Kraft Heinz : Q3 2022 Q&A Transcript

The Kraft Heinz Company

Q3 2022 Earnings Call | Oct 26, 2022

COMPANY PARTICIPANTS

Anne-Marie Megela

Vice President, Global Head of Investor Relations, The Kraft Heinz Co.

Miguel Patricio

Chief Executive Officer & Chairman, The Kraft Heinz Co.

Andre Maciel

Executive Vice President & Global Chief Financial Officer, The Kraft Heinz Co.

Carlos Abrams-Rivera

Executive Vice President and President, North America, The Kraft Heinz Co.

Rafael Oliveira

Executive Vice President and President, International Markets, The Kraft Heinz Co.

OTHER PARTICIPANTS

Andrew Lazar

Analyst, Barclays Capital, Inc.

Ken Goldman

Analyst, JPMorgan Securities LLC

Bryan D. Spillane

Analyst, Bank of America Securities

Christopher R. Growe

Analyst, Stifel, Nicolaus & Co., Inc.

Alexia Howard

Analyst, Sanford C. Bernstein & Co. LLC

Steve Powers

Analyst, Deutsche Bank Securities, Inc.

David Palmer

Analyst, Evercore ISI

John Baumgartner

Analyst, Mizuho Securities USA LLC

Michael S. Lavery

Analyst, Piper Sandler & Co.

The Kraft Heinz Company

Q3 2022 Earnings Call | Oct 26, 2022

QUESTION & ANSWER SESSION

Operator: Ladies and gentlemen, thank you for standing by and welcome to The Kraft Heinz Company Third Quarter Results. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session.

I would now like to turn the call over to your host, Anne-Marie Megela, Global Head of Investor Relations. You may begin.

Anne-Marie Megela

Vice President, Global Head of Investor Relations, The Kraft Heinz Co.

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 third 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.comunder News & Events for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures.

Before we begin, I'm going to hand it over to our CEO, Miguel Patricio, for some brief opening comments.

Miguel Patricio

Chief Executive Officer & Chairman, The Kraft Heinz Co.

Well, thank you, Anne-Marie, and thank you everyone for joining us here today. We are excited. We are proud. We delivered another quarter of strong results. And as we see consumer demand remaining strong and elasticities continue to hold, we see our portfolio of iconic brands strong and very adequate for the moment that we are living in. And we continue investing in these brands and are seeing that this investment is paying off.

Yet, at the same time, we know that the supply chain remains challenging, particularly with inflation and material shortages. I'm proud of the teams as they continue to anticipate and adapt to these challenges.

The Kraft Heinz Company

Q3 2022 Earnings Call | Oct 26, 2022

Where we improve capacity and we're able to meet demand, we actually gained share. At the same time, we continue to advance our transformation, including modernizing our marketing and transforming our portfolio.

As we look ahead, we continue to be cautiously optimistic. We are providing our consumers with solutions that they value, and we continue to unlock efficiencies and reinvest in the business. All of which makes us stronger and positions us well for whatever challenges are still to come.

With that, we are very happy to take your questions.

Operator: Thank you. Our first question comes from Andrew Lazar with Barclays. Your line is open.

Andrew Lazar

Analyst, Barclays Capital, Inc.

Great. Thanks so much. I guess maybe to start, the company had moderated its EBITDA expectations back on September 1st for the third quarter, when you were already about two months into the quarter. Today, you not only beat those expectations, but came in above the initial guidance as well.

So, what came in better than you thought? Are there any timing issues to be aware of that might impact 4Q as a result? And maybe more importantly, do these fluctuations give you any pause with respect to visibility into the business, with the understanding that it's obviously still a very dynamic environment?

Miguel Patricio

Chief Executive Officer & Chairman, The Kraft Heinz Co.

Andrew, thank you for the question. Andre, you may answer this one.

Andre Maciel

Executive Vice President & Global Chief Financial Officer, The Kraft Heinz Co.

