Q3 2020 Kraft Heinz Co Earnings Call
[music].
Good day, my name is Kevin and I'll be your operator today.
This time I'd like to welcome everyone to the Kraft Heinz Company third quarter 2014 earnings call.
I will now turn the call over to Krista Qubic head of global Investor Relations Mr. Qubic you may begin.
Hello, everyone and thank you for joining our earnings call.
As you know during our remarks today, we will make some forward looking statements that are based on how we see things today.
Actual results may differ due to risks and uncertainties and these are discussed in our press release and our filings with the SEC.
We will also discuss some non-GAAP financial measures during the call today.
Three.
That response to the pandemic.
Our exceptionally strong said quite a performance reflects utility of our organization and.
And our ability to sustain momentum.
Second.
The changes in consumer priorities continue to support greater at home consumption.
And increase demand for our brands.
And third.
Our strategic work is moving from planning and organizing into wax.
Based on these three factors, we are raising our 20th 20 outlook.
And continued to expect 2021 results to be ahead of the strategic plan, we finalized earlier this year.
To better make these points.
Sure a few relevant charts.
Five six presents and updated view or flower at home or retail versus away from home.
Or foot surface.
Sales performance.
The charts show craft Hines year on year sales growth by geography from Q1 through Q3.
The abrupt and precedented shifting b.
At home and away from home consumption that we saw in the first half of the year continued through the third quarter.
At that were invested day, we spoke at length about the many things we have been doing to become more creative more agile and more efficient.
And despite both volatile demands and in some areas constrained capacity.
Or teams around the world.
Most shredding their ability to adapt to demand through a mindset of growth.
Alright reality led to a very strong second half of September.
As retail demand accelerated yet again, and we responded effectively and efficiently.
As a result, our queue city top and bottom line performance was stronger that's why we protected at that word investor day on September 15th.
We have talked about 2020 being the first year of a ton of wrong.
We said it would be a year in which we laid the foundation for future growth.
Have lives that were underlying profitability and maintain our industry the margins.
Oh, while we rebuild our business momentum.
It is clear that this is happening as you can see on slide seven.
From the first half through the third water, we have sustained underlying top and bottom line of momentum.
Even as we take on it you should know covid related costs and supply constraints, we have been keeping our cost of goods under control.
Also as we outlined in February we are resetting out with a base through divesture business exit and the normalization of incentive compensation.
Our underlying growth is tracking with our strategy.
Platform growth is consistent with the portfolio rolls, we have defined with grow platforms up 7% year to date and nightstands platforms up 8%.
And what we find that very encouraging is that while taste elevation is growing middle single digits. Excluding foodservice taste elevation is growing roughly 20%.
Emerging markets Grove is accelerating.
Up 9% empty city versus 7% year to date.
The simplification that our platform approach and portfolio rules spring is a key enabler in guiding us and measuring our success as we move to off <unk>.
This visibility is critical as consumers preferences evolve.
And we need to adapt to serve different needs.
Which brings me to another reason for our confidence in our past going forward.
We are seeing consumer.
For instance, evolve in ways that indicate that elevated demand for both at home consumption and be trusted brands will remain strong going forward.
We are seeing stickiness in at home consumption as consumers this covid or rediscover cookie at home at at home meal experience.
We see them reassess the shopping trip.
With bigger baskets and greater badly.
Affordability is a rising concern which should be of benefit to those companies that are fast to adapt and have a strong presence up and down the price value louder.
Consumers are gravitating towards big brands, and our retail partners are reassessing assortment with availability and velocity Ah keep the 10 minutes for it.
And consumers I Ain't Crazy choosing brands that can better align with their values.
These consumer trends are tailwind cause he has to turn more confidently optimistic in the near term.
The actions, we have all ready taken to put our operating model emotion and the things that we needed to fix the most heading two hour turn around.
Many of the same things needed to adapt to unpredictable environment with faster greater changes in the consumer the man.
For instance, since late last year, we folk used on improving our people efforts by revamping and applying new training and development programs.
In many ways. We were also ahead of the game in our efforts to reduce stress and burnt out and boosts morale.
And and test last week craft pains was named to the top quartile of Forbes magazine list of worlds best employers.
After not even making the least of 750 companies last year.
Is is very positive reinforcement for all our efforts.
We have talked at length about the many things that their way to transform our company.
From adapting our innovation pipeline to eliminating ways to driving productivity.
