Summary
Kraft and Sara Lee executives recently spoke at analyst conference concerning their recent improvements to drive sales growth and improve operating margins.Both suggested the progress is real and sustainable. Kraft highlighted new products and headcount reduction as keys to their progress.New products are clearly needed and our key to drive future sales growth.The job cuts they mentioned are real and should help them provide a lower cost basis to expand marketing and potentially improve margins at the same time. Sara Lee also touted new product innovation and organizational restructuring as means to improve their growth and enhance profitability.Pricing is also key at both companies as they face strong headwinds in the face of commodity inflation. Do we believe both CEO's assertions and are better days ahead for both companies ?
Analysis
As a former Director of Marketing at Kraft and VP of Marketing for one of Sara Lee's main rivals in the bakery industry I have mixed thoughts on their CEO's proclamations of better days in the future.
I believe Kraft is making progress to achieving increased sales growth through new products and reinvesting in their brands.Their sales growth is up but operating margins have yet to improve.The headcount reduction will take time to flow through the P&L yet they are investing in their brands to grow now.This is the right strategy and will pay off over time.The key question is still can they fix the cheese division and keep it from pulling down overall profits and sales.
I am a bit more skeptical about Sara Lee's assertion that a turnaround is imminent.Grain prices are still killing baking margins and no end appears in site.Sara Lee has a much leaner operating staff so headcount reduction and regorganizations will only go so far.They also have much stronger competition in baking and their other segments and their brands do not command premium pricing.
I believe Kraft will improve over time and their strategic decisions are correct.I do not think the same will occur for Sara Lee and their profits and sales growth will continue to suffer.
