Q4 2021 Kraft Heinz Co Earnings Call- Q&A Session
[music].
Good day, and thank you for standing by and welcome to the Kraft Heinz Company fourth quarter results conference call at.
At this time, all participants are in listen only mode.
After the presentation, there will be a question and answer session.
To ask a question. During this session you will need to press Star then one on your telephone keypad.
Please be advised today's conference maybe recorded.
If you require operator assistance during the call. Please press Star then zero.
I'd now like to hand, the conference over to Christopher Cubic's head of Global Investor Relations. Please go ahead.
Thank you and Hello, everyone. This is Chris Jakubik head of global Investor Relations at the Kraft Heinz Company and welcome to our Q&A session for our fourth quarter 2021 business update.
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 earnings release and our filings with the SEC.
We will also discuss some non-GAAP financial measures today during the call and these non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results and you can find the GAAP to non-GAAP reconciliations within our earnings release and the supplemental materials posted on the IR Doc Kraft Heinz company Dot com.
With that let's take your questions.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
Please standby, while we compile the Q&A roster.
Our first question comes from Bryan Spillane with Bank of America.
Thanks, operator, good morning, everyone.
Two questions from me the first one.
Miguel.
Just given how fluid the environment is using I guess Paolo is world words.
The macro pressures that we're seeing in the market.
How has that impacted your ability to execute.
Or are you not executing as an organization I guess up to or as well as you would like just given all the pressure.
Brian Thanks for the question.
The macro pressures that you are mentioning.
And they've been here for a while.
And.
At the beginning it was it was hard to adapt but I think that this is the new normal and we are we are absolutely embracing the change of the macro pressure does every day.
I'm personally very confident about the path forward.
First because of our people we have today a great team.
Very engaged.
And with a low turnover, which is very different from $2 five years ago.
Our business is growing and we've been.
Relatively strong when.
When we talk about gross margins despite the inflation that we're seeing.
Okay.
It has enabled us to keep investing in our brands.
And our cash flow and balance sheet, it's almost much much stronger than in two years ago now.
Moving forward I think Thats why do we have to do is even to accelerate.
The.
Yes.
The past.
And the speed.
<unk>.
Accelerating profitable growth and unlock greater efficiencies, but but that's one I will leave for the car can be for us to speak a little bit more next week.
Thank you for the question, Brian Alright, Thanks, Miguel and then Palo.
I wanted to just ask if you could give us a little bit more help with phasing.
For the year and I guess more specifically as we're looking at the first half.
Are there anything we should consider I guess, if youre thinking about first quarter versus second quarter in terms of I don't know it was inflation.
Were more pronounced earlier in the year the impact of pricing to help offset inflation like how that flows and also.
In the prepared remarks, you talked a bit about or there was some discussion about supply chain.
So are some of the supply chain disruptions may be more pronounced earlier in the year. We're earlier in the first half than the back half. So just any help you can give us in terms of of the shape of the quarters would be really helpful.
Sure Brian So.
Stepping back a little bit like we closely one very strong our EBITDA was $6 $37 billion.
And in this number.
We had approximately $400 million of divested business. Okay. So we start from there.
We are going to see we're expecting to see the benefits of our sales growth.
Combination of pricing plus the efficiencies.
We have in our plan mitigating the inflation the higher inflation that we're seeing.
And also we expect.
Some headwinds from volume and mix.
And we are assuming.
A more conservative levels of consumption and the elasticity is as the stimulus and government support states okay.
Again as you said we had.
Back in closer to $47 53, <unk> <unk> two and these reflect the.
We are currently on the inflation would be absolutely. The price curve that you are implementing also day every quarter as you mentioned of the supply chain constraints that we have that is expected to improve through the first half.
It is also here in terms of the curve, we are going to have DCF 50, <unk> week that will benefit in our Q4 and the magnitude of a $60 million to $70 million, that's what we're expecting.
And in terms of inside the first half between Q1 and Q2.
Do you expect.
Q1 to be softer in relation to Q2 because of the timing of Easter shipments that youre going to have this year and also the timing that we are executing our pricing.
Okay. That's helpful. Thanks Paolo.
Thank you.
Our next question comes from Andrew Lazar with Barclays.
Great Good morning, everybody.
I was hoping to get.
A bit more clarity on the various buckets you broke out in the prepared remarks with respect to the supply chain constraints and market share.
Maybe it could be a bit more specific on sort of what the one time issues were in the fourth quarter and why you've got visibility to this being fixed by the end of Q1 is.
Is the second bucket you mentioned <unk>.
Supply constraints simply demand outstripping supply and not necessarily execution related.
And then the third bucket I assume are brands that are losing share for other reasons than supply constraints. So maybe if you can just sort of give us a little more clarity on those three buckets that'd be really helpful.
Thank you Andrew.
Scott listen we're happy to take it.