As well as better planning with our partners and ramping up investments in our brand.
And our capacity.
And our reach E commerce and emerging markets.
The point is that we now have the framework and visibility to distort resources Green.
Reinvest savings.
Where we have the most advantage and the greatest opportunities to grow.
And most important.
We are moving from planning and organizing.
Who works.
I will close my opening comments by summarizing a few points.
We had stronger than expected Q3 results due to the greater agility, we are creating.
The consumer trends, we're seeing and the actions underway give us more confidence that our momentum will will remain strong in the near term.
And we expect to continue exceeding our regional strategic plan into 2021.
I will pass it on to Carlos now to provide more color on how we are seeing this taking shape in our biggest business.
Thank you for me again and good morning, everyone.
I think I've got an allergy I would use to describe this past quarter is that we've successfully have been driving down the road at 90 miles per hour to keep up with all the demand while we're changing the tire now that takes ownership and agility and our teams or show it in space.
Miguel mention.
Our third quarter results demonstrate our new organization quickly adapt to a fortuitous.
And it was evident across are you with business with finish out of the corner.
Okay. So you can see on slide 12, we maintain a strong momentum in both the top and bottom line.
Or Gaelic net sales growth reflected hired household penetration and repeat the rates and the revenue management discipline.
An hour standing execution and efficiency incorporation. Some procurement result that is strong adjusted EBITDA game, even at the number of headwinds began to have a greater impact in Q3.
When did this well demand shifted between channels in a week to week basis and organization advanced the divestiture of our natural choose business.
Well, we can predict the future three things gave us further cubbies first let me get him mention we are encouraged by the continuing trend towards greater the home consumption.
Secondly, if that we're seeing more consumers coming back to our brain.
And third.
We are now better position to retain them grow both new and loyal consumers respond to rapidly changing the man and further capitalize them. The games, we have made in the last nine months.
Keeping with the driving analogy operationally, we have turned the corner I.
I am pleased to share that we have rapidly moved from reorganizing to execute.
And we are now in position to properly deploy resources and execute in a way that continues to bill on the positive consumption shrink we're experiencing.
To give you a better idea of what this means.
And people.
New business unit structures now all the operation and fully staffed we.
We have made recent external leadership auditions and consumer insights and fell asleep with major customers.
These additions complement several internal placements in new Orabelle critical role Oh, helping to carry out a new foundational processes with a growth mindset.
And work we have done to put people first if pay you know.
We have seen higher engagement among the occurring employees and we are continuing to attract topped your talent into organization more rapidly than ever before.
And we're building and strengthening both organizational and individual capability.
This includes leveraging digital as in your neighborhood, which will allows us to accelerate the outgrow and raise the bar or what it means to be the back.
Turning to our platform.
Significant work on all six platform underway in the U S O.
Bold results will be more evident in 2021 I'll show in a moment that we have already stored resources and investment too few are grow and energize platforms.
In her off sensors collaboration across our entire supply chain contributors difficult amount to our success is court include.
Including holding kosta cost of goods under control.
Even with incremental Cubbies, driven caused the men, but I'll still be and supply constraints.
And in addition, our focus on operational excellence in manufacturing has enable us to increase year over year production in the low single digit range overall by roughly 20 per cent online's, where we have had constrained supply relative to strong demand.
In Q3. This include relieving constraints in high demand categories, like kolka cream cheese, Mac and cheese and stuffing.
Helping us to sustain already stung household penetration insured trends, we shall talk about shortly.
And anticipating continue the men, we expect to go from double to triple digit investments dollars to improve capacity in 2021.
But also made significant progress in a partner program with.
With customer siding, much earlier and much deeper planning that in the past.
To date, we have conducted more than 40 tough to tough meetings with key retailers with another 40 planning to coming weeks.
Each meeting we are sharing our transformation of plants Aswell joined business plan for the coming year.
It's allowing us to be more strategic and tactical with development and value creation.
And while we're doing a lot to maintain retail momentum. We're also finding opportunities to better support our food service partners.
From piloting new innovations like theater touched dispensers to helping create unique menu items that drive traffic and sales for our partners. We have quickly see with it to adapt to market neat.
All of this is beginning to resulting consumers boating more often for us.
Ah. So you can see them slide 14 retail market share has been continuously improving over the past year running up to the end of September.
This has been driven by nine improvement in the overall health of the portfolio.
