Kraft Heinz (KHC) Q1 2016 Earnings

posted in: Earnings Call, Notes | 0

Kraft Heinz (KHC) CEO Bernardo Hees said some of their categories are underperforming their expectations

“We’re off to a good start, good not great. As expected, some headwinds hung around, including consumption trends in some key categories that held us back.  On our last call, we spoke about plans to address categories such as U.K. soups, U.S. mac & cheese, ready-to-drink beverage, and frozen nutritional meals. And while we’re making progress against those opportunities and expect better performance as the year unfolds, they held back our results in Q1.”

Said the retail food environment is still difficult

“We were also able to improve our sales and go-to-market execution in what remains a challenging retail environment.”

Saw strength in the dollar store and club channel 

“We saw solid growth in our foodservice business and non-traditional retail channels like club and dollar stores. This is consistent with the business development or whitespace opportunities I mentioned on our last call. Much of it has been enabled by the combination of the Kraft and Heinz foodservice teams, and we should continue growing in coming quarters.”

Said that some of their categories are missing the mark from a consumer trends point of view

“I think where we are underperforming, it’s largely sometimes we are missing the mark from a consumer trends point of view rather than having a different business model. Our business model applies to all categories similarly. So from a relationship with retailers, we believe we have a very strong relationship, we have a positive relationship and we see a positive outlook there. The most important things between us and our retailers and in my discussion with many of them was whether we can maintain the service level up or not. And we have demonstrated not only we can maintain the service level and the Case Fill Rate, but we actually increased it and we feel good about that.”

Doesn’t expect the US market to grow significantly from here

“There are a lot of headwind coming at us as you know that is putting downward pressure on sales, because historically in the U.S. market the growth did not come from volume. If you look back for the last number of years, it came from inflation and that inflation was based on commodities inflation.  Now, we are living in an environment where there is no inflation in commodities, so it is harder to be able to say, to have a bullish approach to grow. What we said, and we’ll continue to maintain, that we would have stable top line. And as you know, we have an exposure to a large number of commodities, so it’s very hard to put exact number to it, but we feel that stability for us is a very good outcome.”