So as you said in the prepared remarks I broke this out but let me give you a little more color on each of those so firstly with the 40% of our shared loss in Q4 was as you said it was due to one time supply.
And similar challenges.
When I mean by that is things like we saw in places where Philadelphia cream cheese for example, given some packages.
Issues that we had that we know what happening those are related more to whether you with packaging materials in the case of <unk>, whether it was labor in case, the Oscar Mayer Bacon. So we have visibility on those and we know that we are able to actually come back and recover in Q1.
The second bucket is around the 30% that was really due to more think of those as more production constrains that we actually expect to resolve in the first half two accident in a good place as we end Q2.
And those are things, where the actual production was deriving the constraints so think of those as.
Hi, it's gravy.
Is limited and we were able but we are now doing things in order to free capacity to service. The high demand that we're seeing whether that was in places like Lunchables, where we have some ongoing labor constraints that we are solving and we will be able to again execute two in a much better way.
And then the third bucket.
Essentially is there any categories and frankly, they're tilted towards growth in categories, where we actually looking to implement new game plan. This year.
And think of those essentially new creative ways in which we can deliver a strong demand and when you pull it all together I can tell you that we have the clear visibility on what needs to be done and we actually have clear actions as well to make sure. It happens.
Feel very good as we exit Q1 and Q2 to recover this so thank you.
Thank you.
Our next question comes from Chris Growe with Stifel.
Hi, good morning.
I just had a quick question for you to understand I think this kind of follows on your answer there Carlos and interest question the.
The production constraints you had I think you said like 30% of the share losses.
Can you help quantify like what the how much that weighed on sales with the missing opportunity was in the quarter.
And then I also I'm just curious around that you did talk about in your prepared remarks.
Recorded remarks about a real focus on market share in 2022, so just want to get a better sense of kind of your expectations there.
Then how that could affect volume pricing and promotional efforts that kind of thing.
For the coming year. Thank you.
First of all thank you for the question I would say.
Thank you to leave with difficult to quantify share to the volume, but I can tell you is those are in the last 30%. Those are categories again that we continue to see opportunity for us to serve as a consumer demand in a stronger way so.
We are something that is focused for us and we are the reality is that we have been we are actually thinking through very creative ways in which we can actually satisfy that demand going forward and to your point around our focus on share absolutely.
US is.
Something that we as a company to take very seriously. We mentioned the fact that we have great bright spots within our business in a big iconic brands that have been growing quite a bit of share, but as we think about going forward, we want to make sure that as consistently across our businesses and being able to deal with the recovery in both in Q1 in <unk>.
Q2, as we exited the first half is going to help us actually continue to.
Continued to grow in that perspective.
Thank you thank you Ed.
I'm sorry go ahead.
Please go ahead I was going to be real quickly just said many times our focus on market share can imply heavier promotional spending those kinds of things. It sounds like you've got more new product innovation advertising and those are the kind of consumer poll more than consumer push it to generate that market share or is that is it fair to say.
I think I think for me.
Whenever I talk about market share I think of it as profitable market share.
I've been in.
Working in food company for number of years and there is no substitute to make sure that we whenever we think about market share. It has to be done in a proper way we have to make sure. We do everything that we do is with a consumer first approach to make sure. We in fact, bringing consumer solutions, whether that is location based in store.
Online, we'll always focus on making sure that he has done with a with a drive on profitable market share growth.
Thank you.
Thank you.
Our next question comes from Alexia Howard with Bernstein.
Good morning, everyone.
Good morning.
Alright.
About what came through better than expected in the fourth quarter.
When you reported at the end of October you were talking about adjusted EBIT dollar I think in the $6 one to $6 $2 billion range and it came through at six four.
That's a big step up for the last couple of months of the year. So could you just walk us through what the positive surprises.
But those are likely to continue thank you and I'll pass it on.
I think I'd highlight Paul here I think I can't I can take this one.
I think we saw we were able to even with many constraints, we were able to produce better.
It's fair to say that if we're able to if we had more capacity would have sold even more but we were able to operate in terms of volume and capacity better than we planned.
And also.
Our our <unk>.
Promotional strategy came in better than that.
We promoted last and we would expect an issue I think.
Those two areas together with <unk>.
Over delivering in terms of efficiencies no I would add this third point what are the main factors two of.
Our strong performance in the fourth quarter.
Great. Thank you very much I'll pass it on.
Thank you.
Our next question comes from Rob Dickerson with Jefferies.
Great. Thanks, so much.
Yes.
<unk>.
Commentary around unexpected stronger consumption in 'twenty two.
Obviously, that's despite higher pricing.
You said, you're being somewhat conservative I guess it sounds like on the volume side as you look to your internal forecast I'm just curious.
When you come up with those forecasts as we think about back half of the year.
Is the feel that.
You might just be a little bit better position given price points, maybe a little bit.
More.
