net revenues decreased 0.1 percent and Organic Net Revenues were up 0.9 percent versus the prior year. Net pricing contributed 1.2 percentage points of growth and reflected significant price increases in response to rising commodity costs that were partially offset by higher promotional spending in the Meals & Desserts and Beverages businesses. Volume/mix declined 0.3 percentage points due to volume losses associated with certain pricing actions, primarily in cheese, as well as category weakness in meals and market share losses in desserts.

Excluding market-based impacts to post-employment benefit plans in both 2014 and 2013, operating income grew at a mid-single-digit rate while EPS advanced at a double-digit rate. Operating income growth was primarily driven by a reduction in spending on cost savings initiatives, reduced marketing expenditures and favorable retirement-related benefit adjustments primarily resulting from lower-than-expected claims experience in 2014.

A net benefit was also realized from a combination of manufacturing productivity gains and higher net pricing that more than offset higher commodity costs. EPS growth was further enhanced by a lower tax rate versus the prior year.

For the refrigerated meals category, fourth quarter net revenues of $793 million increased 6.3 percent from a combination of volume/mix gains and higher net pricing to offset higher input costs. Balanced growth was achieved through continued momentum in the Lunchables franchise, as well as gains from innovation, including Oscar Mayer Deli Fresh BOLD cold cuts and the P3 Portable Protein Pack.

Full year net revenues of $3.4 billion increased 3.0 percent, reflecting both higher net pricing and improved volume/mix. Higher net pricing reflected commodity cost-driven pricing in both cold cuts and hot dogs that was partially offset by lower net pricing in bacon. Favorable volume/mix was driven by growth in the Lunchables franchise and the introduction of the P3 Portable Protein Pack, as well as ongoing growth in bacon.

Fourth quarter operating income grew 42.0 percent driven by manufacturing productivity, higher net pricing and volume/mix gains that were partially offset by higher commodity costs, higher spending on cost savings initiatives and investments in advertising. Full year operating income growth of 14.9 percent was driven by lower manufacturing costs reflecting net productivity gains as well as higher net pricing. Income growth was tempered by higher commodity costs and increased marketing investments primarily behind the introduction of the P3 Portable Protein Pack and incremental support of the Lunchables franchise.

Kraft Foods Group also announced management changes that will position the company for future growth and success. George Zoghbi, currently Vice Chairman, Operations, R&D, Sales and Strategy, has been named Chief Operating Officer. The company also announced that Chris Kempczinski, who currently leads Kraft’s Canada business unit, will assume an expanded role as Executive Vice President of Growth Initiatives and President of International. Both management appointments are effective immediately and will report to Chairman and CEO John T. Cahill.

The newly created leadership positions reflect Kraft’s commitment to accelerating the pace of change and improving execution, and will support the development of a plan that puts the company on a clear path to long-term sustainable growth.

As Kraft’s COO, Zoghbi will oversee the company’s U.S. business units and the teams that drive growth across Kraft, including sales and marketing services. He will continue to lead Kraft’s integrated supply chain, working closely across all operations to make appropriate investment decisions, drive productivity and deliver strong execution of the company’s innovation and brand marketing plans.

Cahill said, “George has led some of the most critical areas of our business and has a proven track record of strong execution and delivering growth. I am confident he is the right person to take on this new role, and I look forward to working closely with him as we develop and execute a business strategy that accelerates Kraft’s journey to sustainable, profitable growth.”

“I'm honored to be appointed Chief Operating Officer of this great company,” added Zoghbi. “Together with John and the entire management team, I'm excited to focus on delivering innovation that reflects the evolving needs of our consumers and develop clear goals and strategies to rejuvenate the iconic brands consumers love and trust.”

In the newly created role of EVP of Growth Initiatives and President of International, Kempczinski will work closely with Mr. Zoghbi to formulate strategy, including M&A, and develop and deploy innovation platforms for Kraft’s sustainable growth. He will continue to lead Kraft Canada and will use his deep marketing and industry experience in his new responsibilities overseeing Kraft’s international markets, including Exports.

“During his time with Kraft Canada, Chris has led the business unit through transformative change, with a keen focus on execution and innovation. His expertise will be invaluable as we continue to build a stronger Kraft,” said Mr. Cahill.

As part of its leadership changes, the company also announced that Teri List-Stoll, Executive Vice President and Chief Financial Officer, will be leaving the role effective Feb. 28, 2015. List-Stoll has been with Kraft since Sept. 2013 and led the company’s financial operations, including accounting and reporting, financial planning, treasury, tax, audit and investor relations. List-Stoll will continue to serve the company as a senior advisor to ensure a smooth transition. The finance function will report directly to Cahill until a CFO is appointed.

“I thank Teri for her efforts overseeing Kraft’s financial operations and strong financial team, which are instrumental to the company’s success,” Cahill said. “I sincerely appreciate her contributions to our company.”

Kraft also announced that Deanie Elsner, Executive Vice President and Chief Marketing Officer, will be leaving the organization effective Feb. 28, 2015. Marketing remains critically important to the company and will move closer to the business operations, in order to sharpen focus and more effectively ignite brand rejuvenation. Jane Hilk, Executive Vice President and President, Enhancers & Snack Nuts, has been appointed interim CMO. Hilk has held marketing leadership positions across the majority of the company’s product categories and launched ground-breaking advertising campaigns for flagship brands including Oscar Mayer, Planters and Kraft Singles. A senior marketing executive will be named in due course to continue developing and enhancing Kraft’s marketing capabilities and will report to Zoghbi.

Additionally, Chuck Davis, Executive Vice President of Research, Development, Quality and Innovation, will be leaving Kraft . He will remain with the company and report to Zoghbi until a successor is named.

“Our brands are the heart of Kraft, and no one understands this better than Deanie. Her dedication and marketing savvy helped our portfolio of brands become a standout in pantries and refrigerators across the United States and Canada. I am grateful for her contributions over more than twenty years at Kraft,” commented Cahill. “I would also like to thank Chuck for his commitment to quality and innovation, and the key role he has played in introducing new products that our consumers have embraced.”

The leaders of legal and human resources will continue to report directly to Cahill. He will take the next few months to work with the management team, get immersed in the business and spend time with the company’s teams, customers and other business partners to develop a well-informed, comprehensive plan forward.

Cahill added, “I am excited to work with the management team as we continue to build a stronger Kraft and fulfill our potential as the industry leader. Together, we will chart a course of innovation and brand rejuvenation that is built on clear strategy and efficient operations.”

Source: Kraft Foods Group