Kraft Heinz to Highlight Path to Deliver Consistent Profitable Growth at 2024 CAGNY Conference
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Insights
The outlined strategic initiatives by Kraft Heinz, particularly the focus on 'Growth Pillars' and 'Enablers of Growth,' are key indicators of the company's future direction and potential impact on market performance. The emphasis on North America Retail, Global Away From Home and Emerging Markets suggests a diversified growth strategy that can mitigate risks associated with regional market volatility. The investment in marketing, R&D and technology aligns with consumer trends favoring innovation and brand strength, which are critical for maintaining competitive advantage in the food industry.
Moreover, the shift in portfolio categories to 'Accelerate, Protect and Balance' platforms, with a priority on 'Taste Elevation, Easy Ready Meals and Substantial Snacking,' indicates a strategic response to evolving consumer preferences. This realignment could potentially enhance Kraft Heinz's market share in these segments and drive revenue growth. However, the success of these initiatives will largely depend on effective execution and the company's ability to adapt to unforeseen market changes.
From a financial perspective, the replacement of the Adjusted EBITDA target with an Adjusted Operating Income target suggests a refined focus on profitability metrics that are more directly tied to operational efficiency and cost management. The provided long-term growth algorithm, with organic net sales growth of 2% to 3% and Adjusted Operating Income growth of 4% to 6%, positions Kraft Heinz within a reasonable growth trajectory when compared to industry standards.
The modest expansion of the Adjusted Gross Profit Margin and the expected Adjusted EPS growth indicate cautious optimism. However, the forecasted impact of foreign currency headwinds and higher debt refinancing rates could pose challenges to net earnings. Investors should monitor the company's ability to manage these external pressures while assessing the potential for stock performance. The exclusion of additional share buyback in the 2024 outlook may also influence investor sentiment as it suggests a focus on internal capital allocation over direct shareholder return actions in the short term.
Considering the broader economic context, Kraft Heinz's strategy to drive top-line growth through its 'Enablers of Growth' and the adoption of Agile@Scale methodologies may be seen as a proactive approach to navigating the complexities of the current global economic environment. Strategic partnerships and a tech-enabled approach can offer resilience against market disruptions and efficiency in operations.
The company's long-term view, with a 10-year horizon to predict consumer trends, reflects an understanding of the importance of anticipating shifts in consumer behavior and economic cycles. However, the actualization of these forecasts into tangible outcomes will be contingent upon the accuracy of their trend predictions and the flexibility of their strategic implementation in a dynamic economic landscape.
The Company plans to deliver its long-term growth through its three Growth Pillars: North America Retail, Global Away From Home, and Emerging Markets. The Company expects to fuel its top-line growth through its “Enablers of Growth,” which include investments in marketing, research and development, and technology, increased contribution from innovation, expanded collaboration with customers through sales excellence, and deployment of its Brand Growth System. The Brand Growth System is a global methodology, new to Kraft Heinz, designed to enable the Company to measure, monitor and build a superior brand proposition.
To fund these investments, the Company aims to continue driving end-to-end efficiencies, through supply chain, revenue management, working capital, and by expanding centralized services. Powering these are the Company’s unique competitive advantages: tech-enabled Agile@Scale methodologies, strategic partnerships, and an ownership-centric culture.
Also, the Company has further refined its strategy by taking a longer-term approach, looking out to a 10-year horizon across the consumer demand landscape to predict trends and associated opportunities. To capture identified opportunities, the Company refined the role of portfolio categories based on a combination of market attractiveness and its right to win.
As a result, the Company has realigned its portfolio around three new platform roles – Accelerate, Protect, and Balance. It expects the Accelerate platforms, which include Taste Elevation, Easy Ready Meals, and Substantial Snacking, to drive outsized growth and plans to prioritize investments in these platforms. The Company will further describe these changes in today’s presentation.
Long-Term Financial Profile
The Company will also detail its long-term growth algorithm. The targets remain unchanged, with the exception of replacing the previous Adjusted EBITDA(1) target with a target for Adjusted Operating Income(1). This is a result of the Company’s work to rewire the organization to drive a stronger connection to total shareholder return and create an enhanced level of ownership throughout the Company. The long-term algorithm consists of:
-
Organic Net Sales(1) growth of
2% to3% . -
Adjusted Operating Income(1) growth of
4% to6% . -
Adjusted EPS(1) growth of
6% to8% . -
Free Cash Flow Conversion(1) at approximately
100% .