So we have had increased capacity in Bethany marketing adapted our communication and build stronger collaborations with our customers.
The percent of a retail sales well, we'd growing sure has gone from only 20% in the first half to 41% in Q3 and up to 58% in September.
And we're fixing our biggest categories at the percent of our categories, where we are gaining sure has gone from 36% to 49% over the same time period.
Some of this is due to resolving supply constraint in some key categories.
For instance, Oscar Meyer Polkas part of our fast fresh meal platform in an area, where energizing so sure growth this quarter for the first time in 18 months.
This was the result of fast adapting a product mix too raw materials availability and capacity constraints as well that judy to activate and execute differently with customers.
Some of this is due to greater focus on pro at the station that are plasmon approach is bringing four.
For instance, in our tastes elevation platform, we grew Marcus shared during two three in over 70% of the Catholic with we compete.
More importantly, we are well positioned to have the right plans in place to build them.
I have shown previously that our household penetration with one of the heritage.
Of our portfolio without this to the industry and how this has strengthened further since the onset of COVID-19.
We continue to see increased household penetration and repeat rates across a sizeable portion of their portfolio, including cold brands like Kraft, Mac and cheese, Philadelphia and planters.
But what is most encouraging it at the rate of new buyer repurchasing their products two or more time is now doubled their rate versus what we see we're seeing last year.
To build our base of loyal consumers and keep this momentum going we're stepping up our marketing and bettman by 40% in the second half of this year compared with the second half last year and 70% compared with the first half of this year and.
And we will have more work and dollars just a per cent of our spaniel as well.
To close here.
Your third quarter was very encouraging as we began to see ourselves, bringing agility to large scale.
Organization prioritization in 2021 plans in place, we are well positioned to sustain the momentum we have benefit from so far in 2020.
With that I will turn it over to Paul to talk through a financial results and now look.
Thank you for calling us and good morning, everyone.
I will quickly walk through some key highlights of our results and then provide our expectations for the path forward.
I will begin where God was left off with a U S business.
Well gonna connect sales in the west increased 7.4%.
In spite of Ah roughly one point drag from the Mac off of exit reached.
Which began July 1st.
Volume mix growth across retail E Commerce and club channels wasn't strong and more than offset lower food services sales.
Price he was up 4%.
From a combination of lower promotional activity in step in Catholic whitish to protect customer service.
Selective plant price actions.
In commodity driven pricing primarily itchy.
These effects I expect it to faith in queue for.
As we begin to lap prior yeah pricing actions and we expect to return to more normal levels of promotional activity.
Adjusted EBITDA, even though we saw that he had wings mention on our last or any skull.
Battery thoroughfare farmers positive pricey.
Favorable mix any strong procurement deficiencies modern offset those impacts.
You know eat their national segment cute you talk like that farmers checked three off the boxes of the strategy, we outline fought as long as the best with it.
First we deliberate mid single Beastie growth, we started relatively balanced contribution from volume and price.
Second growth was led by emerging markets.
<unk> outside the gangs in priority markets, including Russia, Brazil any place elevation in China.
And finally, we advanced our aspiration of global leader shipping taste elevation.
Over a point of Shaq Rohlfing that's possible.
Taken together these top line growth field, 6.8% constant currency I suggest that you read that growth and more than offset higher supply chain costs, including incremental covid related expenses and normalized incentive compensation.
Looking forward our outlook flooding on National segment is largely consistent with what we expressed in July.
We anticipate result, specifically on the top line to soften and the remainder off date you compare today you have to date Trent.
Finally.
Canada cute real good sales growth decelerate relative to the first half.
Here, Laura coffee and footsteps shipments modern offsets pricing gangs and strong bought the farm growth.
In fact cute.
Q3 retail consumption for easy meals made better and taste elevation, our top priority consumer plotter farms in Canada.
Grew at a double digit rate.
And we share in 70 per cent of all categories.
Constant currency adjusted EBITDA improve sequentially S. V 40 lap the divestiture of the Canadian which is business in Q3.
That said, we still saw declined fastest prior year due to the Mecca fax.
Excluding them at Cafe in fact constant.
Constant currency adjusted EBITDA would have been really flat with a prior year.
[noise] consumption growth offset supply chain costing flake.
Mainly logistics as well as hiring sense of compensation.
Four Q4, we expect a combination of software food service to say it was easier.
