Q3 2022 Kraft Heinz Co Earnings Call (Q&A Session)

October 26, 2022

Yeah.

Ladies and gentlemen, thank you for standing by and welcome to the Kraft Heinz Company third quarter results. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session. So ask a question during the session need to press star one on your telephone I would now like to turn the call over to your host Anne Marie <unk>, Our global head of Investor Relations you may begin.

Thank you and Hello, everyone.

Gambari Mccallum head of Investor Relations at the Kraft Heinz Company and welcome to our Q&A session for our third quarter 2020 business update.

During today's call we may make forward looking statements regarding our expectations for the future, including related to our business plans and expectations strategy efforts and investment and related timing and expected impact.

These statements are based on how we see things today and actual results may differ materially future risks and uncertainties.

Please see the cautionary statements and risk factors contained in today's earnings release, which accompanies this call as well as our most recent 10-K 10-Q and 8-K filings for more information regarding these risks and uncertainties.

Additionally, we may refer to non-GAAP financial measures, which exclude certain items from our financial results reported in accordance with GAAP.

Please refer to today's earnings release, and the non-GAAP information available on our website at IR Dot on time company Dot Com under news and events for a discussion of our non-GAAP financial measures and reconciliations.

I'm terrible GAAP financial measures.

Before we begin I'm going to hand, it over to our CEO Miguel Patricio for some brief opening comments well. Thank you Anne Marie.

Thank you everyone for joining us here today.

We get.

We are excited.

Yes.

We believe we delivered another.

Quad area of strong results.

We see consumer demand remaining strong.

And that'll be elasticity as they continue to hold.

Our portfolio of iconic brands.

Strong.

The adequate for the moment that we are leasing and we continue to invest in these brands and seeing that this investment is paying off.

Yet at the same time.

We realize we know that supply chain remains challenging.

Particularly with inflation and material shortages.

I'm proud of the teams.

We continue to anticipate and adapt to these challenges.

We improved capacity.

And we're able to meet demand.

We actually gained share.

At the same time, we continue to advance our transformation.

Then, including modernizing our marketing and transforming our portfolio.

As we look ahead.

We continue cautiously optimistic we.

We are providing our consumers with solutions that they value.

Continue to unlock efficiencies.

We invest in the business.

All of which makes us stronger.

And positions us well for whatever challenges are.

Still to come.

With that we are very happy to take your questions.

Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone, we will pause for a moment, while we compile the Q&A roster.

Our first question comes from Andrew Lazar with Barclays. Your line is open.

Great. Thanks, so much.

I guess, maybe to start the company had moderated its EBITDA expectations back in September <unk> third quarter.

When you were already about two months into the quarter today Youre not only beat those expectations, but came in above the initial guidance as well so what came in better than you thought.

Are there any timing issues to be aware of that might impact <unk> as a result.

And maybe more importantly, do these fluctuations gives you any pause with respect to visibility into the business with the understanding that it's obviously still a very dynamic environment.

Andrew Thank you for the question.

You may have answered this one sure.

Morning, Andrew.

Good morning.

<unk>.

So Andrew.

First of all.

I think I said at the beginning of a painful for everybody.

Excited and pleased with the results achieved in the quarter.

Net.

A lot of things happened in our favor.

First of all as you might remember we had executed a new price increase the month of August .

The last piece is done now it should be stronger than anticipated.

Dissipated, which resulted in strong bottom line.

Shipments were very close I think our team did a great job at that level of September should be able to ship.

In a much better base than earlier in the quarter, which also helped us.

We ended up spending less promotion also that we had initially anticipated which is a fine as well, but they are being very prudent.

With all of the promotions that makes sense in our portfolio.

And then finally, we did have about $30 billion of one time gains.

Thanks.

In the P&L, 80% plus 20% in SG&A and those are mostly anticipation from Q4, Okay. That's we're able to bill excuse me in Q3.

We also have just have been out there given the volatility but not.

No I think we're able to have a lot of those things play out favorably.

That's the motive here that the organization is moving with speed and reacting fast it shows the various cities.

Remember that that guidance for the year in Q3 right.

I think we felt confident about the numbers I don't think we are just reinforce it does not originally thought.

You can count on us always to be.

Transparent dialogue and be in a.

Finally expansion like we did back in September when we had the first news about.

Let me touch on any pressure.

Great Great. That's very helpful. Thanks, so much I'll pass it on.

One moment for our next question.

Okay.

Our next question comes from Ken Goldman with Jpmorgan. Your line is open.

Hi, Thanks, so much.

You mentioned that your supply chain tightness is still mostly caused by.

Factors from your upstream suppliers. This is not an uncommon refrain. We're certainly hearing this from many of your peers I'm. Just curious can you maybe help us better understand what the specific issues are you mentioned disruptions I guess on ingredients and packaging does this suggest that the issues are somewhat temporary that can fade when the disruptions of past or.

Or are there maybe some structural problems I guess that could take longer to fix thank you.

Okay, Carlos I think that's.

