It has been a rough few months for Kraft Foods.
In late December CEO Tony Vernon stepped down. This was a blow for the organization because many people at Kraft liked his approach to leadership. He valued brands and people and was making some smart moves.
Then in March, 3G Capital announced plans to acquire the company and merge it with Heinz. This was another setback; 3G has a reputation for slashing spending and cutting people in a bid to boost margins and short-term profits.
It isn’t complicated: Kraft’s financial results last year were terrible.
In 2014, Kraft’s revenues declined slightly. Profit, however, plunged from $2.7 billion in 2013 to just $1.0 billion. Margin eroded from 14.8% to 5.5%.
The longer term picture is even worse. Revenues in 2011 were $18.7 billion, significantly above last year’s $18.2 billion. Net income in 2011 was $1.8 billion, well above the 2014 results.
Investors get restless when results aren’t good. CEOs tend to depart to pursue other interests. Board members, elected by investors, push for financial transactions to boost returns.
The picture at Kraft might have been very different if results had been better. Tony Vernon would have kept his job. The stock would have performed better. 3G might have focused on other, more under-valued firms.
You can invest in brands and innovation if the numbers are good. If they aren’t, your brand, your job and your company are all at risk.