Sure. Good morning, Andrew. It's Andre. So, Andrew, first of all, we - as Miguel said at the beginning, I think we feel very excited and pleased with the results we achieved in the quarter. And I'll tell you that a lot of things happened in our favor towards the month of September.

First of all, if you might remember, we have executed a new price increase in the month of August and the elasticity turned out to be stronger than what we anticipated, which resulted in strong top line.

Shipments were very good. I think our team did a great job in the month of September to be able to ship at a much better pace than earlier in the quarter, which also helped. We ended up spending less on promotion than we have initially anticipated, which is fine as well because we're being very prudent to put all the promotional expense in our portfolio.

The Kraft Heinz Company

Q3 2022 Earnings Call | Oct 26, 2022

And finally, we did have about $30 million of unplanned gains in the P&L, 80% in COGS, 20% in SG&A. And those are mostly anticipations from Q4. Okay. That we were able to do in Q3.

And obviously, as we also have a little contingency, the number given the volatility, right? But all in all, I think we're able to have a lot of those things play in our favor. I think it's a testimony here that the organization is moving with the speed and reacting fast to diversities and remember as well that we maintained the guide for the year in Q3, right? And so, I think we felt confident about the number that we could deliver. And I think we're just reinforcing that now by raising the floor.

And you can count on us to always maintain a transparent dialogue, and at the same time in a very timely fashion like we did back in September when we had news about new inflationary pressure.

Andrew Lazar

Analyst, Barclays Capital, Inc.

Great. That's very helpful. Thanks so much. I'll pass it on.

Operator: One moment for our next question. Our next question comes from Ken Goldman with JPMorgan. Your line is open.

Ken Goldman

Analyst, JPMorgan Securities LLC

Hi. Thanks so much. You mentioned that your supply chain tightness is still mostly caused by factors from your upstream suppliers. This is not an uncommon refrain. We're certainly hearing this from many of your peers.

I'm just curious, can you maybe help us better understand what the specific issues are? You mentioned disruptions, I guess, on ingredients and packaging. Does this suggest that the issues are somewhat temporary? They can fade when the disruptions have passed or are there maybe some structural problems, I guess, that could take longer to fix? Thank you.

Miguel Patricio

Chief Executive Officer & Chairman, The Kraft Heinz Co.

Great. Carlos, I think that's related to U.S. Go ahead, please.

The Kraft Heinz Company

Q3 2022 Earnings Call | Oct 26, 2022

Carlos Abrams-Rivera

Executive Vice President & President-North America Zone, The Kraft Heinz Co.

Yes. What I would say - first of all, thank you for the question. What I'll say is that I think you can see that the environment continues to be challenging. And what I'm really proud of is the fact that our team is doing a terrific job of working through the waves of challenges.

So, as we speak, we are both rebuilding inventory and improving service levels, and we have done that through the quarter. Sequentially in this quarter, I think we continue to see that going forward.

I think what - if I take a step back in terms of overall constraints, what I see is about 80% of those challenges are really due to upstream supply distribution on ingredients and certain packaging materials. At the same time, what I'm saying is it's very asynchronous the way they're recovering.

So, you'll see that in some cases, we are moving quickly and recovering overall in our supply chain. There are a few ingredients that have been a little tighter for us. And I point to things like - have affected us in the past on things like Cold Cuts and then Lunchables - I'm sorry, Cream Cheese. And at the same time, even in those categories, we now have recovered and feel good about of our position as we go towards the end of the year.

Ken Goldman

Analyst, JPMorgan Securities LLC

Got it. Thank you.

Carlos Abrams-Rivera

Executive Vice President & President-North America Zone, The Kraft Heinz Co.

Thank you.

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

Bryan D. Spillane

Analyst, Bank of America Securities

Thanks, operator. Good morning, everyone. Maybe build on the previous two questions. You're kind of looking at the current environment now dealing with what you're dealing with suppliers and seeing what you're seeing in the marketplace. Is there any reason that we shouldn't expect that your long-term