Or let's say better position with respect to trade down risk I'm, just trying to get a sense as to why you think consumption would actually be up.
And the at home Channel and then I have a quick follow up.
I can start here and maybe consequent complement.
It feels the need.
What we won't be having bad debt in our outlook.
Is that.
Yeah.
We are we are again.
Expect as we said low single digit organic sales growth in this year.
With greater contribution from the growth path of farms that we have our foodservice channels.
Is also recovering and gaining share in all of the emerging markets.
Performance in our continuous strong performance through distribution.
And also as I was mentioning before some relief off the key supply chain constraints that as the year progresses.
But we.
As we were discussing we also are embedded in our forecast and our expectation.
Some.
Headwinds in volume.
The impact in volume in 'twenty, two because we are taking to consideration. The fact that we are going to be lapping stems from the government support that's happened and also a more conservative levels of elasticity than we saw before.
But net net.
So that is that we are we are we have assumptions that.
We have assumptions that are more conservative in terms of elasticity and consumption that we're seeing today, but we think it is the appropriate way to go in our outlook.
Yes, the one thing I guess I would add to what Paolo just said is that as we're doing that we will also continue to make investments to make sure we improve our brand value proposition and we're doing that through renovation of our brands driving disruptive innovation and continue the service.
Acacia based solutions, whether that's for in store online for today's consumers' needs. So that continues even as we are continuing to progress throughout the year.
Thanks for the question.
Alright, Super and then very quickly Paulo.
You've done a very nice job of improving your leverage positioning you ended the year still with a decent cash balance.
Should we just be thinking as you go forward that kind of a use of cash would either be for.
Smaller add on acquisitions or just kind of an ongoing deleverage cycle as you get through 'twenty two that's it. Thanks.
Okay.
Oh sure.
As.
Our leverage target is below four times, and we are well below that level to date and we expect to remain consistently below that going forward.
I'll highlight one of the points you are investment grade for us remains really strategically.
Strategically important.
And we have enough flexibility today, our balance sheet.
Our capital structure to continue to evaluate opportunities to accelerate our strategy now in an accretive way and with price discipline, but we are we are we are reading closing now the way that we are today in terms of.
<unk> ability in the balance sheet that we have.
We feel that we view the company in a very strong position.
Alright, thank you so much.
Thank you.
Our next question comes from Pamela Kaufman with Morgan Stanley .
Hi, good morning.
Good morning.
I'm wondering can you comment on where overall inflation came in for 2021, and what assumption, you're making for inflation in 'twenty two and then.
I guess just how much of your costs are covered for the year, what your visibility yet on.
On the cost outlook.
Sure.
So let me take that.
Our Q4 inflation were higher than we expect in our October recall, we ended up like with a low low low double digit.
But.
Our 2022, we're likely to see or expecting to date and year of inflation of low teens for the full year, Okay, and we expect this inflation to be higher in the first half of that in the second half.
And just to complement.
The end of next year in 'twenty, one we took the necessary actions to mitigate the inflation, we are seeing and cease them more inflation has come and we are taking these additional actions.
As we've been discussing.
And we are we are when you look about in terms of our hedging position.
We normally hedge.
Although we normally.
We hedge.
A more significant part of the commodities when you talk about our total Cogs, we only hedge around 20% to 30% of the Cogs. So because they're all a lot of other costs that are not only commodities in our in our in our cost. So again that is the range that we have had it. So it is not immaterial when we'd have.
Situations that you are having today that you are seeing inflation in pretty much all the lines of our Cogs.
Thank you that's helpful.
Thank you.
Our next question comes from Ken Goldman with Jpmorgan.
Hey, good morning, Thank you.
I'm curious in your guidance for 2022, how much does the outlook require or bake in I guess, what I would consider rational behavior from your competitors in other words are there any assumptions that as the consumer maybe gets a little bit more stretched as prices rise a little bit as some of your competitors also.
So add to their capacity.
Is there any expectation built in that there might be you talked about elasticity, certainly being there, but maybe a little bit more of an aggressive stance from some of your rivals I'm just trying to get a sense for what's baked in.
Okay.
The other thing I think that I'm not.
Going to comment on that.
They are doing and how they're going to run their business. So let me tell you a little bit about how I see our business Wi feel good about the way, we think about us going forward.
For us the important thing is to make sure we continue to stay.
<unk> is a differentiated portfolio and we're doing this because we actually are able to provide consumers.
Where there is an entry into the category of mainstream products are a premium product consumer actually have the way in which to acquire product from Kraft Heinz and you see that in places like Mac and cheese, where it goes from a per among easy math to the original version of Mac and cheese.
We also are continuing to strengthen our portfolio because as you know we have made some important divestitures that really helped reduce <unk> exposure to private label and other places where historically has been more competitive in fact, we've gone from 17% of exposure to private label to now 11, which I think is industry.
