Kraft Heinz CFO Wants to Make Sure Cost Cuts Endure
September 16 2020 - 7:10PM
Dow Jones News
By Nina Trentmann
Kraft Heinz Co.'s finance chief is helping make permanent cuts
at the food manufacturer as it looks to take out $2 billion in
expenses.
The company, which makes Kraft macaroni and cheese and Oscar
Mayer deli meat, on Tuesday announced next steps to reorganize its
business, including plans to take out $1.2 billion in procurement
costs, $800 million from its manufacturing and logistics
businesses, and a sale of parts of its cheese business for $3.2
billion.
Over the next five years, Kraft Heinz intends to become more
efficient, reduce waste and have its production lines run for
longer hours, said Chief Financial Officer Paulo Basilio on
Wednesday.
His role would be to allocate necessary resources and to ensure
that the company's initiatives are consistent with the overarching
goal of finding savings that "last forever." Mr. Basilio has been
the company's CFO since September 2019 following an earlier stint
in the role.
Even though much of the cost-savings effort is led by the
company's supply-chain team, the finance organization plays an
important role in structuring the process, Mr. Basilio said. "There
are a lot of alternatives," he said.
One issue for the food maker to figure out is the role of
zero-based budgeting in its cost-cutting process.
Analysts have blamed Kraft Heinz's wide ranging use of the
budgeting tool that forces managers to start planning from scratch
and question every expense for its previous slump.
Zero-based budgeting was applied on a broader scale following
the 2015 merger of H.J. Heinz Co. and Kraft Foods Group Inc., said
Christopher Growe, a managing director at investment bank Stifel
Financial Corp.
"They cut very deeply," Mr. Growe said. Further, some of the
costs that were taken out immediately after the combination of the
two businesses were added back later, Mr. Growe said.
Kraft Heinz isn't done with zero-based budgeting, Mr. Basilio
said. "We believe it is important to keep doing it," he said,
adding that the tool helps bring down fixed costs, whereas the
company is targeting variable costs now.
Other food companies, such as Mondelez International Inc.,
Campbell Soup Co. and Kellogg Co., have moved away from zero-based
budgeting, said Erin Lash, a director at Morningstar Research
Services LLC, a research company. "Kraft Heinz is somewhat late to
the game," she said.
The food manufacturer plans to reinvest the majority of its
savings through 2024 into the business, including a 30% increase in
marketing spending, Mr. Basilio said. The company allocated about
$1.1 billion to marketing in 2019.
Kraft Heinz reported net sales of $6.65 billion in the quarter
ended June 27, up 3.8% from the same period last year. However,
impairment charges of $2.9 billion -- in part in relation to the
company's U.S. food services business -- resulted in a loss of
$1.65 billion.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
(END) Dow Jones Newswires
September 16, 2020 18:55 ET (22:55 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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