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

By Demitrios KalogeropoulosFool.com

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

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%.

Continue Reading Below

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'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.

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

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

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

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

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.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.