That's related to U S. Go ahead. Please yes, what I would tell you first of all thank you for that question I'll tell you is that I think you can see that the environment continues to be challenging and what I'm really proud of is the fact that our team is doing a terrific job of.

Working through the wave of challenges. So as we are as we speak we have Bose.

Build of inventory and improving service levels and we have done that from the quarter sequentially. You think this quarter I think we continue to see that going forward.

What if I take a step back insensitive broke constrains what I see is about 80% of those challenges are really due to upstream supply distribution on ingredients and certain packaging materials.

I will say is it vary a certain chronic safety.

They are recovering so youll see that in some cases, we are moving quickly and recovering overall in our supply chain.

Few ingredients that have been tighter for us and I point to things like haven't affected us in the past something that I call cuts in London.

Im telling and cream cheese.

Same time, even in those categories. We now have recover and feel good about kind of our position as we go towards the end of the year.

Got it thank you.

Thank you <unk> next question.

Our next question comes from Bryan Spillane with Bank of America. Your line is open.

Thanks, operator, good morning, everyone.

They build on the previous two questions.

Because youre kind of looking at the current environment now.

Dealing with what youre dealing with.

There is.

You'll see what youre seeing in the marketplace is there any reason.

That we Shouldnt expect that your long term targets, which you laid out back and you talked a bit about that.

Our our targets that we.

We should expect that those are achievable for 2023 or does this environment still maybe too volatile to be in line with what your long term targets would be.

You may want to answer these questions sure.

Good morning, Brian .

No.

As I said back in.

In Cagny.

Would it be unveiled our new long term growth algorithm we.

We expect to get Dan.

Over the years, so think of it in terms of three years or so so we feel good and our continued improvement in our performance.

Spectra continue to move towards February .

The way that we have communicated back to Dan.

Probably not ready to give any guidance around 33, but yes, the environment is too volatile.

Hearing from us public from others in the sector about supply chain volatility, which has consequences on availability.

Yes.

Using our costs.

Thank you one moment for our next question.

Our next question comes from Chris Growe with Stifel. Your line is open.

Hi, good morning.

Yes.

I just had a quick question for you in relation to you showed in one of your charts in the slide deck privately.

Private label, gaining more share in your categories.

It also showed kraft Heinz doing much better than its categories as well and as we look across the store private label share has been up at a lesser rate over the past few months, although it seems like it's gone up a little bit more so in your categories I just want to get a sense of if you see incremental risk and your <unk>.

Categories from private label share gains as you take more pricing, where you have more pricing thats been put in place and then just any change in your thoughts on elasticity in relation to your pricing, which has been very favorable for your business. Thank you.

Good morning, Chris do you want to answer that question sure. Thanks for the questions.

Private delay of a few things first of all is it.

We have been continuously reiterating our exposure to private today, but we're happy to see it because of the epidemic of divestitures. We have made last year. So the average market share in our portfolio is about 11% across food and beverage is 20%.

Taxes.

During the past three years as part of our transformation, we have been interacting a lot of effort and energy around the court. So we started to talk a little bit that would have been renovated in the court.

Systematic way, so I'll talk quite a bit stronger.

Alright.

The private product in April have been increasing their price together with the rest of the players. So as recent as the last four weeks, including already three weeks of October looking at fill all data our sellout price at about 17%, whereas private debate was 16% up so our library preserved.

You might have seen as well one of the schedule that we provided that compared in Q2 through Q3, the price gap to private label remains the same. So we did not see any kind of guarding our price gap expanded vessels private that April except to catch up on Lunchables, which honestly I think that actually is limited and we gained share in both of these categories.

So yes, I think we feel good about that obviously, we don't want to be now EBIT, hopefully optimistic that Daniel how consumers eventually shift behavior integrated domestic way.

Things can change, but there is no indication of that.

As of right now and honestly I mean, despite all the environment for this proving to be very resilient.

Brands.

He has been very resilient and with unemployment where it is right now when I was back in 2000 late 2011, we only thought processes shifting behavior, but I don't think <unk> start to go up which is 500, we added Mr. Dave So, yes, and I think what I would say is.

We have continued to invest in the equity of our brands.

As we think about the fact that.

Sometimes when you don't have pricing power brands are pricing pricing pilots on investments we have made with the quality of the marketing we have improved aircraft times and the commitment we have to continue to invest in our brands going forward also gives us some confidence as we continue to manage through the current environment.

Thanks for your question. Thank.

Thank you.

For our next question.

Our next question comes from Alexia Howard with Bernstein. Your line is open.

Good morning, everyone.

Good morning, good morning elected okay.

I looked at the lineup of products on page 19 of the presentation and they really do seem to be meeting the moment in terms of the consumer needs for convenience and affordability.

But I'm just wondering about your thoughts on.

The recent White House conference on Hunger health and nutrition that happened last month for the first time in 50 years I think.

There were a lot of initiatives coming out of that with respect to frontier.

Front of pack labels are very tight definition of what a healthy two days.