We average around 20%. So we also we already make we are making the investments we have a place in which consumers can come into the category, we're less exposed to historically private level businesses.
We continue to make sure we offering great quality products at prices that consumers can afford so we are focused on making sure that everything we're doing is around delivering great value, meaning quality products in a way that is acceptable to consumers. That's what we're focused here focus here at <unk>.
Makes sense. Thank you and then.
Follow up thank you for the gross margin the street's modeling pretty flattish figure in 2022 versus 21, recognizing you don't provide specific guidance for this line item just directionally I guess is it fair to say that gross margin is more likely to be down than flat just especially in light of I guess you reminded this morning that the content.
A inflation, you're aiming to recapture gross profit dollars not necessarily percentages.
Yes, listen when you think about cost to stabilize and price realization and efficiencies continue.
Our margin percentage will normalize okay.
As we have mentioned before.
We are expecting lower run rate margin percentage levels.
At the beginning and the beginning of this year and our actions are to protect the dollar profitability. So we're protecting the dollar margin over.
Over a year, that's how we are thinking here.
Great. Thank you.
Thank you.
Our next question comes from Steve powers with Deutsche Bank.
Yes, Hey, good morning, Thank you.
Following up on the topic of elasticity I was just wondering if you could provide any more context in terms of your assumptions for the coming year.
In that regard and really.
Aviation.
You're thinking about it we should be thinking about.
About how elasticity as anticipated maybe vary across across our platforms or across your geographic regions.
Is that.
Mike Im guessing that youre, referring mostly to our U S business. So let me just take that one.
I think so far.
Paul spoke to the deliberate earlier other expectation productivity have proven to be conservative.
So as we go forward, we're expecting some of those more normal levels of elasticity to impact in 2022, and just to be clear our outlook contemplate both of those elevated levels of elasticity and the continued investments in our brand value proposition.
When you look at overall kind of how the way we look at the businesses that demand really has remained pretty much intact. So the inflation, which as you know bring broad based and not specific to any one category is really kind of be back to everybody. As similarly, now if you look at it deeper.
Personal spending on food has been more stable than disposable income or even discretionary spending over time.
And if you go even further when you look at <unk>, specifically the <unk>.
Reality is that we have as I said earlier quality products.
In categories in which we can compete.
At a price that is affordable to consumers I mean, just to just to give you a sense I mean, when you think about Kraft Mac and cheese in our Blue bar because about 50 per serving if you think about Oscar Mayer Hotdogs. It's about 25 cents a piece if you think about Heinz ketchup with about 10 cents an ounce.
So those are things that we continue to feel strong about because we have a way in which create great quality products in a way that consumers can afford but.
We also taking more actions and that we also are using our design to value to make sure. We're thinking around how do we boost quality products, while reducing cost essentially making sure that we give consumers exactly what they're looking for and now the things they don't need and lastly, we are also making sure that we're investing in.
<unk> creative and communication, so that we have a stronger relevance of our brands.
Actually are helping us make sure that we continue to drive better renovations innovations in a way that matters to our consumers are looking for today.
Thank you.
Okay, great if I could.
Follow up on a different topic actually.
Theres a good deal of discussion.
About.
Your strategy to expand and drive growth in emerging markets and I guess as we think about.
The strategic investments that you've embedded in the 'twenty two plan.
Can you just talk about the.
The allocation of those investments.
In your developed markets versus your emerging markets and just how much of.
An accelerated push towards the emerging markets.
Youre thinking about and we should be thinking about.
The new year.
Okay.
Maybe I can take you here is how for speaking look we.
We continue to be very optimistic of our strategy with focus on emerging markets for instance day celebration.
<unk>.
I mean, we continue to expect double digit organic growth.
Further gains in market share in the future.
Leveraging our repeatable go to market model I mean, this has been live in <unk>.
About 30% of the countries, we operate today in emerging markets and we look to continue growing this book.
Boosting our go to market, Florida.
I'm trying to do so.
I mean, the strategy remains the same.
We'll play that as we've been doing we did four acquisitions in 2021.
Well add ons and different markets to enable us to expand within our diesel efficient focused in specific countries that we see a big opportunity for growth. So that strategy remains is paying off and we will continue.
Phil I would just add to that.
The engine for growth.
And do you see emerging markets really Brent Heinz debt.
That is an unbelievable.
Believable shaping.
And getting better every day from a consumer standpoint, which gives us a lot of opportunities for growth.
To expand the Hines.
Further not only catch up but other products Ho Hum and emerging markets will continue.
A great engine of our growth.
Okay very good thanks to you all.
Thank you. Thank you.
That concludes today's question and answer session I would like to pass the call back to Christopher <unk> for closing remarks.
Well, thanks, everyone for joining us today for follow up questions.
Myself and the rest of the IR team will be available for.
For any additional questions, but thanks again for joining us today, and we'll see you at Cagny next week.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
[music].
