Quaker Oats To Close Plants, Cut Jobs

CHICAGO (Reuters) - Food and drink maker Quaker Oats Co. Monday unveiled a three-year project to streamline North American operations that includes plant closings, charges against earnings, and nearly 1,200 job cuts, or 10 percent of its workforce.

Product lines will be consolidated and some product manufacturing will be outsourced, the company said. Specific plants selected for closing were not named.

Quaker makes a variety of products, from breakfast cereal and oatmeal to Rice-A-Roni side dishes and its flagship Gatorade drink.

While Quaker has fared better than most, the food industry in general has struggled recently to impress investors with results. Coupons and other discounts have been rampant.

``In the last few years, Quaker has become a more efficient manufacturer as evidenced by steady increases in its gross profit and operating margins,'' said Chief Executive Robert Morrison, who took the helm at Quaker about 18 months ago and embarked on a plan to improve results.

``While we have improved our supply chain capabilities and costs, we are convinced that we can accomplish even more,'' he said.

Wall Street's response to the announcement was lackluster. Quaker shares were down 12.5 cents at $63.25 on the New York Stock Exchange.

``I think this is the next phase for Quaker,'' said Patrick Schumann, an analyst at Edward Jones. ``Until the industry itself becomes healthier, a lot of these food stocks are going to trade in a range until they can show some top-line revenue growth.''

In the second quarter, Quaker beat Wall Street earnings estimates but guided analysts lower in their projections for the second half.

As part of the restructuring, Quaker said it would take a series of pretax charges of $225 million to $250 million. It will book $6 million to $7 million of those charges in 1999, with the rest coming in 2000 as it tries to lower its operating costs.

Savings as a result of the streamlining are expected to range from $40 million to $45 million in 2001, rising to $60 million to $70 million in 2002, the company said.

Quaker did not specify the products that might be consolidated or outsourced, but Schumann said items such as poorly performing rice cakes and some cereals could be a starting point.

Once the restructuring is completed, Quaker said the assets of its U.S. and Canadian food operations may be reduced by close to 10 percent, or about $50 million.

But while the asset base will be reduced, additional production capacity will be added to support the long-term growth of the North American Gatorade business, Quaker said.