Educating consumers and health professionals on the importance of good nutrition and I wanted to just how it may be too soon but how youre thinking about those types of developments in the industry over the coming months and years and how that might shape. Your plans for innovation on the portfolio going forward. Thank you and I'll pass it on.

Okay.

At me.

Yes, absolutely.

Answering this question and then Carlos wants to complement.

Nutrition is.

Part of our long term strategy as part of our agenda.

This is a very important part of holiday.

Yes <unk>.

<unk> for the future.

We've been renovating our portfolio.

Throughout the years, reducing by eliminating.

The EIS and if you sell ingredients and we have.

Global agenda, very specific agenda in reducing salt and sugar, we check too.

Two critical things in our portfolio that we havent responsibility to do.

We are on the way to achieve the targets that we put in place until 2025 and just to give you. An example.

We we change the formulation of our Capri Sun this year, we've reduced 40%.

Of sugar content convert to put it in perspective that is 40 million pounds of sugar per year that we reduced.

We can continue committed to debt for the short to medium and the long term to make our products more nutritious.

But I would add to <unk> point, which I think is right on is the fact that this is a commitment we have for the long term.

Every single time, we are renovating our portfolio, we're putting in kind of the view of how do we continue to improve.

Products overall.

Not just because it's the right thing to do but also because thats what consumers want us to do so I think that is happening.

I think that you can see it very clearly in terms of our commitment to sugar reduction to some reduction as we continue to work with communities and improving the food insecurity situation and this is something that as a company. We are committed to and we will continue to as we go forward.

We are in.

Yeah.

D J.

Right.

Tomatoes and beans.

And in the highest we had a great cultural company.

And.

We've been investing a lot in that sense.

Beth I mean, you'll see what we're doing in Europe with <unk>.

Our teams with the project ourselves allowance being.

Being spaced products with Heinz beans.

With heightened bean protein pods.

Our portfolio of innovation for the next five years related to that.

EBITDA in U S. We are very proud to announce this week that we add balance sheet.

Our plant based cheese.

Which by the way is an incredible product very different from what is in the market.

Select keys.

Smells like cheese and mouse like Ts.

And.

And he is very different from everything that is in the market. So absolutely committed on the non traditional.

Agenda.

Wonderful. Thank you very much I'll pass it on.

One moment for our next question.

Our next question comes from Stephen Powers with Deutsche Bank. Your line is open.

Yes, Hey, good morning.

I wanted to ask on gross margin progression.

The cross across the consumer goods space broadly I think we're beginning to see more signs.

And evidence of gross margin stabilization, if not recovery with results across many companies either coming in ahead of consensus expectations are improving sequentially.

We're even starting to improve year over year and.

So every every portfolio is obviously different but you are not yet in that position. So I'm curious as to.

Just how youre thinking about.

The progress of gross margin, what expect what kind of of <unk>.

Framing of expectations, we should have going into the fourth quarter.

And the prospects for further improvement as we build into fiscal 'twenty three.

And then you May answer this question. Please sir thanks for the question.

Look.

We have been as I said, all our longer have been pricing to protect.

Solar installations or dollar per dollar and we have been doing that now for the second quarter in a row.

So both in Q2 and now in Q3 price to us in line with inflation plus.

Granted efficiencies was ahead of inflation.

Even that we had in Q3 as we initially said back in September .

Incremental pressure in selected places.

And we took action already on its there is continuous lagging effect. So we expect Q3 should be the bottom of our gross margin and <unk>.

You'd expect to see a sequential improvement in Q4 in comparison to Q3.

Thank you one of them are for next question.

Our next question comes from David Palmer with Evercore ISI. Your line is open.

Thank you just a follow up on on some of the supply chain stuff Youre case fill rates in your slide deck you say.

They were in the low <unk> in the third quarter and Thats better than the high Eighty's that it wasn't the first quarter, but I was slightly surprised to see that that fill rate was the same as <unk> is that.

Result of that upstream supplier.

<unk> you are talking about and I'm wondering.

How youre thinking about progress there is that.

Is that some do you have visibility to getting that fill rate back I'm sure you want to get back to the high Ninety's.

When could we expect bigger leaps and improvement in.

In fill rates thanks.

David Thanks for the question Carlos please.

Yes.

I will say is that exactly what you said it is.

Is connected to the availability of certain ingredients in the App.

Upstream, but at the same time, our commitment with our customers is continue to improve that I'll tell you that visa as we continue to navigate the situation in terms of those capacity constraints.

I'll say the way, we're also looking to see how it differently with the capacity that we have available to us and let me give you a couple of examples of how we're doing that we actually are ingesting data directly from our customers in a way that allows us to better deploy our inventory to reduce out of stocks we started that.

With a pilot with one particular retailer and that allows us to actually reduce the amount of inventory by 40% the out of stocks in their stores by 40% in a period of about eight weeks. We now have expanded that program and now we're ingesting more data from different customers that allows us to then make sure that we are then put in there.

Inventory in the right stores and getting the right signals into a production so that we can maximize that.

The availability of capacity that we have in our plants. So we both working upstream with suppliers, but it's also us being smarter and better capabilities internally to deploy inventory to improve overall service levels.