And seasonally strong mcafee sales in the prior ear to.
To wait on organic sales.
These effects are likely to mask strong, although moderating retail consumption growth and carry forward the price initiatives.
EBITDA, it's likely to be more resilient and remain ER wrong way to marching levels with positive pricing and favorable meeks more or less of sapping high operational costs.
Oh can you have the total company results.
There are two things I'd like to highlight before going to our outlook one you'd be Lloyd B died them in the order is pretty casual.
In July we regulated hour a prior forecast 438 cents below the line had twins due to a combination of high attacks lower other income.
And higher equity compensation.
Those three factors played out mostly is expected in Q3.
With a 12 cents negative impacts to adjust that EPS.
That's brock, but you have to.
Date impact 231 cents.
And remains in line with an approximate impact of 38 cents for the full year.
You I'm ranked the rating today.
Also keep in mind that Thesing back is primarily non-cash in nature.
He turns off free cash flow yeah.
You have to date 2020 free cashflow has more than doubled compared with the first nine months of 2019.
Much of the increase has been driven by yesterday sales and adjusted EBITDA growth.
However, some of it is also due to favourable a cruel timing and lower capex expand which we expect reversing two four.
Furthermore.
Working capital as a source of cash should be comparatively less than it wasn't too far left ear as we aim to reboot inventory levels.
That said, we are confident that's free cashflow will be significantly better than 2019 levels and would expect free cashflow conversion to be roughly in line with our long term targets of 100% 44, we are in 2020.
Given where we are in your ear and based on what we have been seem to date.
We are raising our outlook for you far in 44 year.
We now expect or gunny connect sales to grow meet single dish Q4, and that would result in mid single dish to grow 44 year.
Well adjusted EBITDA, we see high single digit constant currency growth in the fourth quarter.
And for the foyer, we are now expecting high single digit constant currency adjusted EBITDA growth.
In terms of casual and leverage we expect a strong pair farmers to date to result in 100 per cent pretty casual confessional for the year and that leverage to be approximately four times by the end of the year.
Looking into 2021, we now have things in place to accelerate or investment with a strong visibility on returns.
And build on the momentum we stop you said this year.
It is difficult to predict consumer behavior and the balance between at home vastus away from home consumption going forward.
So we will focus on what we do control and set our objectives appropriately.
From a sales perspective, our focus will be to retain developed market household gangs. We made me 2020.
And improve our growth trajectory for my child portfolio management.
Probably dark blue.
You accelerate the growth investments, especially solids emerging markets and deliver adjusted EBITDA above our strategic plan.
We continue to be committed to a strong return of cash to shareholders.
And we will continue to reduce cross that outstanding accelerated by the proceeds of depending choose transactions.
With that let me turn it back to me Gal too close.
Thank you Paula.
Well to quickly summarize what you have seen and what we see going forward.
Our momentum will remain strong because we rebuild our company through a mindset of growth.
We are now moving to offense Abe.
Able to reinvest savings and realize near term upside in a parrot.
We'll prioritize the way.
And we expect to continue performing ahead of our strategic plan.
Now we would be happy to take your questions.
Ladies and gentlemen, instead of a question or a problem and at this time. Please press the star than the one on your Touchtone telephone. If your question has been answered or do you wish to move your social security. Please press the county, one of them or first person.
Our first question comes from kindergarten to J P. Morgan.
Hi, good morning.
You mentioned affordability as an increasing concern for consumers, but you know.
At the same time that that's happening we're seeing private label across almost all categories do quite poorly in terms of share I'm. Just curious you have some exposure to store brands and your categories. What is your research.
Recently, telling you about maybe why private label isn't doing a little bit better in this environment.
Well.
Right.
Then.
Uhm.
We haven't really.
Yeah.
Okay.
Oh.
The crisis rehab.
We continue to see it.
To the rescue vehicle Samson.
Oh that is number one.
Oh uncle Samson growing because then it.
Number two.
Going back.
Brad.
I think that woman, there's a P E.
Or brands that people correct.
From the path.
If there was a neat okay payment pace.
Fred.
And another.
Another thing.
What we see at this moment related to affordability.
Is.
Change what Pat.
Oh, we're selling more economy pet.
Than than we were before Nick and packet.
Congress.
You're welcome.
Yeah.
So I guess that would be just go back to something that I said during an investor day, which is.
