Kraft Heinz (KHC) Q1 2016 Earnings

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.”

McCormick FY 1Q16 Earnings Call Notes

Lawrence Kurzius

Made offer to buy premier foods

“I’d like to comment next on the recent news about our proposal to acquire Premier Foods. Premier Foods is just one idea in McCormick’s robust acquisition pipeline, one that would be a great addition to our business. This acquisition would be consistent with our growth strategy, adding iconic brands that complement our product portfolio, increasing our current sale and presence in the UK market and creating potential to driver growth through innovation, marketing and expanded international distribution.”

Even changing when we eat

“We’re even changing when we eat. Snacking occasions have suppressed breakfast and lunch and now rival dinner. Here is where our industrial segment steps in as a major supplier to packaged food companies, the largest being PepsiCo that are focused on building this part of their product portfolio.”

We like that premier foods is predominantly a flavor business

“as we look at the Premier business, there is – we were pretty limited on what we can say. But I can tell you that what’s attractive to us about this business is that it is predominantly a flavor business with some terrific iconic flavor brands that are much loved in the UK. ”

Going to be non-GMO

“Your second question was about GMO labeling and we announced that we were going to label our product for non-GMO. We are taking credit for what we have to a great extent. The vast majority of our products are herbs and spice products in particular, are not genetically modified in anyway and consumers are interested in transparency and that’s what led to that initiative and we are certainly well aware of the Vermont law. We don’t have any kind of particular public stance that we want to take on that other than that we are going to comply with the law. So where there are genetically modified materials in some of our products, we will need to find a way to remove them or label them as is appropriate in order to put us into compliance with that law.”

This acquisition isn’t significantly different in size to historical ones relative to our mkt cap

“While it is significantly large, if you go back in our history and you look at Ducros back in 2000, and you look at Lawry’s as recently as 2008, on a percentage of our market cap and the size of the company, it’s really not quite different from those sized transactions. So our intention, as we did in those two previous transactions, would be to lever up. Obviously, it will take our debt-to-EBITDA about where it is now, but it wouldn’t be at a level that would be unlike where we were with Lawry’s and Ducros at the time. ”

Gordon Stetz

Using targeted techniques to take price where appropriate

“In the retail side, all I would say is we lean on these tools and the techniques that we’ve developed. We will look at the elasticities and the thresholds. Back to Lawrence‘s earlier comments, I’ve been with this company a long time and I would say that the level of sophistication around the price increase just executed was the highest I’ve seen. So I have confidence in our team to go back, use their analytics to make whatever decision is necessary to deal with whatever cost issues may pop up.”

General Mills 4Q15 Earnings Call Notes

We’re keenly aware of changing consumer preferences

“as we enter fiscal 2016, General Mills is keenly aware of our consumers’ changing food preferences and the impact those changes are having on our industry. We remain deeply committed to following the consumer adapting to their evolving preferences and driving growth. And where we embraced Consumer First in fiscal 2015, we saw our business respond whether that’s with protein cereals in U.S. retail, Yoplait Yogurt in U.S. retail and foodservice channels or Old El Paso dinner kits around the world.”

Gluten Free Cheerios

“Consumer First renovation is at the heart of our plans to renew cereal growth. At CAGNY, we told you we are embarking on a broad investment plan designed to renovate our Big G portfolio for today’s consumers and that gluten-free Cheerios was the first step in that plan. ”

Removing artificial flavors and coloring

“Last week, we unveiled the second step in our cereal renovation plan. We are removing artificial flavors and colors from artificial sources from all General Mills cereals. Nearly half of U.S. households are making an effort to avoid artificial flavors and colors and we are responding”

Muesli is really hot right now

“Muesli is another cereal form that is benefiting from consumer interest in simple less processed foods. To capitalize on that trend, we have recently launched new Nature Valley Toasted Oat Muesli in Original and Blueberry flavors.”

The rate of decline in cereal is slowing

“I think that the category in the U.S., as we look at that, still declining but the levels, the rate of that decline is moderating. And so we are, David, encouraged by that. And if you just look at last 12, last three, it was a little over 3% decline for the year. For the quarter, it was a little less, 1.5% decline and okay. And I think as you know, the latest month was an easier comp, but there was actually a little bit of growth there. ”

We think we have a good understanding of the new consumer preferences

“The second point is that we think we have a very good understanding for the new preferences that consumers have for breakfast and we have talked about this with you many times for products that are simpler, products that are more filling, products that taste good, products that address very specific issues that consumers have like gluten and artificial colors. And as we address those things and as we bring innovation that address those, we are seeing growth. Our granola business is growing really well.”