We're committed to do.

Thanks for the question.

Well remember for our next question.

Our next question comes from John Baumgartner with Mizuho. Your line is open.

Good morning, Thanks for the question.

Miguel I'm wondering if you could touch on the nice reversal you had in Q3 regarding market shares relative to your branded competition, how would you break that down between the benefit from some of the supply chain constraints easing the pricing differentials in the market as opposed to how much of that is derived from this underlying changes to your execution.

The market on more of a like for like basis, and how sustainable do you think that performance will be in the share gains versus brands going forward. Thank you.

Thanks for the question so EBIT.

I'll give you my perspective, and then Carlos Ken can build further.

On that task.

Hi, Eric.

Items, two to keep the levels of market share even.

Even with the problems that we continue facing on supply I mean.

We would be gaining a lot of share if we would not.

Facing steel shortage.

<unk> materials.

A good proof of that is yes.

<unk>.

And Lunchables.

In previous quarters, we had problems with supply charter stuff raw materials, we lost share.

And now we are in rocket.

Record share gains on these two brands so <unk>.

Optimistic that.

We can we can move on.

On market share I.

I will say is to build <unk> point. This is a combination of the continued investments we have made in renovating our brands investment in improving the quality of our marketing communication and then as you said unlocking some of the capacity in some key.

I think the example, I gave around launch of both the Capri Sun in which we saw the improvement on the inventory on CFR and then built into actually then go into market and then drive ebay event based promotions that allow us to continue to grow those particular categories. During the back to school period, which is what the basic.

But normal phenomenal results for us in terms of the performance as we go forward.

You see that places and we'll continue to have challenges in terms of capacity, we know that once we all love. Those we also have an opportunity to then continue to grow our consumption as we go forward and those as I said before areas like our coal cost and cream cheese that are slowly getting into better position.

And our inventory and now as we go into and through the holidays, making sure. We protect the ability to then go into those <unk>.

And based upon promotions.

During this time of year that consumers are looking for our brands. So when.

When you take a step back I will say has been a great combination of the work we have done over the last year and a half for us to improve internally the equity of our company and at the same time now.

The benefit of us being able to now go back into the marketplace in a more aggressive way.

Allow us to do that and continue to drive consumption and hold penetration of our brands.

Okay. Thank you operator, we have time.

Operator, we have time for one more question for one moment.

Our next question comes from Michael Lavery Piper Sandler Your line is open.

Thank you good morning.

I just wanted to come back to the foodservice opportunity you called out.

Specifically you said.

Roughly half of the top 50, <unk> our distribution opportunities for you.

Can you just give us a sense of.

Maybe what's kept you from already being in some of those accounts how sticky are those relationships.

Whats sort of realistically the expectations for how many of those could come your way.

I would ask <unk> to answer that question and then have hotel that is with US on this call presence for international zone.

Where we have a great momentum from service by the way yes.

Let me start with the coming together just made I think if you look at our business in the North American year to date.

Growing and growing market share. So we feel very good about our performance so far but I guess I would tell you is for US is a critical channel as we go forward. It is one that we really thought about how do we continue to transform the organization internally. So we have done things like changing the leadership in Rio.

Our focus from operators to advantaged tubular as we have done things like making sure that our foodservice now has a different role within North America zone that is from what we used to see basically a stable contributor to our growth driver.

Simplify renovated the portfolio I'll tell you that we have reviews about half of the Skus that we had in 2019 at the same that we have improved quality and then finally, we continue to enhance our overall distribution overall.

Now part of the part of the point that you made around how do we continue to unlock some of the opportunities we have in <unk>.

We continue to invest in the capacity of the business. So we're also making strong investments in capex in order for us to support the opportunity for us to continue growing in our foodservice channel over the last two years that number is over $100 million. We have invested so that allows us now the opportunity to have those conversations.

With <unk> in a way that truly unlock opportunities for us to continue growing now thats our view on North America, Let me pass it out rapidly to give you a view also of.

The international side.

Yes look.

That's very similar to that the opportunity in foodservice to significant then you can see has been a core pillar for our results.

Last few years in the quarter is no different you can you can see that.

The numbers, we released we are growing very fast and twice the size of the <unk> the rate of the industry.

You can attribute that part of it was does slow down that happened during the pandemic a lot of the across international we do compete with some global players, but also some local players and a lot of them specialize in foodservice that during the pandemic they suffer a lot and some of them either went bankrupt or had.

Downsized significantly their operations, we didn't we've maintained the same level of investments and consequently coming out of the pandemic.

Most of the countries across the world.

We are riding ahead of it so we continue to be excited and <unk>.

The core our products, especially within the sauces environment.

Is very heavy handed with the <unk> industry and we still have a long way to go I mean, our estimate with the dot available is that we are about between three and 4% market share of the sauces category foodservice. So there is significant room ahead, and we're going to.

To do that driving the shaft led model, where we have invested in shifts that bought them with those customers.

Drive innovations that have been have.

I have been very well received so it should be it should be a continuous.