It's not so much about fighting with a a label as it is coexistent with private label I think at this time I'm what consumers are looking from US is to make sure. We continue to emphasize that the value that we can bring and we started until you do that without brands.
If you think about other recessions big brands, you know tend to winter as well as some.
Mhm, that's private label, but then smaller brands actually do not perform as well and I think that's playing now that way. So if you look at a Q3 results are sure it's actually improve throughout the quarter and as we go into the queue for we can continue to invest behind our marketing we will see that continue it in the next quarter as well.
Thank you.
Thanks to take a quick follow up to Palo.
Just a clarification you you said you expect to reduce gross that next year is there anything we should read into that that you said gross and not net debt. You also expect I guess to have your net debt lower at the end of 21 than it is at the end of 2020.
Yeah, I I I man that list and we are generating cash you know as you said, we have we have a very strong cash generation easier.
You have to date, we they do pretty much more than $1 billion, that's already and just to say that we intend to keep paying down debt next year with a strong casual. That's you know this company here generates but that's the the dementia was really much to say that you're gonna use you're gonna be paying down there.
At every year to focus on the gross debt reduction and of course as you did at age Gash I wasn't that that also we will we will we will go down.
Great. Thank you.
Our next question comes from Angelus artwork Barclays.
Good morning, everybody Carlos we've noticed you've obviously brought on quite a bit of new talent at high levels and a number of areas, perhaps most visibly in sales.
Recently hired I think a new head of U S sales in your head of U S sales and and National accounts and I'm sure. Some others that I'm that I'm missing maybe you can talk a little bit in terms of.
What skills such you were looking for when you brought some of these folks on and some of the other efforts you've been making specifically on the sales side.
What you're seeing as far as the results, especially with key retail partners, which I know has certainly been an area of focus for the company.
Well, thank you, Andrew and and and and do I. Appreciate your record the changes were making but and let me let me I guess to start with could give you a little bit of a conflict about how we rethinking our our sales organization. It you know for US he was around how do we actually build a guilty in the organization in in three different pieces Halloween.
Our structure upgrading our processes and really sterling great discipline them on how we spend so I mean, I think you speak about the reorganization. We have made we have broad Newtown and which and I think what I'm. Most proud of it's a huge amount of experienced and diversity of thinking they're also bring into crab minds.
And we're also making sure we are changing how our accounts structure. So that we can focus on those derrico partners.
And then internally we have also centralized our customer development and maybe the management teams to make sure we really leverage our scale in a different way. So as you said.
Some of the key times, we have not only ahead of you had a sales but.
People under him actually account for over 50 per cent of our overall sales in the U S. So that is a significant new leadership that we have put into critical places.
And then as we work with our customers they'll tell you that one of the things that they also T to be noticed thing is that we have also upgraded our processes. So we are pulling forward planning cycle to make sure we better match their timelines, which.
Something that we haven't done in the past.
And then making sure we have that great of discipline that I spoke about which is make sure. We have clear planning timelines that we commit and deliver and we have the clarity to derive accountability on speed internally and if you think of step back under I think what what did you see is that does that kind of improve execution.
We know both in terms of our growth.
Well as the sequential improvement, we're sending marketshare so.
I am very pleased with the town that we're bringing his organization again with the discipline with the experience and the diversity of thinking that I think it's gonna continue to make us a stronger company. We'd go forward. Thank you yep. Thanks for that just a quick follow up then would be you've talked a lot about bringing on additional capacity, particularly.
In some categories, where you've been most constrained.
Is there any way to Dimensionalize, maybe sort of what percentage of that capacity is sort of third party manufacturers versus let's say.
Putting more of your own capital in the ground and the reason I ask you just to try and get a sense of that that could be also a tell tale on sort of your expectations around how much of this you know incremental demand could really be sticky by putting more of your own capitaland versus let's say the flexibility of a of a co packer. Thanks, so much.
No. Thank you.
And thanks for the question so.
The way I think about it in terms of capacity is you know there are some pockets of capacity constrained, but really nothing that shouldn't be holding us back in a significant way, we have been making significance trying on improving our capacity and those lines that we have constrained I think you have been to to talk about the fact that in those concern.
Lying we've actually driving 20 per cent more out of those lines that we have ever done. So you know it's also both making sure that we address that for the old. So is that we are out some more ideas to making sure would could the capacity that we have where we need it and working with our customers and.
Way.
