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    Kraft Heinz Co (KHC)

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    Kraft Heinz Company (KHC) is a global manufacturer and marketer of food and beverage products, offering a diverse range of items to meet various consumer needs . The company sells condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee, and other grocery products . Kraft Heinz manages its sales portfolio through six consumer-driven product platforms, each designed to cater to specific consumer preferences and adaptable by segment and market .

    1. Taste Elevation - Focuses on condiments and sauces, enhancing the flavor of meals and accounting for a significant portion of the company's sales.
    2. Cheese and Dairy - Offers a variety of cheese and dairy products, catering to consumers seeking quality and taste in their dairy choices.
    3. Ambient Foods - Provides shelf-stable food products that are convenient and easy to store, meeting the needs of busy consumers.
    4. Frozen and Chilled Foods - Delivers a range of frozen and chilled meal options, ensuring freshness and convenience for quick meal solutions.
    5. Fast Fresh Meals - Offers ready-to-eat meals that are both quick to prepare and fresh, appealing to consumers with busy lifestyles.
    6. Easy Meals Made Better - Enhances traditional meal options with improved recipes and ingredients, providing better meal experiences.
    7. Real Food Snacking - Provides snack options made with real ingredients, catering to health-conscious consumers seeking nutritious snacks.
    8. Flavorful Hydration - Offers a variety of refreshment beverages, focusing on taste and hydration for consumers.
    9. Easy Indulgent Desserts - Delivers dessert options that are easy to prepare and indulgent, satisfying consumers' sweet cravings.
    Initial Price$36.65March 28, 2024
    Final Price$32.22June 28, 2024
    Price Change$-4.43
    % Change-12.09%

    What went well

    • Kraft Heinz is achieving gross margin expansion despite onetime negative impacts, and expects continuous gross margin expansion into 2025 due to strong efficiencies, supply chain improvements, and a focus on profitable growth.
    • The company is successfully gaining market share in key markets like the U.K., China, and Brazil, even in challenging economic environments, indicating strong brand performance and effective strategies.
    • Kraft Heinz is focused on innovating and renovating its product offerings, such as new Mac & Cheese varieties and partnerships like Taco Bell and Delimex, to drive sustainable growth and provide value to consumers, while maintaining price increases below inflation and investing in marketing and R&D.

    What went wrong

    • Weak volume growth and reliance on pricing rather than volume for achieving guidance. The company stated that volumes do not need to turn positive for them to achieve their guidance .
    • Challenges in key markets like China and Brazil due to soft consumer demand and inventory adjustments. In China, the industry continues to be soft, and in Brazil, consumers are showing fatigue, leading to the need for investments and impacting performance .
    • Gross margin expansion expected to be more gradual, with potential pressure from price investments and weaker volumes. The company anticipates gross margin expansion into 2025 to be around 25 to 75 basis points, lower than current levels .

    Q&A Summary

    1. Gross Margin Outlook
      Q: Will gross margins face pressure ahead?
      A: Management believes gross margins will continue to expand despite concerns. They noted substantial one-time impacts in Q1 and Q2 that negatively affected gross margin, but still achieved expansion. They expect a more muted year-over-year impact in the second half as last year had a big step-up. Confident about continuous gross margin expansion into 2025, driven by strong efficiencies and a company-wide focus on driving efficiency. They emphasized that healthy gross margins are key to a virtuous cycle of growth. ( )

    2. Volume Expectations in H2
      Q: Will volumes turn positive in the back half?
      A: Management expects revenue and volume to gradually improve throughout the quarters. At their midpoint guidance, they do not need volumes to grow to achieve their targets. Price is expected to be around 1% for the total portfolio. In emerging markets, volumes continue to be positive. In the U.S., they expect volumes to continue improving, but they don't need volumes to turn positive to achieve guidance. ( )

    3. Factors Driving H2 Guidance
      Q: What are key drivers to hit H2 outlook?
      A: Management highlighted different factors by region. In emerging markets, distribution gains are working, and volume is growing. In the away-from-home business, they are making improvements after plant closures and gaining new customers. In the U.S., growth is driven by innovation, renovation, and disciplined use of revenue management tools. They are focused on providing value in a sustainable way, bringing new products and solutions to consumers, and being thoughtful about investments in trade to maintain profitability. ( )