Source of growth sustainable growth for us.

Okay.

Okay, great. Thank you.

Thank you operator, Im now going to hand, it over to Mcgill for some closing commentary.

I would like to finish with a coat.

Of course from.

Most.

Legendary current rates that are on formula one.

<unk>.

If it's raining I can't pass 15 cars.

Sandy I cannot.

Value stocks rainy it's Tony.

But we are super excited at this moment, because we are seeing is a great moment of opportunity.

And we've been able to mitigate some of the efficiencies of the short term and can adapt and we build very fast at the same time that we are.

Continue building our future.

We're excited with what we have ahead of us.

Thank you very much.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Kraft Heinz Company third quarter results. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask the question during the especially the press star one on your telephone I would now like to turn the call over to your host Anne Marie <unk>, Our global head of Investor Relations you may begin.

Thank you and Hello, everyone. This is Jim Murray Magellan's head of global Investor Relations at the Kraft Heinz Company and welcome to our Q&A session for our third quarter 2020, Q business update.

During today's call we may make forward looking statements regarding our expectations for the future.

Including the regulatory business plans and expectations strategy African investment and related timing and expected impact.

These statements are based on how we see things today.

And actual results may differ materially due to risks and uncertainties.

Additionally, we may refer to non-GAAP financial measures, which exclude certain items from our financial results reported in accordance with GAAP.

Please refer to today's earnings release, and the non-GAAP information available on our website at IR Dot I'm Fine company Dot Com under news and events for a discussion of our non-GAAP financial measures and reconciliation to the comparable GAAP financial measures.

Before we begin I'm going to hand, it over to our CEO Miguel Patricio for some brief opening comments well. Thank you and thank you everyone for joining us here today.

We get excited.

We believe we do.

Levered another another quarter of strong results.

And we see consumer demand remaining strong.

Elasticity as they continue to hold.

Please see our portfolio of iconic brands.

Strong.

For the moment that we are leasing.

And we continue investing in these brands and seeing that this investment has paid off.

Yet at the same time.

We realize we know that supply chain remains challenging.

Okay.

With inflation and material shortages.

I am proud of the teams.

Continue to anticipate and adapt to these challenges.

We improved capacity.

And we're able to meet demands.

Actually gained share.

At the same time we.

To advance our transformation.

Including modernizing our marketing and transforming our portfolio.

As we look ahead.

Continue cautiously optimistic.

We are providing our consumers with solutions that they value and we continue to unlock efficiencies.

We invest in the business.

All of which makes us stronger.

And positions us well for whatever challenges are still to come.

With that we are very happy to take your questions.

Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone, we will pause for a moment, while we compile the Q&A roster.

Our first question comes from Andrew Lazar with Barclays. Your line is open.

Great. Thanks, so much.

I guess, maybe to start the company had moderated its EBITDA expectations back in September 1st third quarter. When you were already about two months into the quarter today Youre not only beat those expectations, but came in above the initial guidance as well so what came in better than you thought.

Are there any timing issues to be aware of that might impact <unk> as a result.

And maybe more importantly, do these fluctuations gives you any pause with respect to visibility into the business with the understanding that it's obviously still a very dynamic environment.

Andrew Thank you for the question.

You may put it this way.

Sure.

Good morning, Andrew.

Good morning.

<unk>.

So Andrew.

First of all.

I think I said at the beginning of a single pill.

Excited and pleased with the results achieved in the quarter and I'll tell you that.

A lot of things happened in our favor.

First of all as you might remember we had executed a new price increase that notebook August .

And the last piece is the analogy would be stronger than what they show dissipated which resulted in strong bottom line.

Shipments were very close I think our team did a great job difficult today would you be able to ship.

Much better base then.

<unk>, which also help us.

We ended up spending less promotion also that we had initially anticipated.

Which is a fine as well, but they are being very prudent to put either.

Promotions that makes sense in our portfolio.

And then finally, we did have about $30 million of one time gains.

Thanks.

In the P&L, 80% and cost 20% in SG&A and those are mostly anticipation from Q4, Okay. That's why we're able to bill excuse me in Q3.

We also have just had the number given that the goal of getting to it but it's not.

No I think we're able to have a lot of those things play out favorably.

Just wanted to hear that the valuation is moving with speed and reacting fast that shows the various cities.

Remember that.

Based on guidance for the year in Q3 right.

I think we felt confident about the numbers, but I don't think theyre just reinforce it does not always ready to deploy.

You can count on us always to be maintained.

Have those been in dialogue and be in a better.

Plenary session like we did back in September when you had the first news about.

Listen I had a question.

Great Great. That's very helpful. Thanks, so much I'll pass it on.

One moment for our next question.

Our next question comes from Ken Goldman with Jpmorgan. Your line is open.

Hi, Thanks, so much.

You mentioned that your supply chain tightness is still mostly caused by.

Are there maybe some structural problems I guess that could take longer to fix thank you.

Okay, Carlos I think that's.

That's related to U S well head yes.

What I will tell you first of all thank you for that question.

