Today, Miguel Patricio, Chief Executive Officer of The Kraft
Heinz Company (Nasdaq: KHC) (“Kraft Heinz” or the “Company”), and
members of his senior leadership team are unveiling a
transformation of the Company. A new strategy, operating model and
key initiatives signal a fundamental shift in its approach to
growing its brands and its business at a global scale. The Company
also is establishing a long-term financial profile and updating its
third quarter and full year 2020 financial outlook.
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“I am extremely confident that unlocking the power of scale with
agility, combined with our new operating model, will return Kraft
Heinz to consistent and sustainable growth,” said Patricio. “We are
placing the consumer at the center of everything we do, leveraging
our greatest assets, strengthening our partnerships, generating
fuel that funds growth investments like our 30% increase in
marketing spend, and creating a clear path to rebuilding Kraft
Heinz into the industry leader we have the potential to
become.”
The Kraft Heinz Operating Model
At the core of the Company’s transformation is a new operating
model with five primary elements:
People with Purpose: Employees are the Company’s most
important resource, charged with bringing the strategy to life.
They’re also inspired by its new Purpose, Let’s Make Life
Delicious, guided by its redefined Values and responsible for
fulfilling the Company’s Vision “To sustainably grow by delighting
more consumers globally.”
Kraft Heinz employees are global citizens who believe in helping
to create a healthier, more sustainable environment. Later today,
the Company will release its 2020 Environmental Social Governance
(ESG) Report, Growing Sustainably, which contains goals under three
pillars: Environmental Stewardship, Responsible Sourcing,
and Healthy Living & Community Support. ESG is
integrated into every part of the Company’s business, with related
metrics incorporated into performance goals held by the CEO and key
senior leaders.
Consumer Platforms: The Company has transitioned from
managing its portfolio as more than 55 individual categories to six
consumer-driven platforms. A platform is a lens created for the
portfolio based on a groupings of real consumer needs and
includes:
- Taste Elevation
- Easy Meals Made Better
- Real Food Snacking
- Fast Fresh Meals
- Easy Indulgent Desserts
- Flavorful Hydration
Each of these platforms will fill a Grow, Energize, or Stabilize
role within the portfolio. The Company will take a disciplined
approach that prioritizes and invests differentially according to
the opportunities and objectives for each platform.
Ops Center: The Company’s Ops Center brings together the
value chain on an end-to-end basis, creating a fast, adaptable,
integrated supply chain with greater visibility. It is designed to
be the key source of fuel for growth by driving better alignment
across the Company, streamlining day-to-day processes, and
deploying technology and data analytics towards continuous
improvement. Through 2024, the Company’s Ops Center has identified
and is targeting approximately $2 billion of gross productivity
efficiencies to offset inflation and critical investments to
support the Company’s growth initiatives.
Partner Program: Kraft Heinz is dedicated to developing
winning customer partnerships with centralized customer development
and revenue management teams to strengthen existing customer
relationships, building new strategic partnerships, and delivering
unique consumer insights and solutions.
Fuel Our Growth: The Company’s plans to reinvest
efficiency gains and apply agile portfolio management are designed
to help the Company fulfill and accelerate its strategy. The
strategy will be driven by capital priorities that have not
changed. These priorities include investing to accelerate growth
and strengthen its long-term market position; continuing to provide
shareholders with a strong return of capital, including its ongoing
commitment to its strong dividend payout; and reducing net leverage
to below 4x on a consistent basis. Fuel Our Growth also will
include agile portfolio management to accelerate the Company’s
strategic plan, enhance its geographic profile, and sharpen its
focus on areas of advantage while maintaining price discipline.
Long-Term Financial Profile
Taking into account its strategic review, the subsequent
reorientation of the business, as well as confidence in its ongoing
turnaround, Kraft Heinz set long-term growth targets,
including:
- Organic Net Sales(1) growth of 1% – 2%
- Adjusted EBITDA(1) growth of 2% – 3%
- Adjusted EPS(1) growth of 4% – 6% with greater than or equal to
100% Free Cash Flow(1) conversion
“We are committed to returning Kraft Heinz to consistent growth
on both the top and bottom lines,” said Paulo Basilio, Global Chief
Financial Officer. “Leveraging our new platform structure to drive
growth, our new productivity programs to deliver efficiencies, and
our capital priorities to support reinvestment and accelerate our
strategic plan will enable us to achieve our new long-term
financial profile in the years ahead.”
Third Quarter & 2020 Outlook
“Our business momentum is stronger than expected and as a
result, we are updating our outlook for the third quarter and full
year 2020 with expected 3Q 2020 Organic Net Sales(1)(2) growth in
the mid-single-digit range versus the prior year period,” said
Patricio.
- In addition, the Company expects high-single-digit 3Q 2020
Constant Currency Adjusted EBITDA(1)(2) growth and mid-single-digit
full year 2020 Constant Currency Adjusted EBITDA(1)(2) growth
versus 2019; and
- to reduce net leverage to approximately 4x by the end of
2020.
A more detailed outlook for full year results will be provided
on the Company’s third-quarter earnings call, expected to be held
in late October.
End Notes
(1) Organic Net Sales, Adjusted EBITDA,
Constant Currency Adjusted EBITDA, Adjusted EPS, and Free Cash Flow
are non-GAAP financial measures. Please see discussion of non-GAAP
financial measures at the end of this press release for more
information.
(2) Third quarter and 2020 full year guidance
for Organic Net Sales and Constant Currency Adjusted EBITDA are
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,
integration and restructuring expenses, deal costs, unrealized
losses/(gains) on commodity hedges, impairment losses, and equity
award compensation expense, 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.
