Kraft Foods Highlights Focused Portfolio Strategy and Continued Produc

    Business Editors
    Consumer Analyst Group of New York (CAGNY) Conference

    NORTHFIELD, Ill.--(BUSINESS WIRE)--Feb. 22, 2005--

CEO Deromedi Speaks at Consumer Analyst Group of New York Conference

    In a presentation to the financial community today, Roger K. Deromedi, CEO of Kraft Foods Inc. (NYSE:KFT), a global leader in branded food and beverages, reviewed the good progress the company is making on its Sustainable Growth Plan, outlined a clear strategic direction for the future, and reconfirmed the company's earnings guidance communicated in January.
    Deromedi presented at the annual Consumer Analyst Group of New York (CAGNY) Conference, held in Scottsdale, AZ.
    In his remarks, Deromedi reported that 2004 was a transitional year that built a strong foundation for Kraft's future. The company took aggressive actions to reorganize around a global structure, build the value of its brands with consumers, transform its portfolio in line with consumer trends, and restructure its costs.
    "In 2005, we remain fully committed to our Sustainable Growth Plan and expect the progress that we made in 2004 to continue," Deromedi said. "Our new product pipeline and marketing programs are promising, our portfolio is becoming more focused through divestitures and acquisitions, and our cost-restructuring program is on track."
    Two of the key topics Deromedi covered in his presentation were the company's focused portfolio strategy and its innovative new product growth platforms.

    Portfolio Strategy - Sustainable Competitive Advantage, Scale, and Focus

    Kraft expects to continue its portfolio transformation efforts in 2005 through both internal and external development, creating sustainable competitive advantage by providing greater focus, while leveraging the benefits of scale. As part of its portfolio strategy, the company is driving for clear leadership in four global core categories that represent more than half of the company's 2004 total revenues: Cheese and Dairy, Biscuits, Coffee, and Specialty Refreshment Beverages.
    Kraft is also building and maintaining geographic leadership in attractive regional core categories. These regional core categories capture local growth opportunities, provide needed scale on a regional or country-specific basis, or create unique cross-category marketing and product development capabilities.
    The company will strengthen its position in global and regional core categories through organic growth platforms as well as through acquisition and alliances. "Kraft has a history of strong financial discipline when it comes to both buying and selling businesses," said Deromedi. "We will continue this tradition and will only pursue those opportunities that align with our portfolio strategy, offer sustainable competitive advantage, and add value for our shareholders."

    New Product Growth Platforms - Fewer, Bigger and Better

    Outlining the company's approach to new product growth platforms, Deromedi said that Kraft is investing behind new product ideas that address important unmet consumer needs, offer multiple incremental extension opportunities, can be leveraged across trademarks, provide geographic expansion potential, or use proprietary technologies. In 2005, Kraft is focusing on fewer, bigger and better opportunities through the following innovative growth platforms:
    Powdered Beverages - Proprietary technologies that address key vitamin, mineral and protein deficiencies, while providing unique flavor varieties at a good value, will continue to build this global core business in developing markets. For example, Tang beverages is introducing an even greater variety of fortified products in Latin America and Asia Pacific markets, including new milk preparation versions.
    Cracker Chips - Kraft plans to leverage the initial success of Ritz Chips by introducing a single serve package that will bring the great taste and portability of these baked, but not fried, snacks to non-grocery channels, adding a new barbecue flavor to the line, and expanding this growth platform into key international markets in the second half of 2005.
    Frozen Pizza - DiGiorno, the brand that revolutionized the frozen pizza category, will continue to provide consumers with more convenient versions of their favorite pizzas by finding new ways to combine restaurant taste with fast and easy preparation. For example, the company will deliver another innovation to the marketplace this year with the launch of DiGiorno Thin Crust Microwave pizza, applying the brand's microwavable dough technology to this increasingly popular crust variety. Additionally, in 2005 the company will expand its offerings of unique pizza varieties that were formerly available only at restaurants, such as its California Pizza Kitchen Crispy Thin Crust Margherita, Sicilian and White pizza varieties.
    Health & Wellness - As part of its broader health and wellness initiative, Kraft continues to improve the overall nutrition profile of its portfolio. In 2005, the company will launch or extend a number of growth platforms in this critical area.
    For example, Kraft will expand on its success with Nabisco 100 Calorie Packs in 2004 by adding two new varieties, Honey Maid Cinnamon Thin Crisps and Ritz Snack Mix. With the recent publication of the 2005 U.S. Dietary Guidelines urging Americans to increase consumption of whole grains, Kraft will emphasize the whole grain goodness of many of the existing products in its portfolio, such as its Triscuit crackers, Honey Maid graham crackers, Back to Nature crackers and cereal, and Post Selects, Post Shredded Wheat and Post Honey Bunches of Oats cereals. In addition, the company is actively developing new whole grain varieties of other products for launch later in the year and in 2006.
    Kraft recently announced the expansion of its relationship with Dr. Arthur Agatston by launching a 27-item line of South Beach Diet products, featuring frozen entrees, wrap sandwich kits, frozen pizza, meal replacement and cereal bars, and cereals. The products -- which cater to consumers seeking smart nutrition by focusing on the right carbohydrates, the right fats and lean sources of protein to help people feel more satisfied on fewer calories -- will begin to appear on store shelves in the second quarter.
    On-Demand Coffee - On-demand coffee has been a growth platform for Kraft in Europe for the past decade, as it has marketed filter pods under its leading brands for the various open pod systems currently available. The company sees even greater opportunity in its proprietary Tassimo hot beverage system, which delivers both coffee-house quality -- including milk cappuccinos and lattes, hot tea and hot chocolate -- and in-home convenience in a way that Kraft believes has the potential to transform the category. In France, retailer and consumer response to the launch of Tassimo last fall has been excellent. Expansion of the Tassimo system into the U.K. has already started, with additional geographies planned for later in the year.
    In addition to its growth platforms, Kraft expects to continue to drive top-line growth in 2005 through increased marketing spending. While the company's increased spending in 2004 was focused largely on price gap management, the 2005 increase will emphasize growth platforms and new product innovations. In 2005, the company expects to spend an additional $200-$250 million on consumer marketing, primarily in advertising.