I think you can see that the environment continues to be challenging and what I'm really proud of is the fact that the IR team is doing a terrific job of.

Working through the wave of challenges. So as we are as we speak we are both rebuild of inventory and improving service levels and we have done that in the quarter sequentially. You think this quarter I think we continue to see that going forward.

I think what if I take a step back insensitive broke constrains what I see is about 80% of those challenges are really built to upstream supply distribution on ingredients and circuit packaging materials at the same time I'll say is it very <unk> in chronic safety the way they are recovering so youll see that in some cases, we have.

Moving quickly and recovering overall in our supply chain.

A few ingredients that have been having a tighter for us and I point to things like pension as in the past and things that I called cuts in London.

Im telling and cream cheese.

Same time, even in those categories. We now have recover and feel good about kind of our position as we go towards the end of the year.

Got it thank you.

And Kevin one over.

For next question.

Our next question comes from Bryan Spillane with Bank of America. Your line is open.

Thanks, operator, good morning, everyone.

Maybe build on the previous two questions.

So as Youre kind of looking at the current environment now.

Dealing with what youre dealing with.

There is.

See what youre seeing in the marketplace is there any reason.

That we Shouldnt expect that your long term targets, which you laid out back in or you talked a bit about that.

Our our targets that we have.

You would expect that those are achievable for 2023 or does this environment still maybe too volatile to be in line with what your long term targets would be.

Today, It may influence that question sure.

Good morning, Brian .

As I said back in.

In Cagny.

Whether it be unveiled our new long term growth algorithm, we expect to get them.

Over the years, so think of it in terms of three years or so so we feel good in our.

The improvement in our performance.

Spectra continue to move towards the algorithm.

The way that we have communicated back to Dan.

Probably not ready to give any guidance around 33, but yes.

The environment is still volatile.

As you have been hearing from us and probably some others in the sector about supply chain volatility, which has consequences on availability.

Yes.

Is it costs.

One moment for our next question.

Our next question comes from Chris Growe with Stifel. Your line is open.

Hi, good morning.

I just had a quick question for you in relation to you showed in one of your charts.

Slide deck.

Private label, gaining more share in your categories. It also showed kraft Heinz doing much better in this category as well and as we look across the store private label share has been up at a lesser rate over the past few months, although it seems like it's gone up a little bit more so in your categories I just want to get a sense of as you see incremental risk.

Good morning, Chris and Brian do you want to answer that question sure. Thanks for the questions.

On private deliver few things first of all.

We have been continuously reiterating our exposure to private label, having to significantly after the divestitures on that mid last year. So now the average market share in our portfolio is about 11%.

Gross with embedded is 20%.

Russell indexes.

During the past three years as part of our transformation, we have been interacting a lot of effort and energy around the court. So we start to talk a little bit that would have been renovating the cord in a very systematic way so our portfolio is stronger.

Alright.

The private product today, but have been increasing the price together with the loss of the players. So as recent as the last four weeks, including already three weeks of October looking at fill all data our sellout price at about 17% up whereas private today only 16% up so price gaps are widely preserved.

We might have seen as well one of the schedule that we provided that comparing Q2 to Q3 the price gap to private label remained the same. So we did not see any kind of guarding our price gap expanded versus private label, except to catch up on Lunchables, which honestly think that action is limited and we gained share in both of these categories.

So yes, I think we feel good about that obviously, we don't want to be naive and hopefully optimistic that Daniel how consumers eventually shifts behavior in a very dramatic way.

Things can change, but there is no indication of that.

As of right now and honestly I mean, despite all the all the environment for this proving to be very resilient.

The brands.

How do you have to be very resilient and with unemployment where it is right now when I was back in 2000 late 2011, we only thought processes shifting behavior why don't think blended stature go up which is 500. We added contributed so yes, and I think what I would say is.

We have continued to invest in the equity of our brands, which.

We think about the fact that.

Sometimes when you don't have pricing power brands are pricing pricing power. So the investments we have made with the quality of the marketing we have improved the aircraft lines and the commitment we have to continue to invest in our brands going forward also gives us some confidence as we continue to manage through the current environment.

Thanks for your question. Thank you.

One moment for our next question.

Next question comes from Alexia Howard with Bernstein. Your line is open.

Good morning, everyone.

Good morning, good morning Allison.

Okay.

I looked at the lineup of products on page 19 of the presentation and they really do seem to be meeting the moment in terms of the consumer needs for convenience and affordability.

But I'm just wondering about your thoughts on.

The recent White House conference on Hunger health and nutrition that happened last month for the first time in 30 years, I think and there were a lot of initiatives coming out of that with respect to trying.

Trying to pack labels are very tight definition of what a healthy two days.

Educating consumers and health professionals on the importance of good nutrition and I Wonder just how.

It may be too soon but how youre thinking about those types of developments in the industry over the coming months and years and how that might shape. Your plans for innovation in the portfolio going forward. Thank you and I'll pass it on.

At me.

<unk>.

Answering this question and then Carlos wants to complement.

Nutrition is part of our long term strategy as part of our agenda.

