The Kraft Heinz Company (NASDAQ:KHC) Q4 2022 Earnings Call Transcript

The Kraft Heinz Company (NASDAQ:KHC) Q4 2022 Earnings Call Transcript February 15, 2023

Operator: Good day, and thank you for standing by. Welcome to The Kraft Heinz Company Fourth Quarter Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I’d now like to hand the conference over to your speaker today, Anne-Marie Megela. Please go ahead.

Anne-Marie Megela: Thank you, and hello, everyone. This is Anne-Marie Megela, Head of Global Investor Relations at The Kraft Heinz Company, and welcome to our Q&A session for our fourth quarter 2022 business update. During today’s call, we may make forward-looking statements regarding our expectations for the future, including 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, I’m now going to hand it over to CEO, Miguel Patricio, for some brief opening comments.

Photo by Madison Oren on Unsplash

Miguel Patricio: Thank you, Anne-Marie, and thank you, everyone, for joining us here today. Let me first take a moment to say, how proud I am of Kraft Heinz team. We have come so far on our transformation journey. It’s quite amazing. And the fourth quarter was no exception. You can see the momentum building across our business, service levels and market share trends are improving. Base volumes are positive. We are outpacing the competition in foodservice and emerging markets and by a lot. And importantly, we continue to invest for growth. Once again, we have unlocked efficiencies over $400 million this year, and this allow us to invest in new tools and capabilities for our teams, a new product innovation for our consumers. From a pricing perspective, 99% of all needed pricing has already been announced for 2023.

As we look to the rest of the year, we have no current plan to announce new pricing in North America, Europe, Latin America and most of Asia. I am very optimistic. I’m very excited about how we are positioned to deliver long-term sustainable growth. With that, I’ll ask Andre, Carlos and Rafael to join me. So let’s open the call for the Q&A.

See also 12 Most Profitable Robinhood Stocks and Billionaire Ken Fisher’s Dividend Growth Picks.

Q&A Session

Operator: . Our first question comes from Andrew Lazar with Barclays.

Andrew Lazar: Great. Thanks. Good morning, everybody. Your EBITDA guidance for fiscal ’23 excluding the impact from the 53rd week is actually in line with your long term algorithm. And when you detailed this, I guess at CAGNY a year ago, you sort of I think said it would take multiple years to reach this level of growth. So I guess in this regard, I’m trying to get a sense of whether — if I have this right, whether you are ahead of schedule? And if so, what you attribute it to? Like, what’s gone better or faster maybe than you anticipated? And I guess most importantly, are you in a place where you see this level of growth now as more sustainable? Thank you.

Miguel Patricio: Thank you, Andrew, for the question. Andre, could you answer this question?

Andre Maciel: Sure. Hi, Andrew. Good morning again. And thanks for the question and thanks a lot for noticing it. In fact, we feel very proud about what we have been achieving as a company. And I think in 2023, we will mark another step-up in our performance. And as we all notice, we are on the long-term algorithm already on net sales and also on EBITDA, if we remove the effects from currency and from the 53rd week. And I think this is the best way to show that transformation is working through results, right? And it’s good to see how 2022 that we finished in very strong momentum, how that’s translating into a stronger performance in 2023. This is a consequence of our market share in the U.S. continuing to improve. Still negative but improving, as foodservice continues to deliver at high at above 30%, emerging markets growing double-digits in a strong rate.

So all these, in terms of growth, are working in our favor. Supply chain efficiencies continue to happen. And in 2023, as you might have noticed in guidance, we are expanding gross margin and see our path to go back to 2019 levels, which is allowing us to continue to increase the investment in the business for growth. So we are in 2023 increasing investments behind marketing, technology and people, which are critical levers for us to fuel the growth of the company. So we feel good about, where we are moving. We still want to do, but we will.

Operator: One moment for our next question. Our next question comes from Bryan Spillane with Bank of America.

Bryan Spillane: Thanks, operator. Good morning, everyone. My question is about just the free cash flow, and I have a couple of questions related to that. I guess the first is just simply, Andre, can you give us a little bit more insight in terms of, I guess, the inventory build? Is it finished goods inventory? Is it raw materials, the decision to do that? And I guess, in the prepared remarks, it’s tied to service level. So are you going to need to carry elevated inventories through ’23? Is my first question.

Andre Maciel: Sure. Thanks for the question. Look, as we said, as you have seen throughout 2022, we had to rebuild inventory. Our case fill rate at the end of ’21 was in the low 80s, which is extremely low. So we had a lot of recovery to do. So you have seen throughout the year, the effect of us build inventory. Keep in mind that we finished 2022 is still in the low 90s. So it’s still not what retailers are expecting it should be and what we expect ourselves should be. Being said that, we do have, compared to historical levels, higher inventory coverage in average in raw and package materials, also, which is normal because we’re also trying to build the buffers given all the volatility and uncertainty. So we expect that those raw and package materials should decline over time, including starting in 2023.