2024 Outlook
As announced in its fourth quarter and full year 2023 earnings, the Company reiterates its expectation to deliver:
-
Organic Net Sales(1) growth of
0% to2% versus the prior year. The Company expects a positive contribution from price throughout the year, with volumes inflecting positive in the second half of the year. -
Adjusted Operating Income(1) growth of
2% to4% versus the prior year. Adjusted Gross Profit Margin(1) is expected to expand modestly, in the range of 25 to 75 basis points versus the prior year. -
Adjusted EPS(1) growth of
1% to3% versus the prior year, or in the range of$3.01 $3.07 20% to22% . Additionally, the Company expects an unfavorable impact of approximately$45 million
End Notes
(1) |
Organic Net Sales, Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Operating Income, Adjusted EBITDA, Adjusted EPS, Free Cash Flow, and Free Cash Flow Conversion are non-GAAP financial measures. Please see discussion of non-GAAP financial measures and the reconciliations at the end of this press release for more information. Guidance for Organic Net Sales, Adjusted Gross Profit Margin, Adjusted Operating Income, and Adjusted EPS is provided on a non-GAAP basis only because certain information necessary to calculate the most comparable GAAP measure is unavailable due to the uncertainty and inherent difficulty of predicting the occurrence and the future financial statement impact of such items impacting comparability, including, but not limited to, the impact of currency, acquisitions and divestitures, divestiture-related license income, restructuring activities, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, certain non-ordinary course legal and regulatory matters, equity award compensation expense, nonmonetary currency devaluation, and debt prepayment and extinguishment (benefit)/costs, among other items. Therefore, as a result of the uncertainty and variability of the nature and amount of future adjustments, which could be significant, the Company is unable to provide a reconciliation of these measures without unreasonable effort. |
Webcast Information
A prepared presentation at the CAGNY conference will begin at 11 a.m. Eastern Standard Time today and will be available at ir.kraftheinzcompany.com. A replay will also be accessible after the event at ir.kraftheinzcompany.com.
ABOUT THE KRAFT HEINZ COMPANY
We are driving transformation at The Kraft Heinz Company (Nasdaq: KHC), inspired by our Purpose, Let’s Make Life Delicious. Consumers are at the center of everything we do. With 2023 net sales of approximately
Forward-Looking Statements
This press release contains a number of forward-looking statements. Words such as “aim,” “capture,” “deploy,” “expect,” “increase,” “invest,” “plan,” “predict,” and “will,” and variations of such words and similar future or conditional expressions are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements regarding the Company's plans, impacts of accounting standards and guidance, growth, legal matters, taxes, costs and cost savings, impairments, dividends, expectations, investments, innovations, opportunities, capabilities, execution, initiatives, and pipeline. These forward-looking statements reflect management's current expectations and are not guarantees of future performance and are subject to a number of risks and uncertainties, many of which are difficult to predict and beyond the Company's control.
Important factors that may affect the Company's business and operations and that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, operating in a highly competitive industry; the Company’s ability to correctly predict, identify, and interpret changes in consumer preferences and demand, to offer new products to meet those changes, and to respond to competitive innovation; changes in the retail landscape or the loss of key retail customers; changes in the Company's relationships with significant customers or suppliers, or in other business relationships; the Company’s ability to maintain, extend, and expand its reputation and brand image; the Company’s ability to leverage its brand value to compete against private label products; the Company’s ability to drive revenue growth in its key product categories or platforms, increase its market share, or add products that are in faster-growing and more profitable categories; product recalls or other product liability claims; climate change and legal or regulatory responses; the Company’s ability to identify, complete, or realize the benefits from strategic acquisitions, divestitures, alliances, joint ventures, or investments; the Company's ability to successfully execute its strategic initiatives; the impacts of the Company's international operations; the Company's ability to protect intellectual property rights; the Company’s ability to realize the anticipated benefits from prior or future streamlining actions to reduce fixed costs, simplify or improve processes, and improve its competitiveness; the influence of the Company’s largest stockholder; the Company's level of indebtedness, as well as our ability to comply with covenants under our debt instruments; additional impairments of the carrying amounts of goodwill or other indefinite-lived intangible assets; foreign exchange rate fluctuations; volatility in commodity, energy, and other input costs; volatility in the market value of all or a portion of the commodity derivatives we use; compliance with laws and regulations and related legal claims or regulatory enforcement actions; failure to maintain an effective system of internal controls; a downgrade in the Company's credit rating; the impact of sales of the Company's common stock in the public market; the impact of our share repurchases or any change in our share repurchase activity; the Company’s ability to continue to pay a regular dividend and the amounts of any such dividends; disruptions in the global economy caused by geopolitical conflicts; unanticipated business disruptions and natural events in the locations in which the Company or the Company's customers, suppliers, distributors, or regulators operate; economic and political conditions in
Non-GAAP Financial Measures
The non-GAAP financial measures provided in this press release should be viewed in addition to, and not as an alternative for, results prepared in accordance with accounting principles generally accepted in
The Company has presented Organic Net Sales, Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Operating Income, Adjusted EBITDA, Adjusted EPS, Free Cash Flow, and Free Cash Flow Conversion, which are considered non-GAAP financial measures. The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. These measures are not substitutes for their comparable GAAP financial measures, such as net sales, net income/(loss), gross profit, diluted earnings per share (“EPS”), net cash provided by/(used for) operating activities, or other measures prescribed by GAAP, and there are limitations to using non-GAAP financial measures.
