Kraft Heinz(KHC) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported mid-single-digit top-line growth, which was within the expected range despite losing market share due to wider price gaps [4][11] - The gross margin is expected to improve in Q4 compared to Q3, driven by seasonal factors and higher-margin product sales [68] Business Line Data and Key Metrics Changes - The GROW platforms, including Taste Elevation and Easy Meals, showed strong consumption growth of 8% and 6% respectively, although organic sales growth was below consumption in certain areas [56][78] - Innovations such as the new frozen Mac and Cheese and the IHOP coffee line are expected to drive volume growth and improve market presence [73][83] Market Data and Key Metrics Changes - Retail inventory levels were reported to be flat across North America, indicating stable supply conditions [91] - Price gaps have been narrowing favorably, contributing to improved market share in recent months [50] Company Strategy and Development Direction - The company continues to focus on long-term growth strategies, emphasizing marketing investments and innovation to drive share gains [10][33] - There is a disciplined approach to promotions, with a focus on achieving positive returns while managing margins effectively [17][38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strategy and business outlook, expecting improving volume trends in the second half of 2023 and into 2024 [11][60] - The company is actively monitoring competitive behavior and market dynamics to adjust its promotional strategies accordingly [37][40] Other Important Information - The company is ahead of its efficiency plan, expecting to deliver more than $500 million in savings by year-end [88] - The management reiterated that they would not change their capital allocation policy, maintaining a focus on organic funding for the business [22] Q&A Session All Questions and Answers Question: What is the expected organic sales growth rate for the second half? - Management expects organic sales growth to gradually align with the long-term model of 2% to 3% between Q3 and Q4 [21] Question: Will debt pay down move down in importance given current leverage? - Management confirmed that capital allocation priorities remain unchanged, with a consistent focus on funding the business organically [22] Question: How are promotional levels expected to change in the second half? - Management indicated a planned step-up in promotional levels in selected categories while maintaining a disciplined approach to ensure positive returns [24] Question: What is driving the gap between organic sales growth and consumption? - The gap is attributed to inventory de-loads and competitive pricing actions, with expectations for improvement as pricing actions from the previous year are lapped [78][84] Question: What is the outlook for inflation and gross margin? - Management noted that commodity prices are generally declining, which is expected to positively impact gross margins moving forward [87][99]