Kraft Heinz CEO on 'disappointing' 2019 results: 'We have taken critical actions over the past six months to re-establish visibility and control'
In a note issued after Kraft Heinz posted its Q4 results, Bernstein noted that volume declines in the US - by far the firm's largest market - were seen in cheese, coffee, cold cuts and bacon as prices increased, although condiments and sauces and foodservice saw growth.
“Many uncertainties still persist, including whether and how quickly the company can stabilize the top line, particularly given tough retailer dynamics and the need to retool the approach to innovation. On the margin side, the impact of African Swine Fever on input costs for Oscar Mayer could also intensify during the course of 2020.”
Over time, it said, “it remains to be seen whether further investment will be required in marketing, innovation, ingredients and people to get the top line moving again, especially given the vulnerability of the cheese business to private label, distribution losses in frozen meals and challenging retailer environment for companies that are not contributing to retailer growth.”
However, it added: “Management provided an outlook for 2020 that includes a meaningful rebasing of EBITDA and earnings to reinvest in people and working media. We see this as a good sign that the incoming CEO [Miguel Patricio, who took the helm on July 1, 2019] is taking the necessary steps to stabilize the business rather than rearranging the deck chairs.”
CEO: Focus on 'fewer, bigger, bolder initiatives'
“While our 2019 results were disappointing, we closed the year with performance consistent with our expectations, and driven by factors we anticipated,” said CEO Miguel Patricio, who will be unveiling a hotly anticipated strategic plan for the company in May.
"Our turnaround will take time, but we expect to make significant progress in 2020, laying a strong foundation for future growth.”
'A 30% boost in working media'
He also announced his "intention to shift support and emphasis to fewer, bigger, bolder initiatives. Our 2020 plans now call for 50% fewer projects, and a significant shift from line extensions to expansionary launches... We are going to cut everything that is not accretive, that is cannibalistic, a lot of line extensions that we did in the past.
"2018 was the first year our US zone reduced its total SKU count since the Kraft Heinz merger. In 2020, we will accelerate the rate of reduction to bring us back to below 2016 levels. We will also strengthen brand support with more total marketing dollars, a 30% boost in working media and by better prioritizing our spending according to portfolio roles."
As for the notion that Kraft Heinz had destroyed morale by a culture of relentless cost cutting, he said: "You have to cut. So there’s the possibility of synergies by cutting. But after two years, cutting becomes dangerous. We cannot have a culture of cutting..."
US Q4 sales
US net sales dropped 2.7% to $4.7bn in Q4, while pricing increased 3.1%, said the company, which had a dismal year in 2019, beginning with a $15.4bn write-down signaling a plunge in the value of some of its most famous brands, swiftly followed by news of a Securities and Exchange Commission (SEC) investigation into the company’s accounting and controls.