ABOUT THE KRAFT HEINZ COMPANY
For 150 years, we have produced some of the world’s most beloved
products at The Kraft Heinz Company (Nasdaq: KHC). We are one of
the largest global food and beverage companies, with 2019 net sales
of approximately $25 billion. Our portfolio is a diverse mix of
iconic and emerging brands. As the guardians of these brands and
the creators of innovative new products, we are dedicated to the
sustainable health of our people and our planet. To learn more,
visit www.kraftheinzcompany.com or follow us on LinkedIn and
Twitter.
Forward-Looking Statements
This press release contains a number of forward-looking
statements. Words such as “plan,” "believe," "anticipate,"
"reflect," "invest," "make," "expect," "drive," “improve,”
“intend,” "assess," "evaluate," “establish,” “focus,” “build,”
“turn,” “expand,” “leverage,” "grow," "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, costs and cost savings, legal matters,
taxes, impairments, dividends, expectations, investments,
innovations, opportunities, capabilities, execution, initiatives,
pipeline, and growth. These forward-looking statements 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, the impact of COVID-19; 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, suppliers and 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, increase its market share, or add products that are in
faster-growing and more profitable categories; product recalls or
product liability claims; unanticipated business disruptions; the
Company’s ability to identify, complete or realize the benefits
from strategic acquisitions, alliances, divestitures, joint
ventures or other investments; 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 Company’s ability to successfully execute its
strategic initiatives; the impacts of the Company’s international
operations; economic and political conditions in the United States
and in various other nations where the Company does business;
changes in the Company’s management team or other key personnel and
the Company’s ability to hire or retain key personnel or a highly
skilled and diverse global workforce; risks associated with
information technology and systems, including service
interruptions, misappropriation of data or breaches of security;
impacts of natural events in the locations in which we or the
Company’s customers, suppliers, distributors, or regulators
operate; the Company’s ownership structure; the Company’s
indebtedness and ability to pay such indebtedness, as well as the
Company's ability to comply with covenants under its debt
instruments; the Company's liquidity, capital resources and capital
expenditures, as well as its ability to raise capital; 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; increased pension, labor and
people-related expenses; compliance with laws, regulations, and
related interpretations and related legal claims or other
regulatory enforcement actions, including additional risks and
uncertainties related to any potential actions resulting from the
Securities and Exchange Commission’s (“SEC”) ongoing investigation,
as well as potential additional subpoenas, litigation, and
regulatory proceedings; potential future material weaknesses in the
Company’s internal control over financial reporting or other
deficiencies or the Company’s failure to maintain an effective
system of internal controls; the Company’s failure to prepare and
timely file its periodic reports; the Company’s ability to protect
intellectual property rights; tax law changes or interpretations;
the impact of future sales of the Company's common stock in the
public markets; the Company’s ability to continue to pay a regular
dividend and the amounts of any such dividends; volatility of
capital markets and other macroeconomic factors; a downgrade in the
Company's credit rating; and other factors. For additional
information on these and other factors that could affect the
Company's forward-looking statements, see the Company's risk
factors, as they may be amended from time to time, set forth in its
filings with the SEC. The Company disclaims and does not undertake
any obligation to update, revise or withdraw any forward-looking
statement in this press release, except as required by applicable
law or regulation.
Non-GAAP Financial Measures
The Company has presented Organic Net Sales, Adjusted EBITDA,
Constant Currency Adjusted EBITDA, Adjusted EPS, and Free Cash Flow
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),
diluted earnings per share, 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. Management believes that
presenting the Company's non-GAAP financial measures (i.e., Organic
Net Sales, Adjusted EBITDA, Constant Currency Adjusted EBITDA,
Adjusted EPS, and Free Cash Flow) 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.
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.
Organic Net Sales is a tool that can assist management and
investors in comparing the Company's performance on a consistent
basis by removing the impact of certain items that management
believes do not directly reflect the Company's underlying
operations.
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 integration and restructuring expenses); in
addition to these adjustments, the Company excludes, when they
occur, the impacts of integration and restructuring expenses, deal
costs, unrealized losses/(gains) on commodity hedges, impairment
losses, and equity award compensation expense (excluding
integration and restructuring expenses).The Company also presents
Adjusted EBITDA on a constant currency basis. The Company
calculates the impact of currency on Adjusted EBITDA by holding
exchange rates constant at the previous year's exchange rate, with
the exception of highly inflationary subsidiaries, for which it
calculates the previous year's results using the current year's
exchange rate. Adjusted EBITDA and Constant Currency Adjusted
EBITDA are tools that can assist management and investors in
comparing the Company's performance on a consistent basis by
removing the impact of certain items that management believes do
not directly reflect the Company's underlying operations.
Adjusted EPS is defined as diluted earnings per share excluding,
when they occur, the impacts of integration and restructuring
expenses, deal costs, unrealized losses/(gains) on commodity
hedges, impairment losses, 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 costs, and U.S. Tax Reform discrete income tax
expense/(benefit), and including when they occur, adjustments to
reflect preferred stock dividend payments on an accrual basis. The
Company believes Adjusted EPS provides important comparability of
underlying operating results, allowing investors and management to
assess operating performance on a consistent basis.
Free Cash Flow is defined as net cash provided by/(used for)
operating activities less capital expenditures. The Company
believes Free Cash Flow provides a measure of the Company's core
operating performance, the cash-generating capabilities of the
Company's business operations, and is one factor used in
determining the amount of cash available for debt repayments,
dividends, acquisitions, share repurchases, and other corporate
purposes. 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.
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version on businesswire.com: https://www.businesswire.com/news/home/20200915005730/en/
Michael Mullen (media) Michael.Mullen@kraftheinz.com
Christopher Jakubik, CFA (investors) ir@kraftheinz.com
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