The Kraft Heinz Company (NASDAQ:KHC) Q1 2024 Earnings Call Transcript

The Kraft Heinz Company (NASDAQ:KHC) Q1 2024 Earnings Call Transcript May 2, 2024

The Kraft Heinz Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and thank you for standing by. Welcome to The Kraft Heinz Company First Quarter Results Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation there will be question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Anne-Marie Megela, Global Head of Kraft Heinz Investor Relations.

Anne-Marie Megela: Thank you, and hello, everyone. Welcome to our Q&A session for our first quarter 2024 business update. During today’s call, we may make forward-looking statements regarding our expectations for the future, including items related to our business plans and expectations, strategy, 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 the Q&A session, it gives me great pleasure to hand it over to our Chief Executive Officer, Carlos Abrams-Rivera, for opening comments. Please, Carlos.

Carlos Abrams-Rivera: Well, thank you, Anne-Marie, and thank you, everyone, for joining us today. So before we begin our Q&A, I’d just like to provide some perspective on our top-up session here at Kraft Heinz, our consumers. And while we’ve seen a notable uptick in consumer sentiment in the first quarter, there is a gap between high and low earners continues to remain wide, and it shows a clear and continued bifurcation. So the lowered-income consumers are challenged with interest rates remaining high, gas prices elevated and savings dwindling. So there’s a clear pullback of restaurant spend by these lower-earning households, especially in restaurants and convenience stores. These consumers instead are looking for value as they prepare more meals at home.

So in contrast, there has been a meaningful growth in travel and accordingly, an increasing hospitality and entertainment sales, driven by the bounce back among the higher earners. And here at Kraft Heinz, we are here to meet the evolving needs and taste of all consumers, whether they’re looking for value in serving their family delicious meals at home or seeking culinary delights that they set out on new adventures. They can look to the iconic and trusted brands of Kraft Heinz. So for us, it’s about having brands that are accessible and available to everyone. I believe we’re well positioned to serve all of this consumer for three primary reasons: one, because we are bringing innovative food solutions and faster than ever before; two, because we continue to renovate our core brands for today and tomorrow; and three, because we have the best team in the industry, full stop.

We are on track to meet our goals of generating $2 billion incremental net sales from innovation, and the world has taken notice as we were recently named one of the world’s Top 50 Most Innovative Companies by Fast Company. But more importantly, we are expanding the choices we offer our consumers so that they don’t have to sacrifice, whether it’s providing greater value through multipacks, plant-based options such as our newly released NotCo Mac & Cheese or expanded the choices in our iconic brands such as Zero Sugar Heinz Ketchup. Myself, I’ve been traveling around the world visiting with our employees, and they are consumer obsessed. Their sense of ownership, collaboration and agility is so inspirational. I just want to say thank you to every one of them for their dedication.

We are proud of our progress, both far from satisfied, as we continue focusing on serving these consumers and making lives delicious for everyone. And with that, I have Andre joining me, so let’s open the call for Q&A.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Andrew Lazar with Barclays. You may proceed.

Andrew Lazar: Thanks. Good morning, Carlos and Andre.

Carlos Abrams-Rivera: Good morning, Andrew.

Andrew Lazar: Hi. It looks like KHC is still losing share in North America Retail, though at a more modest pace recently. But in the ACCELERATE platform specifically, your remarks call out holding or gaining share in about 55% of this platform. I guess would you expect this percentage to be higher given the disproportionate allocation of resources to this platform? I guess a little more detail on share trends within ACCELERATE would be helpful. And then you mentioned U.S. restaurants softening a bit. Are you starting to see any of that on the flip side benefit at-home eating for your business? And if not, why would that be? Thanks so much.

Carlos Abrams-Rivera: Yes. So thank you, Andrew, for the question. Before I get into the ACCELERATE, let me just at least give you a view of how I’m seeing so far the business performance. If you look at the last five weeks, just to remove the noise of Easter, we actually continued to see volume share improvement versus year-to-date, and we’re holding dollar share at the same pace in the U.S. So that’s at the macro level in the U.S. for our company. Now if you look at the ACCELERATE platforms, we actually continue to outperform the other platforms. So far, we are seeing flat in dollar share and growing volume share by 0.2 points. And now let me just break the other two, and then I’ll go back to ACCELERATE. We are losing share in PROTECT platforms, as we continue to see the impact of the decline in SNAP benefits.

