The Kraft Heinz Company (KHC) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Financial Performance and Capital Return: Kraft Heinz highlighted its ability to maintain prices below inflation while investing in innovation, marketing, and R&D. The company returned over $1.5 billion to stockholders through dividends and share repurchases.

• Increased Free Cash Flow: The company increased its free cash flow by nearly $100 million or approximately 9% compared to the previous year, maintaining its targeted leverage ratio.

• Leadership and Operational Improvements: The new leadership team is committed to driving improvements and achieving the company's goals, with a focus on continuous improvement and efficiency unlocking.

Pessimistic Highlights

• Challenges in Consumer Environment: Acknowledged the difficult consumer environment and the need for selective promotion and trade spend to drive better volume results for value-seeking consumers.

• Volume and Pricing Pressures: Discussed the challenges of managing price gaps across the portfolio and the need for targeted promotions, indicating pressure on volumes and pricing strategies.

Company Outlook

• Selective Investment in Trade and Promotions: Kraft Heinz plans to increase trade investment levels, focusing on closing price gaps versus branded competitors without over-relying on promotions.

• Volume Improvement Expectations: The company expects revenue and volume to gradually improve, with emerging markets continuing to show positive volume despite headwinds in Brazil and China.

• Disciplined Approach to Growth: Emphasizes a disciplined approach to revenue growth management and investment, aiming for sustainable value creation through innovation, renovation, and marketing.

Q & A Highlights

• Q: Can you dimensionalize the portion of sales needing adjustments and discuss aggressive pricing actions? (Andrew Lazar, from Barclays)

  A: Estimated 30% to 40% of the portfolio may require incremental investment in the U.S. to close price gaps. The focus is on long-term growth through innovation rather than over-relying on promotions. (Andre Maciel)

• Q: What are the most important drivers for hitting your updated outlook in the back half? (Ken Goldman, from JPMorgan)

  A: Drivers vary by region, including distribution gains in emerging markets, service improvements in Away From Home, and a balance of innovation and targeted trade investments in North America. (Carlos Abrams-Rivera)

• Q: Can you expand on what you're seeing in the U.K., China, and Brazil, and your expectations for these markets? (Steve Powers, from Deutsche Bank)

  A: The U.K. is adjusting to significant inflation and competition from private labels, China faces industry softness, and Brazil is dealing with consumer demand softness and inventory adjustments by retailers. (Andre Maciel)

• Q: How do you feel about competing on non-price factors in North America? (John Baumgartner, from Mizuho Securities)

  A: Kraft Heinz is focused on renovating and innovating iconic brands, expanding distribution, and providing options at different price points to meet consumer needs across various shopping venues. (Carlos Abrams-Rivera)

• Q: Can you unpack the components of the 2.1% decline in Away From Home globally? (Michael Lavery, from Piper Sandler)

  A: The decline was impacted by a plant closure (200 bps effect) and planned exits (150 bps effect). Excluding these, performance would have been flat or slightly positive. (Andre Maciel)

• Q: How are you thinking about improvement across the portfolio in U.S. retail? (David Palmer, from Evercore)

  A: Focus is on turning around key areas like Capri Sun and Lunchables with increased marketing, innovation, and expanded distribution, alongside continued momentum in accelerated platforms. (Carlos Abrams-Rivera)

• Q: Could gross margin pressure be a concern due to price investments and weak volume? (Robert Moskow, from TD Cowen)

  A: Despite one-time issues impacting gross margin, the company expects continued efficiency-driven gross margin expansion, supported by a strong efficiency pipeline and integrated commercial and supply chain operations. (Andre Maciel, Carlos Abrams-Rivera)