5 Things Kraft Foods Group Inc.s Management Wants You to Know

By Markets Fool.com

Shares of Kraft Foods fell last week after the food giant posted disappointing full-year results.

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Sure, sales and adjusted profits were higher than Wall Street expected. But the company's growth strategy failed to deliver sustainable gains: Kraft ended the year with zero revenue improvement over 2013 and with organic sales growth of less than 1%.

In a subsequent conference call with analysts, new CEO John Cahill and his team provided context on the fourth-quarter results. Here are five of the key points management made in that discussion.

Sales growth: a decent quarter but forgettable year

"Kraft did not deliver against its potential, with both macroeconomic headwinds and mixed execution on our part affecting full year results." Chief Financial Officer Teri List-Stoll

Kraft's fourth-quarter organic sales growth rate of 3.4% was an improvement over the prior quarter. The company also managed to hold its market share position in 70% of its business, up from 50% in the prior quarter.

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But protecting market share isn't the same as growth. And for the full year, Kraft's results show that it is losing out to competitors. Organic growth of 0.9% lagged the overall market by two percentage points.

Mixed results on raising prices

"We pushed the promotional pedal down in a number of categories without realizing adequate returns or volume lift. And this hurt overall profitability in our beverages, meals and desserts, and enhancers businesses." Chief Financial Officer Teri List-Stoll

Commodity prices on inputs including meats and dairy spiked last year. In some cases, like with its Oscar Mayer business, Kraft was able to pass along those extra costs by boosting its own prices while suffering no decline in volume. However, it wasn't able to use price cuts to protect market share in other major franchises, particularly in its beverages, meals, and dessert brands. Kraft reported a disappointing drop in both pricing and volume for these businesses in the fourth quarter.

Advertising isn't working well

"We're not yet supporting all of our brands with adequate copy or an adequate level of [marketing]. But it made no sense to continue to spend without the right plans in place, which is why we pulled back this year." Chief Financial Officer Teri List-Stoll

Kraft spent 12% less on advertising in 2014 as its marketing investment fell from 4.1% of sales to 3.6%. That helped lift profits, but it isn't a sustainable strategy over the long run. And the reason for the pullback isn't good either: Management said it noticed a drop in effectiveness for its marketing and decided to reign back investing until it can fix that issue. "We can't continue to spend without adequate returns," said CEO John Cahill.

Big picture problem

"Kraft Foods hasn't gained share as a company for some time. And in 2014, we did not grow share in any individual category. We merely held flat at 60% of our US businesses, and lost share in the other 40%." CEO John Cahill

Cahill noted that Kraft's portfolio of brands is extremely strong, with its products present in a whopping 98% of households in the United States. But it is also clear that the company isn't delivering what shoppers want right now. Innovations like its Oscar Mayer P3 product are too few and far between. The result of falling behind customer preferences was sinking market share in almost half of Kraft's brands in 2014.

Strategic changes

CEO John Cahill. Source: Kraft Foods.

"I plan to use this time to really get under the hood, and spend time with our customers and business partners to develop a well informed comprehensive plan that will accelerate the pace of change and put Kraft on a clear path to long-term sustainable growth." CEO John Cahill

Cahill is undertaking a companywide strategic review, the results of which he plans to announce in the second quarter of 2015. But a major shakeup of the management team is already under way.

Gone are the heads of Kraft's finance, marketing, and research and development departments. The company also announced a new Chief Operating Officer and executive in charge of growth initiatives.

It's understandable that Kraft would make sweeping changes at the top given the broad struggles it had last year. Investors will need to wait and see whether a fresh perspective and new strategy can get the company back to posting consistent sales growth and market share gains.

The article 5 Things Kraft Foods Group Inc.s Management Wants You to Know originally appeared on Fool.com.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.