Management uses these non-GAAP financial measures to assist in comparing the Company’s performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect the Company’s underlying operations. The Company believes:
- Organic Net Sales, Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Operating Income, Adjusted EBITDA, and Adjusted EPS provide important comparability of underlying operating results, allowing investors and management to assess the Company’s operating performance on a consistent basis; and
- Free Cash Flow and Free Cash Flow Conversion provide a measure of the Company’s core operating performance, the cash-generating capabilities of the Company’s business operations, and are factors used in determining the Company’s borrowing capacity and the amount of cash available for debt repayments, dividends, acquisitions, share repurchases, and other corporate purposes.
Management believes that presenting the Company’s non-GAAP financial measures is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items, (ii) permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating the Company’s results. The Company believes that the presentation of these non-GAAP financial measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provides investors with additional understanding of the factors and trends affecting the Company’s business than could be obtained absent these disclosures.
Definitions
Organic Net Sales is defined as net sales excluding, when they occur, the impact of currency, acquisitions and divestitures, and a 53rd week of shipments. The Company calculates the impact of currency on net sales by holding exchange rates constant at the previous year's exchange rate, with the exception of highly inflationary subsidiaries, for which the Company calculates the previous year's results using the current year's exchange rate.
Adjusted Operating Income is defined as net income/(loss) from continuing operations before interest expense, other expense/(income), and provision for/(benefit from) income taxes; in addition to these adjustments, the Company excludes, when they occur, the impacts of restructuring activities, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, and certain non-ordinary course legal and regulatory matters.
Adjusted EBITDA is defined as net income/(loss) from continuing operations before interest expense, other expense/(income), provision for/(benefit from) income taxes, and depreciation and amortization (excluding restructuring activities); in addition to these adjustments, the Company excludes, when they occur, the impacts of divestiture-related license income, restructuring activities, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, certain non-ordinary course legal and regulatory matters, and equity award compensation expense (excluding restructuring activities).
Adjusted Gross Profit and Adjusted EPS are defined as gross profit and diluted earnings per share excluding, when they occur, the impacts of restructuring activities, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, certain non-ordinary course legal and regulatory matters, losses/(gains) on the sale of a business, other losses/(gains) related to acquisitions and divestitures (e.g., tax and hedging impacts), nonmonetary currency devaluation (e.g., remeasurement gains and losses), debt prepayment and extinguishment (benefit)/costs, and certain significant discrete income tax items (e.g.,
Free Cash Flow is defined as net cash provided by/(used for) operating activities less capital expenditures. The use of this non-GAAP measure does not imply or represent the residual cash flow for discretionary expenditures since the Company has certain non-discretionary obligations such as debt service that are not deducted from the measure. Free Cash Flow Conversion is defined as Free Cash Flow divided by Adjusted Net Income/(Loss).
View source version on businesswire.com: https://www.businesswire.com/news/home/20240221146866/en/
Alex Abraham (media)
Alex.Abraham@kraftheinz.com
Anne-Marie Megela (investors)
Anne-Marie.Megela@kraftheinz.com
Source: The Kraft Heinz Company
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