It's a very important part of our range.

ESG goals for the future.

We've been renovating our portfolio.

It's about the years reducing by eliminating.

The eyes, and Vishal ingredients and we have.

Global agenda, very specific agenda in reducing salt and sugar will be Chuck too.

Two critical things in our portfolio that we have a responsibility to do.

We are on the way to achieve the targets that we put in place until 2025 and just to give you. An example.

We we changed in the formulation of our Capri Sun This year, we've reduced 40%.

Of sugar content convert to put it in perspective that is 40 million pounds of sugar.

Year that we reduced.

We continue committed to debt for the short to medium and the long term to make our products more nutritious.

But I would add to <unk> point, which I think is right on is the fact that this is a commitment we have for the long term.

Every single time, we are renovating our portfolio will put again kind of the view of how do we continue to improve.

Our products overall, not just because it's the right thing to do but also because thats what consumers want us to do so I think that is happening.

We think that you can see it very clearly in terms of our commitment to sugar reduction to start reduction how do we continue to work with communities and improving the food insecurity situation and this is something that as a company. We are committed to and we will continue to as we go forward.

We are in.

Yeah.

Tejas.

Right.

Tomatoes and beans.

And in the highest we had a great cultural company.

<unk>.

We've been investing a lot in that sense.

That base I mean, you'll see what we're doing in Europe with our opinions with the project allowance being.

Being spaced products with Heinz beans, veterinarians with heightened has been most protein cost.

Our portfolio of innovation for the next five years related to that.

EBITDA in U S. We are very proud to announce this week that we had balance sheet.

Our plant based cheese.

Which by the way is an incredible product very different from what is in the market.

It tastes like keys.

Smells like cheese and cheese.

And.

Replace your back to your line is open.

Yes, hi, good morning.

Wanted to ask on gross margin progression is across across the consumer good space broadly I think we're beginning to see more signs and evidence of gross margin stabilization if not recovery with results.

Across many companies either coming in a head of consensus expectations are improving sequentially.

Or even something to improve year over year and.

Every portfolio is obviously different but you're not yet in that position. So I'm curious as to just how you're thinking about the progress of gross margin what expect what kind of of framing of expectations, we should have going into the fourth quarter.

And the prospects for for improvement as we build into physical twenty-three.

You may answer these questions. So thanks for the question.

We have the.

How long ago had the pricing sure perfect.

All the information so a dollar for dollar and we have been doing that now for the second quarter in a row.

So both of <unk>.

In line with inflation.

Grumpy efficiencies was I had all these nations.

Even that we had incubae as with each of you said back in September some incremental but actually selected basis.

And we took action already on it there is this continuous lagging effect. So we expect you to bring it should be the Baltimore for a gross margin and you should expect to assist equation improvement into four equal embarrassed in Tokyo three.

Thank you one of them before next question. Our next question comes from David Palmer with Evercore I saw your line is open.

Thank you just a follow up on on some of the supply chain stuff. Your your case fill rates and in your slide deck, you you say.

They are in the low nineties in the third quarter and that's better than the high eighties that it wasn't the first quarter, but I was slightly surprised to see that that fill rate was the same as two Q is that a result of that upstream supplier Ah effect that you're talking about and I'm wondering.

[noise], how you're thinking about progress there is that.

Is that some do you visibilities to getting that fill right back I'm sure you want to get back to the high nineties and what when can we expect bigger leaps and improvement.

And still rates thanks.

Thanks for the breath in Congress.

Yeah.

I will say is that it's actually when you said it is it is connected to the availability of certain ingredients and made up.

Upstream, but at the same time.

Commitment with our customers, who has continued to improve that I'll tell you that b as we continue to navigate the situation in terms of those capacity constraints well.

But I will say that we will also looking to see how we definitely within a couple of things that we have available to us and then they give you a couple of examples of how we're doing that.

We actually are ingesting data directly from our customers.

The analysis Tibet deploy our inventory to reduce auto stocks, we started out with a pilot with one particular retailer and that allows us to actually reduce the amount of inventory by 40% stocks in their stores, but by 40 per cent in a period of about eight weeks. We now have expanded that program and that we didn't.

And more data from different customers that allows people to make sure. We got and then put in the right inventory and the rise stores and getting the right signals into our production. So that we can maximize the availability capacity to that we have enough plans. So we both working upstream suppliers, but it's also I was being smarter.

And better capabilities internally to deploy it mentally to improve the overall surface levels.

We're committed to do.

Thanks for the question.

One moment for our next question.

Our next question comes from John brought Garner with MS, who who your line is open.

Alright, thanks for the question.

Miguel wondering if you could touch on the nice reversal you had in Q3 regarding market shares relative to your brand new competition, how would you break that down between the benefits from someone that supply chain strange eating the pricing differential in the market as opposed to how much of that is derived from this underlying changes to your execution and.

The market I'm more of a like for like basis, and how sustainable do you think that performance will be in the share gains versus brands going forward. Thank you.

Thanks for the questions. So let me give you my perspective titles can until further on that task.