Yeah.
Good day and thank you for standing by welcome to the Kraft Heinz Company fourth quarter results Conference call.
At this time, all participants are in listen only mode.
After the presentation, there will be a question and answer session.
I'll ask a question during the session you will need to press Star then one on your telephone keypad.
Please be advised today's conference maybe recorded.
You require operator assistance during the call. Please press Star then zero.
I'd now like to hand, the conference over to Chris Jakubik head of Global Investor Relations. Please go ahead.
Thank you and Hello, everyone. This is Chris Jakubik head of global Investor Relations at the Kraft Heinz Company and welcome to our Q&A session for a fourth quarter of 2021 business update.
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 earnings release and our filings with the SEC.
We will also discuss some non-GAAP financial measures today during the call. These non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results and you can find the GAAP to non-GAAP reconciliations within our earnings release and the supplemental materials posted on the IR Doc Kraft Heinz company Dot com.
With that let's take your questions.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
Please standby, while we compile the Q&A roster.
Our first question comes from Bryan Spillane with Bank of America.
Thanks, operator, good morning, everyone.
Two questions for me the first one.
Miguel.
Just given how fluid the environment is using I guess Paolo is world words, and just the macro pressures that we're seeing in the market.
Is that how has that impacted your ability to execute in.
Or are you not executing as an organization I guess up to or as well as you would like just given all the pressure.
Yeah.
Brian Thanks for the question.
The macro pressures that you are messaging they've beaten they've been here for a while now.
And.
At the beginning it was it was hard to adapt but I think that this is the new normal and we are we are absolutely embracing the change of the macro pressure does every day.
Hi, I'm personally very confident about the path forward.
First because of our people we have today great.
Great team.
<unk> engaged.
And with the low turnover, which is very different from $2 five years ago, how our business is growing and we've been.
Relatively strong when when we talk about gross margins. Despite the inflation that we're seeing.
In a way has enabled us to keep investing in our brands.
And our cash flow and balance sheet is almost is much much stronger than in two years ago now.
No.
Moving forward I think Thats why do we have to do is even to accelerate.
The.
<unk>.
The path.
Pete.
To accelerate profitable growth and unlock greater efficiencies, but but that's one I will leave for the currently for us to speak a little bit more next week.
Thank you for the question, Brian Alright, Thanks, Miguel and then Palo.
Wanted to just ask if you could give us a little bit more help with phasing.
For the year and I guess more specifically as we're looking at the first half.
Are there anything we should consider I guess I'm sort of thinking about first quarter versus second quarter in terms of I don't know was inflation.
You know were more pronounced earlier in the year the impact of pricing to help offset inflation like how that flows and also.
In the prepared remarks, you talked a bit about or there was some discussion about supply chain.
So are some of the supply chain disruptions may be more pronounced earlier in the year or earlier in the first half than the back half. So just any help you can give us in terms of the shape of the quarters would be really helpful.
Sure Brian So.
Stepping back a little bit like we close late 'twenty, one a very strong our EBITDA was $6 $37 billion.
And then this number.
We had approximately $400 million of divested business. Okay. So we start from there.
We are going to see we're expecting to see the benefits of our sales growth.
The combination of pricing plus the efficiencies.
That we have in our plan mitigating the inflation the higher inflation that we're seeing.
And also we expect.
Some headwind from volume mix and we are assuming.
A more conservative levels of consumption and the elasticity is as a stimulus and government support states okay.
And again as you said, yes.
We're expecting close to 4700 53, <unk> <unk> two and this reflects the.
<unk>.
Where we are currently on the inflation versus the price curve that you are implementing also day every quarter as you mention of the supply chain constraints that we have that you expect this to improve through the first half.
But it is also here in terms of the curve, we are going to have <unk> 50, <unk> week that will benefit our Q4.
The magnitude of a $60 million to $70 million, that's what we're expecting.
And in terms of inside the first half between Q1 and Q2.
Do you expect.
Q1 to be softer in relation to Q2 because of the timing of Easter shipments that are going to have this year and also the timing that we are executing our pricing.
Okay. That's helpful. Thanks Paulo.
Thank you.
Our next.
Comes from Andrew Lazar with Barclays.
Great Good morning, everybody.
I was hoping to get.
A bit more clarity on the various buckets you broke out in the prepared remarks with respect to the supply chain constraints and market share.
And maybe could you be a bit more specific on sort of what the one time issues were in the fourth quarter and why you've got visibility to this being fixed by the end of Q1 is.
Is the second bucket you mentioned of.
Supply constraints simply demand outstripping supply in and not necessarily execution related.
And then the third bucket I assume are brands that are losing share for other reasons than supply constraints. So maybe if you can just sort of give us a little more clarity on those three buckets that'd be really helpful.
Thank you Andrew.
Scott It was kind of having to take it.
