Kraft Chairman Cahill to Replace Vernon as CEO; Shares Up - Analyst Blog

Share price of Kraft Foods Group, Inc. (KRFT) shot up nearly 7% after it announced that Chairman, John Cahill, would replace Tony Vernon as the chief executive officer (CEO) — possibly to speed up changes at the packaged food company.

Cahill, who presently serves as Chairman of the board of directors, has been with Kraft for almost three years.

According to Kraft, CEO Vernon intends to retire on Dec 27, the last day of fiscal 2014, but will remain a director until the company's next annual meeting in 2015. He has been in office since the company's split from Mondelez International, Inc. (MDLZ) in Oct 2012.

Kraft has been struggling with its top line since the split due to broader macro pressures. Several of the company's product categories — salad dressings, powdered beverages and ready-to-eat desserts — have been soft over the past few quarters due to consumption weakness and stiff competition. Changes in consumer preferences, shopping behavior and tough consumer spending environment are hurting retail sales. Moreover, ineffective promotional efforts are hampering the company's sales.

In the first nine months of this year, Kraft recorded flat organic revenue growth which lagged broader food and beverage industry growth of 1.7% due to weak volumes.

Further, while higher input costs are hurting margins, increased pricing in response to higher costs is lowering volumes.

The share price jump clearly indicates that investors commend the change at the Zacks Rank #4 (Sell) Company. Analysts believe that Cahill has been brought in to “accelerate the pace of change” at the company amid a difficult operating environment for food companies. It is widely speculated that the CEO change will lead to a reshuffle in Kraft's portfolio of brands either through divestures of some old brands or through mergers and acquisitions.

A Harvard MBA, Cahill previously served at PepsiCo, Inc. (PEP) and as the CEO of Pepsi Bottling Group Inc. He was also a lead independent director of American Airlines Group, Inc. and a director at Colgate-Palmolive Company (CL).