Kraft Heinz(KHC)2023-06-01 20:43Summary of Kraft Heinz Company Conference Call Company Overview - Company: The Kraft Heinz Company (NASDAQ: KHC) - Event: Bernstein's 39th Annual Strategic Decisions Conference 2023 - Date: June 1, 2023 - Participants: Miguel Patricio (CEO), Alexia Howard (Bernstein) Key Points Company Resilience and Transformation - Kraft Heinz was in a challenging position prior to Miguel Patricio's leadership, but has shown resilience during crises such as the pandemic and inflation [2][3] - The company has implemented AGILE@SCALE initiatives to enhance responsiveness to market dynamics and collaborate with external partners like NotCo and Microsoft [2] Growth Strategy - The company aims for organic growth, shifting from a previous focus on inorganic growth, emphasizing marketing and innovation [5][6] - Kraft Heinz has set a target to generate $2 billion in incremental net sales from innovation over the next five years [8] - The growth strategy includes focusing on Emerging Markets, Foodservice, and specific growth platforms in the U.S. such as Taste Elevation and Convenience Meals [15][16] Financial Performance - In the first quarter, Kraft Heinz achieved a 120 basis points improvement in margins and reported strong growth in Foodservice (30%) and Emerging Markets (23%) [4][15] - The company expects to improve gross margins by 125 to 175 basis points this year, driven by better pricing, product mix, and cost reductions [39] Organizational Changes - Significant cultural changes have been made to prioritize organic growth, marketing, and R&D, with a focus on consumer needs [6][7] - Employee engagement has improved dramatically, with only 7% of employees now unwilling to recommend the company, down from 40% four years ago [10] - The company has centralized revenue management and created 32 multifunctional pods to address high-priority projects [22][24] Innovation and R&D - Kraft Heinz is focusing on disciplined innovation, avoiding the pitfalls of launching numerous unsuccessful products [28][30] - The company has adopted a more strategic approach to R&D, emphasizing incremental innovation and testing products in smaller markets before wider launches [30] Capital Allocation and Divestments - Dividends remain a top priority, alongside maintaining investment-grade status and increasing capital expenditures for innovation and automation [32][33] - The company has divested non-core assets and plans to continue reshaping its portfolio to align with evolving consumer preferences [36][37] ESG Initiatives - Kraft Heinz is committed to becoming carbon neutral by 2050 and aims to use only recyclable or compostable packaging by 2025 [47][48] - The company is actively working on reducing sugar and salt in its products, achieving a 40% reduction in sugar content in Capri Sun [49][50] Supply Chain and Operational Improvements - Service levels have improved significantly, with mid-90s service levels reported in Q1 [52] - Challenges remain in sourcing certain ingredients, such as potatoes, but overall supply chain issues are normalizing [52] Future Outlook - The company anticipates significant growth from its focus on Emerging Markets and Foodservice, projecting a transformative trajectory over the next decade [64][65] - Internal transformations, including improved collaboration and innovation culture, are expected to yield substantial long-term benefits [65] Additional Insights - The company is leveraging artificial intelligence in revenue management to optimize promotional strategies and improve ROI [42][25] - Kraft Heinz is exploring new product innovations, including customizable sauce machines for foodservice, indicating a commitment to enhancing customer experience [66][67]