So as you said in the prepared remarks I broke this out but let me give you a little more color on each of those so firstly with the 40% of our share left in Q4 was as you said it was due to one time supply.
And similar to challenges.
What I mean by that is things like we saw in places where Philadelphia cream cheese for example, given some packages.
Issues that we had that we know what happens those are related more to whether you with packaging materials in the case of <unk>.
Whether it was labor in case, the Oscar Mayer Bacon. So we have visibility on those and we know that we are able to actually come back and recover in Q1.
The second bucket is around the 30% that was really due to more think of those as more production constrains that we actually expect to resolve in the first half two accident in a good place as we end Q2.
And those are things, where the actual production was deriving the constraints so think of those as.
Hi, it's gravy, where capacity is limited and we were able but we are now doing things in order to free capacity to service. The high demand that we're seeing whether that was in places like Lunchables, where we have some ongoing labor constraints that we are solving and we'll be able to again execute two in a much better way.
And then the third bucket.
Essentially is there any categories and frankly, they're tilted towards frozen categories, where we actually looking to implement new game plans. This year and think of those essentially at new creative ways in which we can deliver strong demand.
<unk>.
When you put it altogether I can tell you that we have the clear visibility on what needs to be done and we actually have clear actions as well to make sure. It happens.
Very good as we exited both Q1 and Q2 to recover this so thank you.
Thank you.
Our next question comes from Chris Growe with Stifel.
Hi, good morning.
I just had a quick question for you to understand I think this kind of follows on your answer there Carlos and interest question.
Production constraints you had I think you said like 30% of the share losses can you help quantify like what the how much that weighed on sales what the missing opportunity was in the quarter.
And then I also I'm just curious around that you did talk about in your prepared remarks.
We recorded remarks about a real focus on market share in 2022, just wanted to get a better sense of kind of your expectations there.
And then how that could affect volume pricing and promotional efforts that kind of thing for the coming year. Thank you.
First of all thank you for the question.
Hey.
Thank you to leave it's difficult to quantify to share to the volume, but I can tell you is those are in that last 30%. Those are categories again, we continue to see.
Opportunity for us to serve as a consumer demand in a stronger way.
No.
We are something that is focused for us and we are.
The reality is that we have been we are actually thinking through very creative ways in which we can actually satisfy that demand going forward and to your point around our focus on share absolutely for us is.
Is something that we as a company take very seriously. We mentioned the fact that we have great bright spots within our business.
Big iconic brands that have been growing quite a bigger share, but as we think about going forward, we want to make sure that as consistently across our businesses and being able to deal with recovery in both in Q1 and Q2 as we exited the first half is going to help us actually continue to compete.
<unk> continued to grow in that perspective.
Okay.
Thank you thank you Ed.
I'm sorry go ahead.
No go ahead, you guys are going to be real quickly just that many times our focus on market share can imply heavier promotional spending those kinds of things. It sounds like you've got more new product innovation those advertising and those are the kind of consumer poll more than consumer push to generate that market share or is that is it fair to say.
I think I think for me.
Whenever I talk about market share I think of it as profitable market share.
They have been.
Working in food company for number of years and there is no substitute to make sure that whenever we think about market share. It has to be done in a proper way we have to make sure. We do everything that we do with a consumer first approach to make sure. We in fact, bringing consumer solutions, whether that is location based in store.
All lines will always focus on making sure that it's done with a with a drive on profitable market share growth.
Thank you.
Thank you.
Our next question comes from Alexia Howard with Bernstein.
Good morning, everyone.
Good morning.
Alright can only.
About what came through better than expected in the fourth quarter.
When you reported at the end of October you were talking about adjusted EBIT dollar I think in the $6 one to $6 $2 billion range and it came through six four.
Big step up for the loss.
Couple of months of the year. So could you just walk us through what the <unk>.
It surprises and whether those are likely to continue thank you and I'll pass it on.
I think hi, Alexia Paul here, I think I can't I can take this one.
I think we saw we were able to even with many constraints, we were able to produce better.
It's fair to say that if we're able to do it.
Add more capacity would have sold even more but we were able to operate in terms of volume and capacity better than we planned.
Also.
Our our.
But emotionally strategy game.
Embedded in and we promoted last and we would expect initially I think.
Those two areas together with <unk>.
Over delivering in terms of efficiencies no I would add this third point what are the main factors two of our strong performance in.
In the fourth quarter.
Great. Thank you very much I'll pass it on.
Yeah.
Thank you.
Our next question comes from Rob Dickerson with Jefferies.
Great. Thanks, so much.
Just a question.
The commentary around unexpected stronger consumption in 'twenty two.
Obviously that despite higher pricing and you said, you're being somewhat conservative I. It sounds like on the volume side as you look to your internal forecast I'm just curious.
Right.
When you come up with those forecast as we think about back half of the year.
Is the feel that.
You might just be a little bit better positioned given price points, maybe a little bit.