And some of that agility that also it also translates on how we actually working with a partner is Tiffany.
Because we know that you know for example, let me just take one which is you know Mac and cheese, well Mac and cheese really the only constrained we have with the Mac and cheese Cubs. So what we have done is work collaboratively with it a retail partner so that we can actually Frank Black's our marketing and promotion. So the weekend emphasize our box Mac and cheese and that.
Kind of segmentation and focusing with our partners into the places that we do have a little capacity that actually has well well well and it also is part of the reason why you're seeing that translated to improve share for four minutes.
Thank you. Thank you.
Our next question comes from Robert Moscow with Fred Smith.
Hi, Thanks, I had a couple of questions. The first is on the market share improvements it looks pretty impressive can you get a little more color on what categories are improving the most and and maybe explain what you did to do too.
So that you can.
We can feel comfortable that those shares are are sticky with a product was it pricing whats fixed and then secondly on an inventory and supply chain glad to see that you're you're you're accelerating everything.
Ah retailers asking for more inventory than normal, though and when when you say that you you know the the.
Firemen will go back to normal in fourth quarter, maybe a little more color on.
Pre.
Infection rates are rising higher or do you actually have to expand capacity well beyond your normal situations in order to satisfy what what retailers want X.
Oh, I can take that one and at least for the U S and they will if there's anything else that you wanted to come in from performance and share.
What I would say is that.
If you look at.
The way, we know thinking about our business.
We'd also have we're looking at how we go from 55, how's it going through the six past. So we have identified you anything better day.
They think that is very encouraging for us is that we are seeing strong performance across all <unk>, you know growth platforms, and particularly the two areas with designated as girl platform around tastes Syllabation emails made better bowls are adding really strong penetration rates. So it is not only the fact that we are driving.
Improve improve sure but also is that we actually continue to drive the penetration in the places we really are going after and that is done because of the way. The work that we're doing. So for example, there are things were doing and tastes elevation unlimited.
For example, the highest Bryan we are benefiting as we are actually focus on those hold schools that we identified you're in our independence.
Invest.
Investor Day, with her dad was burgers, and fries and Nuggets and those locations are actually driving even higher.
So the places that we said we're gonna be April focusing on are actually the behavior that we see consumers actually doing more of as we go into this and and most recent quarters.
And then if you have to look at things like eating me off my bedroom, but we have various like Mac and cheese.
We also see and how they have continued to come back as soon as they are now understanding how could the prologue is how they were doing more prepared meals at home, whether that is with Mac and cheese or with our classical pasta sauce are are either potatoes. So it's a combination of us improving on the way, we think about our consumers with a stronger focus on that.
Concern passport photo those continued to drive improved focus on our and our penetration of our of our branch.
And driving with better marketing before I get to your questions about.
The overall kept.
Inventory levels I Dunno Miguel anything else you wanted to comment in terms of sure.
Yeah, I know, it's a compliment what he said international.
Oh, <unk> table or or circle.
The most remarkable growth okay.
Coming from Brazil.
From.
Russia and comes immediately.
In Canada, we are actually gaining said seven.
Okay.
Oh great.
We have problems and coffee, especially because of my profit.
Okay and that was.
Work with Canada.
Canada It was about.
The car business in Canada.
But you know January this will no longer be at the base.
Mm Oh, that's complement the great mentally we have anyway.
Ah Smith.
The record.
Tim or heart problems.
Mm mm.
But.
Green.
Very good moment.
And then thank you May go and then Rob I think the question. The other part of your question was around the inventory levels.
I think that what we let me just I guess put it within the context first of all what we saw in Q3, which is we did see some some rebuild them there'll be telling them been stories. When you look at year over year, but that was really is as a result of you know the drill down that we saw in Q1 so.
It does vary by customer, but overall I think we're seeing that progression of most of that recovery you know happened probably so in Q1 now the reality is that you know we don't know what the precision is a war retailers are going to end up in terms of the number of days of inventory, they're gonna be carrying as we go forward to that.
You know still to be known well weird what I can tell you. We're doing is we're actually working very collaborative with our customers to make sure that you know.
There there as they are preparing for a holiday season that I think in many ways. It would be unprecedented and then secondly is in places where we know that you know our consumers are looking to expand maybe into non traditional category. So we are seeing things like you know in a bit mid business that actually recover in Q3, and we sold improve.