At the same time, I’m actually pretty excited about the renovations we are seeing in these brands because we are going to be continuing to bring more consumer preference options as we go into the sense of the year. In our BALANCE part of our portfolio, we are losing share but improving versus a year ago versus year-to-date, primarily driven by coffee. Now to your question about ACCELERATE platforms. There’s a couple of big brands that are in there that I would like to unpack a little more. If you think about our Mac & Cheese business, which is within the ACCELERATE platform, what you’re going to be continuing to see is: one, we are going to start lapping a lot of the headwinds from SNAP. Mac & Cheese was probably one of the more categories that were more actually impacted by SNAP.

And as we go into Q2, beginning now in May, you’ll see a plethora of new innovations from gluten-free to new options and flavors on our Mac & Cheese business as well as some new, exciting things for the category with some new SKUs that we’re bringing in the second half of the year. If you look at the other parts of our ACCELERATE platform, that includes our condiments. And the condiments side, what I would say is our category actually is expanding. So we are growing, and we’re actually growing volume share. So for us, is how do we continue to drive this growth within the category that has the right tailwinds behind it. And you’ll see us continue to expand on the number of offers and innovations and we go into year to go. The one note that may be also helpful to understand in the ACCELERATE platform is also we also got out some non-strategic business, in particular, our Heinz bulk vinegar, which was a business that for us in terms of the economics didn’t make us more sense.

So we also exited that in the first quarter of the year. So hopefully, that gives you a sense how we’re thinking about ACCELERATE within the comfort of our total company. I think the second part of your question is on an Away From Home business. And I think let me just say that right now, as I mentioned in some of the prepared remarks, we are seeing some of the slowing of the restaurant traffic in the U.S., which some of it is impacting our business, but also some of the impact that we saw in the first quarter was due to us exiting some low-margin businesses, as we think about making the right choice for the overall P&L. The actual exit of the business was about $50 million in the first quarter, and that’s going to be similar throughout the rest of the year.

Now for us, as we believe as we go forward, we actually believe that it’s about us continuing to drive the importance of Away From Home in new channels. I mentioned in the opening remarks that we’re also seeing great opportunities in terms of travel and leisure. And that’s an area where our teams are both focused because of the only growth, but also because it allows us to expand margins into those areas. And we also are seeing improvement in terms of distribution of our core businesses as we go into Q3. So again, I feel very good about Away From Home. I think that the trends will continue to improve. And at the same time, for us at Kraft Heinz, we have the scale to make sure that no matter where our consumers are shopping at hotels, where they’re going into restaurants or a home, that we have the distribution opportunity for us to kind of make sure that we are there to service anywhere they are.

Thanks for the question, Andrew.

Andrew Lazar: Thank you.

Operator: Thank you. [Operator Instructions] Our next question comes from Ken Goldman with JPMorgan. You may proceed.

Kenneth Goldman: Hi. Good morning. Thank you.

Carlos Abrams-Rivera: Hi, Ken.

Kenneth Goldman: Hi. You mentioned inflation in your comments in a few areas. I guess two questions here. First, I don’t think you updated us, forgive me if I missed it, but I think last time you were talking about maybe 3% cost inflation for the year. I’m just curious if that’s still a reasonable number. And then I guess, second, more broadly, there’s been a lot of attention paid to cocoa, obviously, but coffee inflation has been fairly notable as well. And I’m just curious, right, even though historically, coffee is somewhat of a pass-through category, do you think that if you and your competitors need, you’ll be able and even willing to raise prices to customers as much as you typically might hear? Or do you maybe expect a little more, I guess, pushback than usual?

Carlos Abrams-Rivera: Thank you, Ken, for the question. Let me just – okay, let me start, and then I’ll ask Andre to continue to build on it. For us, we are certainly committed to continue to provide families with affordable options. And that means something that we take very seriously. And if you think about 2023, we did end the year with a 3% inflation, but we only pass about 1% pricing to consumers. So we do that very much intentional in a way for us to make sure we are all doing everything we can to offset things so that consumers don’t see it. Now Andre, if you want to comment a little more in terms of what you see in terms of cost inflation today in the coffee category.