More.
Uh huh.
Or let's say better positioned with respect to trade down risk I'm, just trying to get a sense of.
Why you think consumption would actually be up.
And the at home Channel and then I have a quick follow up.
But can you start to get in and maybe consequent complement it.
It feels the need.
What we won't be having bad debt in our outlook.
Is that.
We are we are again, we are going to react.
As we said low single digit organic sales growth in this year.
With greater contribution from the growth bought the farms that we have our foodservice channel.
Is also recovering and gaining share in all the emerging markets.
Farmers and our continued strong performance through distribution.
Also as I was mentioning before some relief off the key supply chain constraints that as the year progresses.
But we are.
As we were discussed and we also are embedded in our forecast and our expectation.
Some.
Headwinds in volume.
Any impact in volume in 'twenty, two because we are taking into consideration. The fact that we are going to be lapping stems from the government support that's happened and also a more conservative levels off lst's than we saw before.
But net net.
That is that we are we are we.
We have assumptions that.
We have assumptions that are more conservative in terms of elasticity and consumption that we're seeing to date, but we think it is the appropriate way to go in our outlook.
Yes, the one thing I guess I would add to what Paolo just said is that as we're doing that we also continued to make investments to make sure we improve our brand value proposition and we're doing that through renovation of our brands driving disruptive innovation and continue the service.
Acacia based solutions, whether that for in store online or today's consumers' needs. So that continues even as we are continuing to progress throughout the year.
Thank you for the question.
Alright, Super and then very quickly Paulo.
You've done a very nice job of improving your leverage positioning you ended the year still with a decent cash balance.
Should we just be thinking as you go forward that kind of use of cash will either be for smaller add on acquisitions or just kind of an ongoing deleverage cycle as you get through 'twenty two.
Yes.
Oh sure.
Yes.
Our leverage target is below four times, and we are well below that level to date and we expect to remain consistently below that going forward.
Just to highlight one of the points you are investment grade for us remains really.
Strategically Boston.
And we have enough flexibility today, our balance sheet.
Capital structure to continue to evaluate opportunities to accelerate our strategy now in an accretive way and with price discipline, but we are we are we are reading closing now the way that we are today in terms of 60 ability in the balance sheet that we have.
We feel the company in a very strong position.
Alright, thank you so much.
Thank you.
Our next question comes from Pamela Kaufman with Morgan Stanley .
Hi, good morning.
Good morning.
Good morning.
Can you comment on where overall inflation came in for 2021, and what assumption youre, making for inflation in 2002 and then.
I guess just how much of your costs are covered for the year, what your visibility yet on it.
Cost outlook.
Sure.
So let me take that.
Our Q4 inflation were higher than we expect in our active recall, we ended up like with a low low low double digit.
But.
For 2022, we're likely to see or expecting to date and year of inflation of low teens for the full year, Okay, and we expect this inflation to be higher in the first half of that in the second half.
And just to complement.
By the end of next last year in 'twenty, one we took the necessary actions to mitigate the inflation, we are seeing and cease them more inflation has come and we have taken these additional actions.
As we've been discussing.
And we are we are when you look about in terms of our hedging position.
We normally hedge although we normally we hedge.
A more significant part of the commodities when you talk about our total Cogs, we only hedge around 20% to 30% of the Cogs. So because they're all a lot of other costs that are not only commodities in our in our in our in our costs.
So again that is the range that we have a hedge it so it's not immaterial when we have a situation that you are having today.
We're seeing inflation in pretty much all the lines of our Cogs.
Thank you that's helpful.
Thank you.
Our next question comes from Ken Goldman with Jpmorgan.
Hey, good morning, Thank you.
I'm curious in your guidance for 2022, how much does the outlook require or bake in I guess, what I would consider a rationale behavior from your competitors in other words are there any assumptions that as the consumer maybe gets a little bit more stretched as prices rise a little bit as some of your competitors.
Also add to their capacity.
Is there any expectation built in that there might be you talked about elasticity, certainly being there, but maybe a little bit more of an aggressive stance from some of your rivals I'm just trying to get a sense for what's baked in.
Okay.
The only thing I think that I'm not going to comment on what they're doing how they're going to run their business. So let me tell you a little bit about how I see our business Wi feel good about the way, we think about us going forward.
For us the important thing is to make sure we continue to pay.
Investing is a differentiated portfolio and we're doing this because we actually are able to provide consumers.
Where there is an entry into the category of mainstream products are a premium product consumer actually have the way in which to acquire product from Kraft Heinz and you see that in places like Mac and cheese, where it goes from a per among easy math to the original version of Mac and cheese.
We also are continuing to strengthen our portfolio because as you know we have made some important divestitures that we may have reduced their exposure to private label and other places where historically has to be more competitive in fact, we've gone from 17% of exposure to private label to now 11, which I think is industry.