Sure you know with some of the meat business that normally wouldn't sell as much in queue for we're seeing already.
They can improve performance of consumption. If you go into the holiday so.
So now that I will tell you is that we are we are working collaboratively. We are seeing somebody improvement in Q3 in terms of retaliatory what exactly is gonna land not as clear yet, but we're gonna be there with our customers to make sure we did the right thing.
Great. Thank you.
Our next question comes from Brian's, playing with Bank of America.
Hey, good morning, everybody. Thanks for taking the question. So I guess, the one of the follow up a little bit on on Andrew Lazard question, just with regards to the capacity additions and kind of the implications for I guess stickiness of the elevated demanded here yeah my impression from me.
Investor Day was that the baseline expectation that you all were setting going forward was really that you weren't expecting a lot of this extra demand that we picked up in 2020 that Echo I guess my question is it sounds like you're you're expecting more of it so maybe what's changed.
With regard your thoughts around that first and then the second.
Give us a sense of how your monitoring that like it's just how do you identify that and then maybe tied to that just.
How you plan like what what do you do to maintain that's taking it says it increased advertising is it.
You know a new product just what what what what what what can you do to make sure that that demands. Thank you.
Let me I guess, let me let me take a.
We talked about it if he tried to give you a maybe a little more color in terms of how we think about a demand and making sure that that it does stick.
We do see and we saw this in Q3 with consumers coming back to our brands in a in a much stronger way.
So the fact is that you know when you look at the results were really encouraged about the rate of new by repurchasing of products that it's two or more time. So it's no they're they're coming back, but they're actually coming at a higher rate that we have seen in the past and we are also seeing that particularly in a in a big brands. So let me give you an example.
You know Philadelphia, the repeated is up 23% of those users really are looking for more usually location where to do with whether that is not just bacon, but actually breakfast as well and we're seeing places like Oscar Meyer, where when people are preparing more at home lunches and and they're using art.
Can you occasions, now that they're spending more time at home so.
So if you if.
If you take it all together and you say, Okay. First are big brands are really resonated with a nurse new consumers. Those consumers are actually now that they are trying to or brands are seeing the great taste quality and value advantage that we bring so they're actually coming back at a higher rate and when you come bring it all together.
<unk>. It just shows that you know to me the the best way to simplify this that you've seen the sequential improvement that we're seeing in our share performance. So.
That gives us quite a bit of confidence I spoke earlier around the capacity and I can say again you know we are seeing you know pockets, but at the same time, there's nothing that should be.
Be hit us in a significant way as we go forward and I'm very pleased with that jolted organization is doing.
To make sure that we work collaboratively with our customers to ensure that you know we have flex where we need it but that actually has been something that with you ever feel positive about as we go forward into Q4.
Yeah.
Thanks for the question.
Our next question comes from let's see how it <unk>.
Good morning, everyone can you hear me okay.
Yes, yes right.
I ask about the the pricing dynamics and he talks about obviously never strength in pricing Cortes, particularly in the U S. But do you expect that to say he'd going forward promotional activity start to ramp up again.
Curious about the conversations you're having with retailers about that.
Awesome all promotional activity.
You can find environment holiday conversation going and then I have a follow up.
Mmm.
So.
Sorry, I can't take this one I've actually so I I think I think I'm gonna start here talking about like the comment about the the pricing. So and then maybe ask call just to talk to get to the U S. B I think it's it's the the.
The good way to approach that no. We went one piece that we see is that.
Now as we comment the first I think the queue for we are going to be stopped leppy. Some price increases we had in queue for last year. So that is one of the components that we mention so we know relative basis, so you're going to start lapping disprize and again given the constraints that we had you know and I'm Gonna ask Scott.
To complement there we are also coming back to a better or a more normal lab off promotions, but then I'm gonna ask us to build on on that.
Yeah. Thank you bolo salt.
So like in the in the U S. But I would say is that you know where to begin to now returned to more normal levels. So promotion and an activity I think you. So in fact some of that already in there and you know it labor day time period.
And and if you look at not only the actual labor day weekend, but also although you take a step back and look at back to school performance that back to school with actually put in line to what we saw last year. So so bad that shows I think that we are returned it back that our customers want to make sure that we have the the.
Right.
Pricing as we go into the remaining of the year. So it was both in terms of I've seen that we are ready in terms of having an availability of capacity to make sure. We have the right promotions back in place as well as working with our customers to make sure that we are there when we know consumers are gonna be looking for Ah.