    4. International Markets Performance
      Q: What's happening in the UK, China, and Brazil?
      A: In the UK, significant inflation led to private label gaining traction. They stepped up investments to protect volume, focusing on price gaps, leading to positive volume share returns. In China, the industry continues to be soft, but they are gaining market share in modern trade. In Brazil, they continue to gain market share, but consumers are showing fatigue, and retailers have reduced inventories, impacting performance. They believe inventories are now at appropriate levels, which should allow improvement. ( )

    5. Impact of Plant Closure on Away-from-Home Business
      Q: How did plant closures affect away-from-home sales?
      A: The global away-from-home business declined 2.1% in the quarter. The impact from the plant closure was about 200 basis points, meaning they would have been flat without it. Planned exits at the end of last year had an impact of roughly 150 basis points, so adjusted growth would be 1.5%. The industry was softer in Q2, about 100 basis points worse than Q1. They are addressing this by improving service and gaining new customers. Innovations like the Heinz REMIX are progressing with positive feedback from operators and consumers. ( )

    6. Key Brands' Improvement in H2
      Q: Which brands will improve most in H2?
      A: Management is focusing on improving Lunchables and Capri Sun, which were meaningful headwinds in Q2. For Lunchables, they are seeing a recovery, with renovations, doubling marketing spend, improving media mix, and increasing value for consumers, including innovation. For Capri Sun, they have renovated the product, investing twice the marketing versus 2023, secured strong back-to-school displays, invested in promotions, and expanded into new channels like club stores. They also expect Mac & Cheese to improve with new shapes, flavors, and tie-ins like Super Mario Brothers, providing value solutions for families. ( )

    7. Management of Price Gaps and Promotions
      Q: How broad is the price point issue across portfolio?
      A: Management is contemplating a step-up in trade investment levels, with promotions still well below 2019 levels. They estimate that in 30% to 40% of the portfolio, price gaps require some incremental investments in the U.S. They are focused on closing price gaps versus branded competitors where it makes sense for the long term but prefer to grow the business through innovation, renovation, and marketing rather than over-relying on promotions. ( )

    8. Competing on Non-Price Factors in North America
      Q: Can you compete on non-price factors?
      A: Management believes they can redefine their portfolio through innovation and marketing. They have iconic brands and have been renovating and innovating, such as with Philadelphia and Jell-O. They are providing consumers with options at different price points and expanding accessibility by increasing distribution in the dollar channel and club stores. They aim to offer value in a sustainable way, focusing on making products available where consumers are shopping. ( )

    NamePositionStart DateShort Bio
    Carlos Abrams-RiveraChief Executive Officer and DirectorDecember 31, 2023Carlos Abrams-Rivera is the CEO and Director of Kraft Heinz. He served as President from August to December 2023 and as EVP and President, North America from December 2021 to August 2023 .
    Andre MacielExecutive Vice President and Global Chief Financial OfficerMarch 2022Andre Maciel has been the EVP and Global CFO since March 2022. He was previously the SVP, U.S. CFO, and Head of Digital Transformation from September 2019 to March 2022 .
    Diana FrostGlobal Chief Growth OfficerDecember 2023Diana Frost has been the Global Chief Growth Officer since December 2023. She was the Chief Growth Officer for North America from August to December 2023 .
    Rashida La LandeExecutive Vice President and Chief Legal and Corporate Affairs OfficerDecember 31, 2023Rashida La Lande served as EVP and Chief Legal and Corporate Affairs Officer from December 31, 2023, stepping down on August 5, 2024, but remained as an advisor .
    Marcos Eloi LimaExecutive Vice President and Global Chief Procurement and Sustainability OfficerDecember 2023Marcos Eloi Lima is the EVP and Global Chief Procurement and Sustainability Officer since December 2023. He was EVP and Global Chief Procurement Officer from December 2021 to December 2023 .
    Pedro NavioExecutive Vice President and President, North AmericaDecember 2023Pedro Navio has been EVP and President, North America since December 2023. He was President of Taste, Meals, and Away From Home from March 2022 to December 2023 .
    Cory OnellExecutive Vice President and Chief Omnichannel Sales and Asian Emerging Markets OfficerDecember 2023Cory Onell is the EVP and Chief Omnichannel Sales and Asian Emerging Markets Officer since December 2023. He was the Chief Sales Officer, U.S., from August 2020 to December 2023 .
    Flávio Barros TorresExecutive Vice President and Global Chief Supply Chain OfficerDecember 2021Flávio Barros Torres has been the EVP and Global Chief Supply Chain Officer since December 2021. He was the Head of Global Operations from January 2020 to December 2021 .
    Melissa WerneckExecutive Vice President and Global Chief People OfficerDecember 2021Melissa Werneck has been the EVP and Global Chief People Officer since December 2021. She was the Global Chief People Officer from 2016 to December 2021 .
    Debby SooBoard MemberOctober 24, 2024Debby Soo was appointed as a Board Member effective October 24, 2024. She is the CEO of OpenTable, Inc., and has significant expertise in technology transformation and global business management .
    Vince GarlatiVice President, Global Controller, and Principal Accounting OfficerNovember 15, 2024Vince Garlati resumed his role as Principal Accounting Officer on November 15, 2024, after a leave of absence. He has been the Global Controller since June 2018 .
    Chris AsherDeputy Global ControllerMarch 7, 2024Chris Asher serves as the Deputy Global Controller. He was acting as the Principal Accounting Officer during Vince Garlati's leave of absence .
    1. Given your plan to invest in trade promotions selectively to drive better volume results for a more value-seeking consumer, how do you anticipate this will impact your gross margins, especially considering that approximately 30% to 40% of your U.S. portfolio requires incremental investment to close price gaps?

