- Kraft Heinz closed out 2019 with sales dropping 5.1% and earnings before interest, taxes, depreciation and amortization falling 6.6%, both compared to the last quarter in 2018. But CEO Miguel Patricio told investors on a conference call that it appears the company is on the right track for growth.
- In the U.S., the food giant's largest market, net sales were close to $4.7 billion — down 2.7% from the year-ago period. Officials said this decrease was anticipated and was the result of consumer price increases to match those for commodities — up an average of 3.1% — and lower distribution to some retailers. Patricio said the company is working to decrease its SKU count, which also could have contributed to lower sales. The value of the Maxwell House trademark also saw a $213 million reduction.
- The company was expecting to unveil a detailed roadmap to return to profitability early this year, but on Thursday Patricio told investors he will roll it out at an investor conference in early May. The reason for the delay is the recent appointment of key personnel, including Carlos Abrams-Rivera, the company's new U.S. zone president, who started at Kraft Heinz earlier this month. Patricio said he wants Abrams-Rivera to play a key role in setting the company's strategy and goals going forward.
After Kraft Heinz's Q4 earnings were released, Patricio began speaking to investors with something that could be considered a gross understatement: The recognition that 2019 was a "very difficult year for Kraft Heinz, for our employees, our board and for our stakeholders."
Indeed, after the company's disastrous earnings report in February 2019, where the company took a $12.6 billion net loss on a write down of its Kraft and Oscar Mayer brands, slashing its dividends more than 36%, and disclosed an investigation into procurement accounting and control policies by the U.S. Securities and Exchange Commission, Kraft Heinz has been constantly in comeback mode. This led to Patricio's appointment last spring to take the company's helm and chart a course for improvement.
Since he's taken over the company, Patricio has worked behind the scenes to restructure the company, improve efficiency in the supply chain, streamline operations and put the right people in place to help the company grow. And, he said, the results so far have been encouraging — even though these changes haven't yet translated to dramatic changes in earnings.
"We have taken critical actions over the past six months to re-establish visibility and control over the business," Patricio said in an earnings press release. "And we remain convinced Kraft Heinz has the potential to achieve best-in-class financial performance as we begin transforming our capabilities and making necessary investments in our brands based on deep consumer insights. Our turnaround will take time, but we expect to make significant progress in 2020, laying a strong foundation for future growth.”
Underscoring that optimism, the company's board approved a 40-cent dividend to shareholders on Thursday morning. Patricio told investors it is because they are positive Kraft Heinz is on a solid path to growth, and 2020 is the first year of this initiative.
One of the ways Kraft Heinz will see this growth is by concentrating on its core successes and working to make them grow. The company is currently using SKU rationalization to cut down on products that detracted from the company's efficiency. And it is working; 2019 was the first year since the Kraft Heinz merger in 2015 that the company had fewer SKUs at the end of the year than the beginning, executives said.
The company is doubling down on the mentality behind this concept. In 2020, Patricio said, Kraft Heinz will cut the number of its innovation projects in half — something few food and beverage companies would plan in today's world of trying to capitalize on quickly emerging food trends. Patricio said he anticipates sales for the lower number of innovations will roughly be the same as they were for a larger cornucopia of innovations in 2019.
With some of those R&D savings, he expects to shift more money to media campaigns. The company plans to spend 30% more this year on quality campaigns around well-known brands in areas that will have an impact on consumers. Some previous media investments and promotions, he said, had poor returns on investment, so he hopes to make all marketing helpful to its bottom line.
Despite the focus on efficiency, large job cuts are not planned, Patricio said. Cuts seemed to be Kraft Heinz's hallmark during the first two years after the merger, he said. It made sense at that point because bringing together two large manufacturers showed several opportunities for cost synergies.
"We cannot have a culture of cutting because it is not long term," Patricio said. "We have to change that culture to a continuous improvement mentality. You can always improve. And actually, the consequence of continuous improvement is productivity."
The company is also not likely to divest brands at this point. Patricio and CFO Paulo Basilio did not rule out possibilities of sales, but there is no rush. Basilio said the company could explore options, but be very disciplined and careful to ensure it gets a fair price.
While it seems the company is working to build a firm foundation, investors may have wanted to see more from this report. In early trading Thursday, Kraft Heinz's shares were down more than 8%.