We are excited to keep the levels of market share, even even with the problems that we continue facing on supply I mean.

We wouldn't be gaining a lot of sure if we would not.

<unk> steel shortage on raw materials.

Proof that it's.

<unk> and.

Lunchables.

Whereas previous quarters, we had problems with supplied charter stuff raw materials with lust chip.

And and now we are in rocket.

Records share games on these two brands, so actually I'm optimistic that.

We can we can move photos on market share.

Yeah, I would say is to build me those points. You know this is a combination of the continuing investments we have made in renovating a brands investment in improving the quality of our marketing communication and then as you said all locking some women capacity and some key branch I think examples gave around lunch about the <unk>.

And which we saw the improvement dumb inventory and CFR and then I ability to actually didn't go into market and then drive ebay event based promotions that would also then continued to grow those particular categories. During the back to school period, which wasn't basically a phenomenal phenomenal results for us in terms of.

Four months. After you go forward you know when you see the places and will continue to have challenges in terms of cut out we know that once we all loved those we also have an opportunity to then continues to grow our consumption as we go forward and those as I said before areas like Ah Gulf caused and cream cheese.

There are slowly getting into better position and I've been sorry, and now if we go into into the holidays, making sure. We protect the ability to then go into those events based promotions what during this time of year that consumers are really looking for a branch. So you know when you take a step back I won't say, it's been a great combination.

Of the work we have done over the last year and a half for us to improve internally the equity of our company and at the same time now.

See the benefit of us being able to now go back into the marketplace, you know more aggressive way.

That allows to do then continued to drive consumption and hold penetration of our brands.

Thank you.

Right.

We have time for one more question for one moment.

Next question comes from Michael Library Piper certainly your line is open.

Thank you in the morning.

I just wanted to come back to the food service opportunity you hold outs and specifically you said.

Roughly half of the top 52 S. R's R distribution opportunities for you can you just give us a sense of maybe.

Maybe what's kept you from already being in some of those accounts, how sticky or those relationships and what's.

What's sort of realistically the expectations for how many of those could could come your way.

Would that comes to answer that question and then that.

That is with us on this call.

Residents for International Zone.

Where at least have a great moment once that service by the way Yeah, Let's see I think let me start with the company began just made I think if you look at our business in the North American you today.

Growing and growing market share. So we feel very good about our performance, so far and but I guess I will tell you is for us at that critical channel as we go forward. It is one that we really have thought about.

How do we continue to transporting organizational eternally. So we have done things like changing the leadership and Reoriented our focus from operators to advantage contributors, we have done things like making sure that our food service now has a different role within North America zone that is from what we used to see it as a basically a stable contribute.

To another growth driver we.

We have simplified renovated the portfolio I'm, telling you that we have reviews about half of ice could use that we had in 2019 at the same that we have improved quality and then finally, we continue to enhance our Lil distribution.

Overall now part.

Part of the part of the point that you made around how do we continue to unlock some of the opportunities we have a <unk>.

To invest in the capacity of the business. So we're also making strong investments in capex in order for us to support the opportunity for us to continue growing in our food service channel over the last two years that number is over $100 million we have invested.

Allows us now the opportunity to have those conversations with keyworth are in a way that's truly unlocked opportunities for us to continue growing now desktop view North America, Let me pass it off the rack and to give you a view also of.

National side.

Yes look.

Seamless Tibet the opportunities good service to significant thing you can see has been <unk> results in the last few years in the corridors new different you can you can see that the number is the release.

<unk> very fast and twice the size of the unions otherwise the rest of the industry.

So you can attribute that part of it was those little down that happened during the pandemic a lot of the across international we do compete with some global players, but also we have some local players.

Lot of them specialize in food service that during the pandemic they suffer a lot and some of them either went bankrupt or had to downsize significantly their operations. We didn't we maintain the same level of investment influence it going to be coming out of the pandemic.

Most of the countries across the world I mean <unk>.

<unk> and your head of it. So it continues to be excited and <unk> is the core our products, especially within the sauces environment those very heavy hand with the <unk>.

Industry, we still have a long way to go.

To meet with the Doctor available is that we are both between three and 4% market share of the sources category.

Good service. So there is significant dreamer head and we're going to continue to do that driving the shift led model, where we have invested in shifts that bought them with those customers drive innovations that I've been have been very well received so it should be it should be a continuous.

A source of growth sustainable.

Sustainable Bill for Us.

Okay, great. Thank you.

Thank you I'm right here and now I'm going to hand, it over to my account for some closing commentary.

I would like to finish with a coat.

A quote from a famous.

Legendary car racer on Formula one that one's head.

If it's raining I can't pass 15 cars.

And when it's Sunny I cannot.

I think that it's not raining, it's pouring.

When we're super excited at this moment, because <unk> is a great moment of opportunity.

Being able to navigate through the uncertainties of the short term and and adapt and and rebuild very fast at the same time that we continue.

Continue building our future we got excited with what we have heard of us.

Thank you very much.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Q3 2022 Kraft Heinz Co Earnings Call (Q&A Session)

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