    2. You mentioned that you do not need volume to turn positive to achieve your guidance, yet you expect revenue and volume to gradually improve throughout the quarters; can you elaborate on the specific drivers of this expected improvement and the risks associated with relying on price increases in a challenging consumer environment?

    3. Despite onetime issues negatively impacting gross margin in Q1 and Q2, you achieved gross margin expansion; can you quantify the impact of these onetime issues and discuss how sustainable your gross margin improvements are in light of potential future pricing and volume pressures?

    4. In international markets like the UK, China, and Brazil, you've faced challenges such as increased private label competition, soft industry conditions, and customer inventory adjustments; what specific strategies are you implementing to mitigate these issues, and how do you expect these markets to perform in the back half of the year?

    5. Given that you're not always the highest-priced product in your categories and consumers are increasingly value-seeking, how confident are you in your ability to compete on non-price factors through innovation and marketing efforts, and what measurable progress have you seen in redefining your portfolio to better compete beyond pricing?

    Program DetailsProgram 1
    Approval DateNovember 27, 2023
    End Date/DurationDecember 26, 2026
    Total additional amount$3.0 billion
    Remaining authorizationApproximately $2.4 billion as of September 28, 2024
    DetailsThe program aims to enhance long-term stockholder value. It allows repurchases through various means and can be modified, suspended, or discontinued at any time.

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: N/A
    • Guidance: The documents do not provide specific guidance from the Q3 2024 earnings call for Kraft Heinz.

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Organic Net Sales: Lowered from flat to 2% growth to a range of down 2% to flat .
      2. Adjusted Operating Income Growth: Expected to be in the range of 1% to 3% .
      3. Adjusted Gross Profit Margin: Expected year-over-year expansion increased to a range of 75 to 125 basis points .
      4. Adjusted EPS Growth: Reiterated at 1% to 3% .
      5. Share Repurchase Program: No additional share repurchases expected in the second half of the year .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Organic Net Sales Growth: Expected to be between 0% to 2% .
      2. Adjusted Operating Income Growth: Expected to be between 2% to 4% .
      3. Adjusted EPS Growth: Expected to be between 1% to 3% .
      4. Adjusted Gross Profit Margin Expansion: Expected to expand by 50 to 100 basis points .
      5. Global Away-From-Home Organic Net Sales Growth: Expected low to mid-single-digit growth .
      6. Emerging Markets Organic Net Sales Growth: Expected double-digit growth .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Organic Net Sales Growth: Expected to be between 0% to 2% .
      2. Adjusted Operating Income Growth: Expected to grow 2% to 4% .
      3. Adjusted Gross Profit Margin: Expected to expand by 25 to 75 basis points .
      4. SG&A Investments: Planned increase, but less than in 2023 .
      5. Adjusted EPS Growth: Expected to grow 1% to 3% .
      6. Effective Tax Rate on Adjusted EPS: Expected to be 20% to 22% .
      7. Interest and Other Expense Income: Expected $45 million headwind .
      8. Inflation: Expected around 3% .
      9. Pricing: Expected at approximately 1% .
      10. Efficiencies: Expected to deliver efficiencies ahead of the 3% COGS target .