Fitch affirms Kraft ratings, maintains stable outlook

by Eric Schroeder
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CHICAGO — Fitch Ratings on Thursday affirmed the ratings of Northfield, Ill.-based Kraft Foods Inc. and maintained its stable outlook, stating the ratings reflect Kraft’s position as a stand-alone packaged food and beverage company.

Fitch noted that while Kraft’s most recent quarter displayed some improvement, the company in recent years has encountered high commodity costs, a competitive European retail environment and changing consumer preferences, which have pressured operating margins.

Despite some of the difficulties, Fitch said Kraft’s credit metrics have shown stability due to the company’s consistent focus on debt reduction.

"The company is in the midst of an aggressive $3 billion restructuring program from 2004-2008 to streamline its cost structure and revitalize its growth trajectory," Fitch said. "Kraft expects to incur restructuring costs of $625 million in 2007 and generate $700 million of cumulative cost savings by the end of 2007, on its way to $1 billion of annualized savings at the conclusion of the program. Kraft is directing the cost savings it generates back into investments in its brands. The ratings factor in a moderate degree of execution risk of this program.

"Fitch expects sustainable positive impact from the company’s ongoing restructuring efforts to take time to develop. However, Kraft is anticipated to attain stronger free cash flow, volume growth and revenue growth over the intermediate term."

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