The average is around 20%. So we also we already make we are making the investments we have a place in which consumers can come into the category, we're less exposed to historically private label businesses and we continue to make sure we offering great quality products at prices that consumers can afford so we.
Our focus on making sure that everything we're doing around delivering great value, meaning quality products in a way that is accessible to consumers. That's what we're focused here focus here at <unk>.
Makes sense. Thank you and then thank you.
Follow up thank you for the gross margin the street's modeling pretty flattish figure in 2022 versus 21, recognizing you don't provide specific guidance for this line item just directionally I guess is it fair to say the gross margin is more likely to be down than flat.
Especially in light of I guess, you are reminded this morning that in the context of.
Inflation, you're aiming to recapture gross profit dollars not necessarily percentages.
Yes.
You think about cost to stabilize and price realization and efficiencies continue.
Our margin percentage it will normalize okay as we have mentioned before.
We are expecting lower run rate margin percentage levels.
At the beginning and the beginning of this year.
Our actions are to protect the dollar profitability. So we're protecting the dollar margin.
Over a year, that's how we are thinking here.
Great. Thank you.
Thank you.
Our next question comes from Steve powers with Deutsche Bank.
Yes, Hey, good morning, Thank you.
Following up on the topic of elasticity I was just wondering if you could provide any more context in terms of your assumptions for the coming year.
In that regard and really any variation.
You're thinking about it we should be thinking about.
About how elasticity as anticipated maybe vary across across our platforms or across your geographic regions.
I think is that I'm guessing that you are referring mostly to our U S business. So let me just take that first.
I think so far.
Paulo spoke to this a labor earlier other expectation productivity have proven to be conservative.
As we go forward, we're expecting some of those more normal levels of elasticity to impact in 2022.
And just to be clear our outlook contemplate both those elevated levels of elasticity and the continued investments in our brand value proposition.
No.
When you look at overall kind of how the way we look.
The businesses that demand really has remained pretty much intact. So the inflation, which as you know bring broad base and not specific to any one category is really kind of be back to Emma.
Similarly.
Now if you look at it deeper.
Personal spending on food has been more stable than disposable income already been discretionary spending over time.
And if you go even further when you look at <unk> specifically the reality is that we have as I said earlier quality products.
In categories in which we can compete.
At a price that is affordable to consumers I mean, just to just to give you a sense I mean, when you think about Kraft Mac and cheese in a blue box is about 50 per serving if you're thinking about Oscar Mayer Hotdogs. It's about 25 cents a piece if you think about highest catch a bit about Tencent has announced.
So those are things that we continue to feel strong about because we have a way in which create great quality products in a way that consumers can afford.
We're also taking more actions and that we also are using our design to value to make sure. We're thinking around how do we boost quality products.
Using cost essentially making sure that we give consumers exactly what they're looking for and now the things they don't need and.
And lastly, we also making sure that we're investing in better creative and communication. So that we have in fact stronger relevance of our brands.
We actually are helping us make sure that we continue to drive better renovations innovations in a way that matters to our consumers are looking for today.
Thank you.
Okay great.
If I could follow up on a different topic actually.
There's a good deal of discussion.
About.
Our strategy to expand and drive growth in emerging markets and I guess as we think about.
The strategic investments that you have embedded in the 'twenty two plan.
Can you just talk about the.
The allocation of those investments.
In your developed markets versus your emerging markets and just how much of.
An accelerated push towards the emerging markets.
Youre thinking about and we should be thinking about as it relates to the new year.
Okay.
Maybe I can think of here is halfway speaking look we continue to be very optimistic of our strategy with focus on emerging markets celebration.
And.
I mean, we continue to expect double digit organic growth.
Further gains in market share in the future.
Leveraging our repeatable go to market model I mean, this has been live in.
About 30% of the countries, we operate today in emerging markets and we look to continue growing this book.
Boosts our go to market, Florida.
To do so.
The strategy remains the same.
We'll play that as we've been doing we did four acquisitions in 2021.
Well add ons.
Markets to enable us to expand within our diesel efficient focus in specific countries that we see a big opportunity for growth. So that strategy remains is paying off and we will continue.
I would just add to that.
The engine for growth.
And do you see much of markets really Brent Heinz debt.
That is unbelievable shape and and and.
Getting better every day from a consumer standpoint, which gives us a lot of opportunities for growth.
Spend Hines.
<unk>, not only catch up but to other products.
In emerging markets will continue being a great engine of our growth.
Okay very good thanks to you all.
Thank you. Thank you.
That concludes today's question and answer session I would like to pass the call back to Christopher <unk> for closing remarks.
Well, thanks, everyone for joining us today for follow up questions.
Myself and.
The rest of the IR team will be available for <unk>.
Any additional questions, but thanks again for joining us today, and we'll see you at Cagny next week.
This concludes today's conference call.
You for participating you may now disconnect.