We’re going to spend less on media, more on consumer

“Media is down and what I said is our total consumer will be up. And just let me parcel that out. So media is obviously what you see on air, what you see in digital or in print. It will be slightly down…And then total consumer will be up low-single digit. So when I talk about total consumer, that takes into things like in-store events…And then sampling falls into it as well.”

Sampling is a growing part of our marketing mix

“The only think I would just underline on that is, Don’s comment on sampling. Sampling is perhaps the most powerful penetration driver that we have and many of our natural and organic businesses are not really driven in the traditional media. They are in fact driven almost entirely by getting the products into people’s mouths. So that’s a growing part of our marketing mix and one that is not really counted in the media thing. So that’s an important highlight for you.”

Cereal is still very, very large

“let me start my answer by reminding everyone that cereal is $10 billion category in the U.S. So it’s very, very large and as you know, it’s been declining for the last couple of years, but still very, very large and still about a third of all breakfasts include cereals.”

Frozen vegetables has increasingly moved in more a commodity direction

“The observation that I would make, Ken, is that it’s increasingly kind of a value focused category and the segment that is performing a little better tends to be the commodity oriented, just frozen blocks of vegetables. And so that’s the direction that the category has moved in. “

McCormick and Co FY 2Q15 Earnings Call Notes

Adjust operating income in constant currency…

“Special charges along with currency lowered our operating income results. However we grew adjusted operating income in constant currency by 7%. This is an improvement from the first quarter when adjusted operating income in constant currency rose 1%.”

Economic conditions challenging in EMEA but had strong volume in France, Poland and Russia

“In Europe, Middle East and Africa, EMEA, economic and retail conditions remained challenging in parts of the region. However in constant currency we had strong volume driven sales growth this period particularly in France, Poland and Russia.”

Americans are cooking

“Let’s turn to the Americas. In this region we’re making further progress improving performance of our US consumer business. Consumer interest in flavor, supple and healthy ingredients and cooking with fresh products continues to drive strong category growth for spice and seasonings as seen in the latest consumption data with category sales up 5% in the quarter.”

More snacking in the US

“In the Americas region we are benefiting from an increase in consumer snacking, developing seasonings for snack bars, crackers and chips and similar products. At the same time our customers are moving toward more simple ingredients and our foundation in spices and herbs has us well-positioned.”

Further recovery in China

“In our Asia-Pacific region we are pleased to be seeing further recovery in base sales to quick service restaurants. As in the first quarter we had an added benefit of innovation and limited time offers and with export sales of product supplied by our facilities in China, our outlook is for continued improvement through the second half of 2015 for our industrial business in China”

Analyst comment: Seeing a shift towards e-commerce in China

“The shift to e-commerce in China, it’s hurt a lot of consumer companies lately. McCormick seems to be bucking the trend. Just curious the spice and seasoning category, is it not being hit by the channel shift as much as others or is McCormick benefiting from that channel shift? I’m just curious for your thoughts here because it does seem to be a little bit of an anomaly versus what we’re seeing elsewhere.”

We do participate in e-commerce in China but we’re less dependent than many peers

“We do participate in the e-commerce sector in China but I’ll tell you for us it’s still developing segment of the market, or developing channel just like it is for everyone else. The big difference I think in our business in China for our consumer segment is that we’re a lot less dependent on the modern trade than many of our peer companies.”

We are still seeing a bifurcated consumer in the US

” We are still seeing a bifurcated consumer with some level of growth in premium and our gourmet brand is an example of that and niche categories. So there is some growth. We are seeing some recovery in food service with people eating out. So we are seeing some of those lower gas prices find their way in. On the other hand, there is a vast number of consumers who are still stressed economically and so we are competing in the value segment to try capture that.”

We’ve seen some slowing in China

“In China, as Lawrence said, there has been some slowdown in economic activity. We’re encouraged because we’re still – we’re pretty broad-based, we’re in the traditional trade, we have our presence in the modern trade and we’re participating in the emerging and fast-growing e-commerce. But we’re still long-term believers in China. We continue to make investments there and are bullish on our prospects.”