Kraft Canada to split along parent firm’s line

Global food processing giant Kraft plans to spin off its Canadian and U.S. grocery goods business into a new company separate from its global snack business.

The global snacks business, which would include Canada’s contributions to those products lines, has “tremendous opportunities for growth as consumer demand for snacks increases around the world,” Kraft CEO Irene Rosenfeld said in a release Thursday.

The North American grocery business, meanwhile, has “a remarkable set of iconic brands, industry-leading margins, and the clear ability to generate significant cash flow,” she said.

The grocery company, when formed, would include all Kraft’s Canadian “non-snack” categories and Kraft’s foodservice operations as well as its U.S. beverages, cheese, convenient meals and grocery segments, with estimated annual sales of about US$16 billion.

The company expects to create the separate companies by way of a tax-free spin-off of the North American grocery business to Kraft Foods shareholders.

An independent North American grocery business would be managed to deliver “reliable revenue growth; strong margins and free cash flow; and a highly competitive dividend payout,” Kraft said in its release.

The grocery firm’s key brands would include Kraft Dinner macaroni and cheese, Oscar Mayer meats, Philadelphia cream cheese, Maxwell House coffee, Capri Sun beverages, Jell-O desserts and Miracle Whip.

“Instant consumption”

Kraft’s “high-growth” snack business, meanwhile, now books estimated annual revenues of about US$32 billion.

That business by itself would have “a strong presence in the fast-growing and high-margin instant consumption channel,” Kraft said.

The snacks company would also carry a non-snack portfolio made up mostly of powdered beverages and coffee, which Kraft said have “a strong growth and margin profile in developing markets and Europe.”

Key brands for a Kraft snack business would include Oreo biscuits, Cadbury and Milka chocolates, Trident gum, Jacobs coffee and Tang powdered beverages, the company said.

Kraft’s board of directors announced its intentions Thursday, from which management is now developing “detailed plans for the board’s further consideration and final approval,” the company said.

Further work on structure, management, governance and other matters is expected to take about “12 or more months,” the target being to launch the new companies before the end of fiscal 2012.

Chicago-based Kraft, which split from then-parent Philip Morris in 2007, now posts worldwide sales of over US$49 billion, markets its products in about 170 countries and runs over 220 processing plants worldwide.

The company’s Canadian arm, based in Don Mills, Ont., is billed as the No. 1 packaged goods company in the country. Principal brands in Canada, apart from KD mac and cheese, include Christie cookies and crackers and Del Monte and Kool-Aid beverages.

The company’s roots in Canada date back to its Ontario-born founder, James Kraft, who moved to Chicago in 1903 to start a wholesale cheese business. By 1920 the company had expanded back to Canada by taking over MacLaren’s Imperial Cheese Co. in Montreal.

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