Kraft Heinz : Q1 2023 Q&A Transcript

The Kraft Heinz Company

Q1 2023 Earnings Call | May 3, 2023

COMPANY PARTICIPANTS

Anne-Marie Megela

Vice President, Global Head of Investor Relations, The Kraft Heinz Co.

Miguel Patricio

Chief Executive Officer & Chairman, The Kraft Heinz Co.

Andre Maciel

Executive Vice President & Global Chief Financial Officer, The Kraft Heinz Co.

Carlos Abrams-Rivera

Executive Vice President and President, North America, The Kraft Heinz Co.

Rafael Oliveira

Executive Vice President and President, International Markets, The Kraft Heinz Co.

OTHER PARTICIPANTS

Bryan D. Spillane

Analyst, Bank of America Securities

Andrew Lazar

Analyst, Barclays Capital, Inc.

Ken Goldman

Analyst, JPMorgan Securities LLC

Jason English

Analyst, Goldman Sachs & Co. LLC

John Baumgartner

Analyst, Mizuho Securities USA LLC

Steve Powers

Analyst, Deutsche Bank Securities, Inc.

The Kraft Heinz Company

Q1 2023 Earnings Call | May 3, 2023

QUESTION AND ANSWER SESSION

Operator: Good day, and thank you for standing by. Welcome to The Kraft Heinz Company First Quarter Results. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. And be advised that today's conference is being recorded.

I would now like to hand the conference over to, Anne-Marie Megela, Head of Global Investor Relations. The floor is yours.

Anne-Marie Megela

Vice President, Global Head of Investor Relations, The Kraft Heinz Co.

Thank you, and hello, everyone. And welcome to our Q&A session for our first quarter 2023 business update.

During today's call, we may make forward-looking statements regarding our expectations for the future, including and related to our business plans and expectations, strategies, efforts and investments, and related timing and expected impacts. These statements are based on how we see things today, and actual results may differ materially due to risks and uncertainties.

Please see the cautionary statements and risk factors contained in today's earnings release, which accompanies this call, as well as our most recent 10-K,10-Q and 8-K filings for more information regarding these risks and uncertainties. Additionally, we may refer to non-GAAP financial measures, which exclude certain items from our financial results reported in accordance with GAAP.

Please refer to today's earnings release and the non-GAAP information available on our website at ir.kraftheinzcompany.com under News & Events for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures.

Before we begin, I'm now going to hand it over to our CEO, Miguel Patricio, for some brief opening comments.

Miguel Patricio

Chief Executive Officer & Chairman, The Kraft Heinz Co.

Well, thank you, Anne-Marie, and thank you, everyone, joining us today. We are proud, proud and confident. We are so confident that we are raising our guidance on EBITDA and earnings per share. We are so confident that we are increasing our investments in marketing and in R&D by $100 million to $150 million versus budget, which represents a solid double-digit growth versus previous year.

These results are not a coincidence. They are because of our confidence. We have been consistently

The Kraft Heinz Company

Q1 2023 Earnings Call | May 3, 2023

saying that we'll grow through emerging markets, and we grew 23% this quarter. We'll grow through foodservice globally, and we grew about 29% this quarter; and we'll grow through our priority growth platforms in US, Easy Meals, and Taste Elevation, where we had double-digit growth.

The rest of the portfolio has freed up resources to invest in our strategy. These results are possible not only because of our strategy, but because of everything that is behind our strategy.

Let me start with people. Today, we have a great team and very engaged team. Speed, well, agility is a big word for us. And the pods that we have in place are transforming the company, in innovation, in supply, in manufacturing, procurement, in sales, in logistics. And two good examples of that is innovation, where we have now a much stronger pipeline for the future.

And we reduced the time of innovating from three years to a couple of months. Or in supply, where through the pods and the partnership with Microsoft and the usage of artificial intelligence, we are improving our planning, our service levels, reducing waste, and reducing times. We are in a very different place today.

And finally, efficiencies. When we announced three years ago, $2 billion in five years of gross savings, there were a lot of people that were skeptical, that represented $400 million per year. We not only delivered this number three years in a row, but we are now increasing this bar to $500 million a year.

With that, I have here with me today, Andre, our CFO; Carlos Abrams-Rivera, our Zone President for North America; and Rafael, our Zone President for International that are joining me. Please, we are ready for the Q&A.

Operator: Thank you. And our first question comes from Bryan Spillane with Bank of America. Please proceed.

