Kraft 4Q14 Earnings Call Notes

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

New CEO

“I’m delighted to be speaking with you today as Kraft Foods Chairman and CEO. And while it’s still early in my tenure and I’m deep in the learning cycle, and I’ll tell you upfront that I’m not far enough along to be able to answer all the questions you may have about our plans for the future today.”

Commodity basket trending down, may pressure top line

“On the macro front, it would have to be commodities and currency. Based on the spot market in futures, Kraft’s commodity basket is trending down. This brings with it some risk that net price reductions will pressure our top line. But it lessons one of the most significant cost pressures we faced in 2014.”

2014 was disappointing

“On the whole, I think you’d agree that 2014 for Kraft, and for that matter, the broader food industry, was both difficult and disappointing.”

Share has been flat for a long time

“Yet Kraft Foods hasn’t gained share as a company for some time. And in 2014, we did not grow share in any individual category. We merely held flat at 60% of our US businesses, and lost share in the other 40%.”

Must use digital tools to improve marketing

“We must better-leverage consumer insights and emerging digital tools to achieve an advantage in this area and reach the right consumers at the right time. We also must instill new return-on-marketing disciplines at every relevant level of our organization. We can’t continue to spend without adequate returns.”

The problems in this marketplace are not daunting. We just need to execute

“so Brian, you know my view of Kraft was – mostly as being a chairman and a board member, so I – but I certainly watch the industry carefully and the industry has changed. I wouldn’t call it dramatic, I’d call a continuous. And so I certainly expect the industry to continue to change.

What remains and that is in terms of what’s happening at the retail level, what’s happening with additional brands in these categories and so forth, and with respect to consumers desire to find great value and high quality. And so I would tell you that, I don’t think that Kraft has done as aggressive a job in this regard as we need to do and will do going forward.

And so, I don’t view the changes in this marketplace to be daunting or problematic particularly for company like Kraft with its incredible trademarks. We just need to execute better.”

Need to develop a turnaround mentality

“This is not a broken company by any stretch. But we do need to adapt a turnaround mindset in many ways and that is going to be mostly around, as I said earlier this pace of change, this focus on execution and this return on investment”

Kraft 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

It would be hard to call this a great first 9 months

“Against the backdrop of a challenging consumer and customer environment and some executional missteps, it would be difficult to call this a great quarter or an outstanding first nine months in absolute terms.”

Highlighting an agreement with GMCR like Coke did

“Given our agreement with Keurig Green Mountain that we announced in August, we’ll have the opportunity for expanded distribution and increased capacity to supply multiple channels and on-demand formats. ”

Unprecedented price levels in parts of our commodity basket

“we have priced aggressively in the face of what are truly unprecedented price levels in certain parts of our commodity basket. ”

The landscape is shifting

“At the center of it all, consumers with new emerging cohorts who have a whole new set of expectations of food and beverages and companies that make and deliver them. Our customers are coming to terms with changing shopping patterns and channel shifting and the rise of digital media driving the need for new communication tools and capabilities. It is clear that this is not a one-time market shift. This is a transformative time in our industry. It is also clear that this is pressuring returns on traditional advertising and promotion.”

Promotional environment may be moderating some

“I think the industry behavior has moderated somewhat, but we’re still up a bit in quarter three. ”

Proteins: cheese and nuts have the wind at their backs

” our protein offerings like meat, cheese, nuts are doing quite well. There is a wind at the back in those categories. They are in the perimeter of the store. We’ve executed our playbook quite well across those businesses, even with higher commodity costs.”

We have an obligation to the center of the store

“we have an obligation to the center of the store and the great brands we have in them to execute the playbook equally well. And we think we can contemporize our offerings in meals and desserts to address the center of the store lack of traffic.”

Relentless measurement

“this is a land of relentless measurement and continuous improvement. And it’s always a journey when you’re making food to make sure that you’re consistently seeking root causes and improving every day”

Pricing for volatility

“We priced early based on expectations and there was continued volatility. So some of those commodity trends didn’t move in a normalized curve like we would expect.’

There are no mature brands

“I’m a believer. There are no such things as mature brands and it’s all about energetic idea-driven marketers. It’s all about ideas in people. And when you think about it, would you have guessed that Velveeta would have had the five-year run it’s had in the face of millenials? ”

“So when I look at an A1 or a Shake’N Bake or a JELL-O, I say it’s our job to contemporize the ceremony of those great brands. They actually play to the preparation of the new millennial, right?”

Kraft at Barclays Conference Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Big changes in the industry

“we are facing an unprecedented confluence of factors that has the potential to change the way we operate, perhaps for decades to come. What has surprised us most, however, has been the pace of that change in the markets that we serve: what is being bought, where it’s being bought, and how purchases are influenced.”

The changes as Kraft sees them

“Our external environment can be easily wrapped up as a confluence of challenges that are presented in front of us, and it would be very easy to get lost in the headlines of today: the declining center of the store, the explosion of the millennial consumer, digital, low income.”

The “strapped consumer” is one of Kraft’s key consumer groups

“We’ve talked a lot about three key consumer groups that at Kraft Foods we’re watching very closely. First, the increase of the strapped consumer as a result of the barbell-shaped economy pushing more consumers into low income. Today, the strapped consumer represents 6 in 10 households; 6 in 10 households earn less than $50,000 a year. Now if you are a single individual, living on $50,000 a year, that might be doable. But when you think about a family trying to feed four or five or six different people on that income, it becomes a challenge.”

We need data to be good agile marketers

“There’s three requirements really to win with agile marketing. First, it’s data, it’s the who. You need a significant set of consumers, and you’ve got to know these consumers in depth. You’ve got to know their behaviors, their preferences. You have to know their needs”

Our social learning lab

” let’s first talk about the social learning lab. Kraft has launched a social learning lab we call the Looking Glass. It enables us to observe consumers at the speed of culture. We observe them in terms of trends. We manage our reputation. We launch new campaigns. We track competitors. And we go to consumers for inspiration.”

The next part of agile marketing is content

“The next part of it in terms of agile marketing is content. And it’s building content that is share-worthy. Now in this environment, Kraft has an unparalleled advantage because we’ve been in an 18-year dialogue with our consumers in terms of food&family. Getting to content that is sticky and relevant is incredibly important. Today, Kraft is both a content provider and a publisher. We developed over 27,000 professional recipes. Consumers have submitted another 30,000 recipes to us, and over 1 billion times a year consumers tap and engage with our recipes.”