Brands, regardless of the channel whether that is in brick and mortar or an E commerce.
And again I think that.
If you look at it again you see just if he was a thug there is that.
And where do you see as the market share performance I think will show that kind of.
Returning to promotions at the right level that we're doing this we go back and have the availability in the right investment with our customers.
Great and just to follow up on the emerging market, obviously from right now.
Mm box should we be worried about macro economic slowdown in those regions and that may be.
Starting to slow down demand branded product.
Well, we are not in that we have great momentum.
And in the emerging markets.
And I I don't see any reason to think that.
The short term.
Signs of that actually.
He's got a heavy record.
Okay.
I can rustle neither.
Like in Brazil, the momentum.
<unk>.
Great. Thank you very much I'll pass it on.
Thank you.
The next question comes from Jonathan consumed.
Consumer rich.
[noise]. Good morning, Thanks, very much just one question I guess, yeah a lot of.
Retailers have talked about skew reductions in a more efficient supply chain that was clearly a response to the supply chain constraints brought on by Covid, but I'm curious how do you think this will play out over the next 12 months do you think.
Yeah, more excuse and items come back and the old complexity. We had comes back or do you think that we wind up with a more efficient business model and and to what impact on margins, if any or your retailer relationships you'll looked at holistically. Thanks very much.
And so that I can promise you if you.
I want to compliment.
[laughter].
About about where.
I think it's actually both I think that.
Moment maximize the past you what what we do in that.
The market is well.
Dramatically that number.
To maximize.
In the short term.
<unk>.
<unk>.
However, where we lounge and you know because because they they.
They are important they are incremental.
I think in a way the market is adopting.
<unk> stream and it's coming back but of course, it will not oh.
Level that was before that is good.
The complexity.
In our factories and.
You know make a really do a very good they're not as as an unprofitability and and and and velocity.
And it's three lines unnecessary that for Ya.
If you want as anything.
Yeah, just to build more than than than doing branding, adding I would say building or your you ran into me out what I would say is that you know.
Well, it's difficult to say, how the customers are going to stay in terms of levels of inventory and ask you. Your levels. They are seeing so we're doing internally to make sure that we have the most agile supply chain organization and that includes us.
You know, reducing the number of ice could use as we go into next year. So from what we had a year ago to what you'll see in in 2021, it's about down 20 per cent of number of us to use.
Actually something that as we work collaboratively with our customers. You know shows that you know we're able to then make sure that we respond with the time was service they need in the course can use that they're also looking for it so.
Now that doesn't take away from us being able to also stay focused on the kind of innovation that we want to bring so we are doing both reducing us to use to make sure by 20% to make sure we have that jolting our supply chain at the same time. We're also are still focusing on innovation as we go into 2021 and wish we actually.
You're very prepare and the reason for that is we have reduced innovation a number of innovations in 20 by half of what we had in 2019 and as we go into 2021 with another third that we'd reducing at the same time that innovation is actually gonna have a bigger impact in terms of overall drive in sales and.
We go into 2021, so I'm much more fewer a much more focus on fewer bigger better innovation with it also focus on the the writers can use so that we can better serve as our customers. Thanks.
Thanks for the question.
That's right. Thank you.
Ladies and gentlemen, so conclude the Q&A portion of today's called the electric Kaka heard him to go out Patricia for closing comments.
Okay, well, thank you very much for your present.
<unk>.
Uhm.
You know finalized and Ah repeat.
Semi emergencies.
Well, we we had a longer than expected.
<unk>.
And that's already reflecting utility if we are creating an organization uhm.
Uhm, we have been able commandments Ah.
Like home versus the work from home.
And then practice.
We are holding onto new house and.
And consumer in a greater rate that'd be or and and the result of that is the power marketshare, it's showing are pretty good signs of improvement.
Our strategy.
Really.
Moving already moved from Oregon I Z.
Really to wax.
You know we are investing in the business.
Investments are wrapping up.
We do have today.
Much better team and talent in O level.
And these better position.
Okay gang.
We are as I said before coincidentally optimistic in the near performer and that's why we raise our credit spending your outlook and in 2021 financial.
R. A had already expect annoying hour.
Alright.
So with that thank you very much.
Great great. Thank you.
Ladies and gentlemen, this does conclude today's presentation, you may not just and I can have a wonderful day.
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