Bryan D. Spillane

Analyst, Bank of America Securities

Hi. Thanks operator. Hey, good morning, everyone. I just wanted to ask, I guess, two questions related to the US. One is, I think as we kind of strip out the foodservice piece and look at what's underneath, it looks like there was a bit of a dismatch or mismatch, I should say, between kind of what we were seeing in the Nielsen data and what would have been reported underlying. So just trying to understand if there was anything there relative to timing of shipments or promotions that might have affected the cadence?

And then second, if you can just talk a little bit about in the US specifically, kind of how you're seeing the promotional activity or the promotional environment as we head into some of the big summer holidays? Is it intensified? Is it in line with your expectations, just kind of how you're seeing those summer holidays set up? Please.

The Kraft Heinz Company

Q1 2023 Earnings Call | May 3, 2023

Miguel Patricio

Chief Executive Officer & Chairman, The Kraft Heinz Co.

Andre, please.

Andre Maciel

Executive Vice President & Global Chief Financial Officer, The Kraft Heinz Co.

Okay. Good morning, Bryan, and good to hear from you. Thanks for the question. Look, when you look at the US performance, I don't think there is nothing out of normal happening in the quarter. The inventory load was immaterial given where it already landed at the end of Q4, as I said before. So it's really a function of the sell-out and the foodservice, which performed very well in the quarter in the US zone.

So maybe people underappreciated a little bit the impact of that. I believe it has something to do also with the fact that last year, with Omicron and things, everything was shut down. So that impacted the sellout in retail across in the industry at the beginning of the quarter, but also helped a lot of foodservice to have a very strong performance.

When it comes to promotions, as we have said all along, we expect an increasing promotional year-to- go. That's what has been in the guidance, so we included it and outlined from the beginning, so nothing changing there on that regard, always in a prudent way and always emphasizing that we will remain well below our 2019 levels. And you listened to our remarks, how well we are doing in terms of continuing to improve our ROI with the tools that we have in place. And now I'll pass it over to Carlos to give some color on the promotional environment.

Carlos Abrams-Rivera

Executive Vice President and President, North America, The Kraft Heinz Co.

The one thing I guess I would add, Bryan, to what Andre just said is, as you mentioned, the ROI has continued to improve. But let me give you a little more color as to what's behind that. We have spoken about the agile at scale and how that has reengineered Kraft Heinz.

And part of that is us creating ownable agile revenue management tools that actually allows us to improve the returns of our promotions. So like, for example, we have a trade management system that we created in-house, and it gives us real-time access to essentially over 10,000 promotional events. And then what we do is we actually create digital tools that leverage that large amount of data to provide insights and recommendations in a very simple way.

Now those solutions then allow us to figure out what is the right depth of discount, what is the right time of the year and what are the right promotional tactics we have been doing. So if you look at our Q1 numbers, we saw about a 10-point improvement in ROI in this particular quarter versus what we saw a year ago. And it's about 15 points if you compare that to 2019 of Q1.

The Kraft Heinz Company

Q1 2023 Earnings Call | May 3, 2023

So again, our ownable tools continue to help us make sure that we are driving that investment. So as we go forward, our continued focus is make sure that we invest in the business, that we are focused on the renovation of our business and marketing, driving a stronger quality with those event-based activities that really have the high ROIs. And Rafa, I don't know if anything you wanted to comment on what you're seeing in international promotions?

Rafael Oliveira

Executive Vice President and President, International Markets, The Kraft Heinz Co.

It's not very different than what you described Carlos, I think, and what Andre mentioned. You might see a bit of an increase. We will see a bit of an increase in some marketing and promotional activity through the year to go. But nothing significant that is not included in our guidance.

Carlos Abrams-Rivera

Executive Vice President and President, North America, The Kraft Heinz Co.

Thanks, Bryan.

Operator: Thank you for the question. One moment for our next, and it comes from the line of Andrew Lazar with Barclays. Please go ahead.

Andrew Lazar

Analyst, Barclays Capital, Inc.

Great. Thanks. Good morning. I think you outperformed expectations, obviously, in the first quarter on organic sales growth and maintained full year outlook, I guess, potentially implying slower go-forward trends maybe than originally planned for. Is there something you're seeing in the market that necessitates this adjustment? Or is this more a function of sort of conservatism? And I appreciate the full year outlook is already above your sort of long-term algorithm.

Miguel Patricio

Chief Executive Officer & Chairman, The Kraft Heinz Co.

Hi, Andrew. Andre, maybe you want to answer that question.

Andre Maciel

Executive Vice President & Global Chief Financial Officer, The Kraft Heinz Co.

Sure. Good morning, Andrew. Good to hear from you too.