    Outlook

    During the presentation, Deromedi reconfirmed Kraft's 2005 full-year guidance. Fully diluted earnings per share are expected to increase to $1.75-$1.80 on a continuing operations basis, including $0.18 in restructuring charges and $0.04 in one-time gains from previously announced divestitures. Ongoing, constant currency revenues are projected to grow around 3% on a 52-week basis (4.5% including an additional shipping week). Full-year discretionary cash flow (net cash provided by operating activities less capital expenditures) is projected to be $2.9 billion, including $0.3 billion tax impact of divestitures expected to close during 2005. Total cash flow from discretionary cash flow and divestiture proceeds in 2005 is projected to be $4.3 billion.
    The company reconfirmed first quarter EPS of $0.38-$0.41 on a reported basis ($0.37-$0.40 on a continuing operations basis). First quarter EPS projections include $0.05 in restructuring charges and $0.04 in gains on divestitures.
    The company also reaffirmed its long-term financial targets, which include 3% growth in ongoing, constant currency revenues and 6-9% growth in earnings share.
    Kraft Foods markets many of the world's leading food brands, including Kraft cheese, Maxwell House and Jacobs coffees, Nabisco cookies and crackers, Philadelphia cream cheese, Oscar Mayer meats, Post cereals and Milka chocolates, in more than 150 countries.
    For more information on Kraft Foods, please visit our website at www.kraft.com.

    Forward-Looking and Cautionary Statements

    This press release contains projections of future results and other forward-looking statements. One can identify these forward-looking statements by use of words such as "strategy," "expects," "plans," "anticipates," "believes," "will," "continues," "estimates," "intends," "projects," "goals," "targets" and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are based on the company's assumptions and estimates and are subject to risks and uncertainties. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the company is hereby identifying important factors that could cause actual results and outcomes to differ materially from those contained in any forward-looking statement made by or on behalf of the company; any such statement is qualified by reference to the following cautionary statements.
    Each of the company's segments is subject to intense competition, changes in consumer preferences and demand for its products, including low carbohydrate diet trends, the effects of changing prices for its raw materials and local economic and market conditions. Their results are dependent upon their continued ability to promote brand equity successfully, to anticipate and respond to new consumer trends, to develop new products and markets, to broaden brand portfolios, to compete effectively with lower priced products in a consolidating environment at the retail and manufacturing levels and to improve productivity. The company's results are also dependent on its ability to consummate and successfully integrate acquisitions and to realize the cost savings and improved asset utilization contemplated by its restructuring program. The company may, from time to time, divest businesses that are less of a strategic fit within its portfolio, and its results may be impacted by either the gains or losses, or lost operating income, from the sales of those businesses. In addition, the company is subject to the effects of foreign economies, currency movements, fluctuations in levels of customer inventories and credit and other business risks related to its customers operating in a challenging economic and competitive environment. The company's results are affected by its access to credit markets, borrowing costs and credit ratings, which may in turn be influenced by the credit ratings of Altria Group, Inc. The company's benefit expense is subject to the investment performance of pension plan assets, interest rates and cost increases for medical benefits offered to employees and retirees. The company's assessment of the fair value of its operations for purposes of assessing impairment of goodwill and intangibles is based on discounting projections of future cash flows and is affected by the interest rate market and general economic and market conditions. The food industry continues to be subject to recalls if products become adulterated or misbranded, liability if product consumption causes injury, ingredient disclosure and labeling laws and regulations and the possibility that consumers could lose confidence in the safety and quality of certain food products. The food industry is also subject to consumer concerns regarding genetically modified organisms and the health implications of obesity and trans-fatty acids. Developments in any of these areas could cause the company's results to differ materially from results that have been or may be projected by or on behalf of the company. The company cautions that the foregoing list of important factors is not exclusive. Any forward-looking statements in this press release are made as of the date hereof. The company does not undertake to update any forward-looking statement.

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CONTACT: Kraft Foods Inc. Kris Charles (Media), 847-646-6251 kcharles@kraft.com or Mark Magnesen (Investor Relations), 847-646-3194 mmagnesen@kraft.com

KEYWORD: ARIZONA ILLINOIS NEW YORK TRACK INDUSTRY KEYWORD: SUPERMARKETS CONSUMER/HOUSEHOLD FOODS/BEVERAGES RETAIL TRADESHOW PRODUCT SOURCE: Kraft Foods Inc.

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