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Nabisco biscuits crumbling
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June 8, 1998: 11:56 a.m. ET
Cracker maker to cut 3,100 jobs, take $406M charge; warns of 1998 profits
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NEW YORK (CNNfn) - In hopes of reinvigorating its crumbling biscuit business, Nabisco Holdings Corp. said Monday it will cut about 3,100 jobs and take a $406 million restructuring charge.
In addition, the Parisppany, N.J.-based food company said it will increase marketing expenditures, which will "significantly reduce" earnings for the remainder of 1998.
The layoffs represent about 6 percent of Nabisco's overall work force. The company employs about 52,400 workers around the world.
Additionally, the moves will lower profits of Nabisco's parent company, RJR Nabisco Holdings Corp., which owns 80.5 percent of the food giant.
Shares of Nabisco (NA) were down 5-15/16 at 40 in midday trading Monday. RJR's stock (RN) eased 1-15/16 to 26-3/16.
During a conference call with investors, Nabisco officials guided analysts' profit estimates for 1998 down to the $1.30 range from previous consensus forecasts of $1.60, according to First Call.
Some Wall Street professionals were caught off guard by the magnitude of the actions, and at least one analyst predicted that Nabisco faces more problems than higher marketing and advertising costs.
"People feel shell-shocked," said Steven Galbraith, analyst at Sanford C. Bernstein.
"It was ugly. I think everybody was shocked that the earnings base got lowered as far as it did," said John McMillan, analyst at Prudential Securities.
Oreos, Ritz and Chips Ahoy!
Nabisco Biscuit Co. -- which represents the food maker's largest business segment with household brands such as Oreo, Ritz, Chips Ahoy! and SnackWells -- accounted for nearly 65 percent of 1997 profits. Sales, though, fell 3.5 percent last year to $3.5 billion. Overall, Nabisco had 1997 sales of $8.7 billion.
Nabisco said the $406 million charge, which will be taken in the second quarter, is equivalent to $1.01 a share. Also, restructuring-related expenses of $118 million will be incurred over the next 12 months.
At the parent company level, RJR Nabisco said 1998 earnings will include restructuring charges of about $216 million, or 67 cents a share. RJR Nabisco also will record about $56 million of restructuring-related expenses from Nabisco's program over the next 12 months.
As part of its initiatives, Nabisco said it plans to adopt an "aggressive" marketing strategy that will increase expenditures for Nabisco biscuit by more than 30 percent in the second half of the year.
Both the restructuring and marketing initiative are designed to yield annual savings of about $100 million.
"While we have made good progress on several fronts, our volumes, sales and earnings for the first half are still stalled," said James M. Kilts, Nabisco president and chief executive.
The higher marketing costs will fund both advertising and consumer promotions. The Ritz and SnackWell lines were targeted for new TV commercials while the Oreo and Chips Ahoy! lines will get increased advertising dollars.
But some analysts said they believed that higher expenditures are only part of the reason that officials have drastically reduced earnings forecasts.
"The higher spending only explains a third of this reduction," Prudential's McMillan said, referring to the declining sales volume.
On the conference call, Kilts told analysts that sales volume has declined about 2 percent in the current quarter.
"The problems are more severe than they thought," McMillan said.
In attempt to reignite growth at the biscuit unit, Kilts in February brought in Richard Lenny, who was president of the North American operations of Diageo PLC's Pillsbury unit.
But analysts credited all of the latest actions to Kilts, who took over as president and chief executive of Nabisco in January. Lenny wasn't on Monday morning's conference call.
"He was very downbeat," Galbraith said.
Key components of the restructuring program -- which is subject to approval of the boards of Nabisco Holdings Corp. and RJR Nabisco Holdings Corp. -- include streamlining plant and distribution assets in the United States and Latin America; reconfiguring sales organizations to improve their effectiveness and drive revenue growth; realigning staff departments and operating company structures; and discontinuing certain non-strategic product lines.
The charge includes costs for severance benefits and the closure of certain facilities, but does not include the impact of the potential divestitures of underperforming or non-strategic businesses.
Kilts declined to identify which operations are targeted for divestment.
Sanford Bernstein's Galbraith said that Nabisco likely will sell its margarine operations, which have such brand names as Blue Bonnet and Fleischmann's.
-- by staff writer Robert Liu
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Nabisco
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