PITTSBURGH & CHICAGO — On Tuesday, Miguel Patricio, chief executive officer of The Kraft Heinz Company, and members of his senior leadership team unveiled a transformation of the company. A new strategy, operating model and key initiatives signal a fundamental shift in its approach to growing its brands and its business at a global scale. The company also is establishing a long-term financial profile and updating its third quarter and full year 2020 financial outlook.
“I am extremely confident that unlocking the power of scale with agility, combined with our new operating model, will return Kraft Heinz to consistent and sustainable growth,” said Patricio. “We are placing the consumer at the center of everything we do, leveraging our greatest assets, strengthening our partnerships, generating fuel that funds growth investments like our 30 percent increase in marketing spend, and creating a clear path to rebuilding Kraft Heinz into the industry leader we have the potential to become.”
The Kraft Heinz Operating Model
At the core of the company’s transformation is a new operating model with five primary elements:
People with Purpose: Employees are the company’s most important resource, charged with bringing the strategy to life. They’re also inspired by its new Purpose, Let’s Make Life Delicious, guided by its redefined Values and responsible for fulfilling the company’s Vision “To sustainably grow by delighting more consumers globally.”
Kraft Heinz employees are global citizens who believe in helping to create a healthier, more sustainable environment. Later Tuesday, the company released its 2020 Environmental Social Governance (ESG) Report, Growing Sustainably, which contains goals under three pillars: Environmental Stewardship, Responsible Sourcing, and Healthy Living & Community Support. ESG is integrated into every part of the company’s business, with related metrics incorporated into performance goals held by the CEO and key senior leaders.
Consumer Platforms: The company has transitioned from managing its portfolio as more than 55 individual categories to six consumer-driven platforms. A platform is a lens created for the portfolio based on a groupings of real consumer needs and includes:
- Taste Elevation
- Easy Meals Made Better
- Real Food Snacking
- Fast Fresh Meals
- Easy Indulgent Desserts
- Flavorful Hydration
Each of these platforms will fill a Grow, Energize, or Stabilize role within the portfolio. The company will take a disciplined approach that prioritizes and invests differentially according to the opportunities and objectives for each platform.
Ops Center: The company’s Ops Center brings together the value chain on an end-to-end basis, creating a fast, adaptable, integrated supply chain with greater visibility. It is designed to be the key source of fuel for growth by driving better alignment across the company, streamlining day-to-day processes, and deploying technology and data analytics towards continuous improvement. Through 2024, the company’s Ops Center has identified and is targeting approximately $2 billion of gross productivity efficiencies to offset inflation and critical investments to support the company’s growth initiatives.
Partner Program: Kraft Heinz is dedicated to developing winning customer partnerships with centralized customer development and revenue management teams to strengthen existing customer relationships, building new strategic partnerships, and delivering unique consumer insights and solutions.
Fuel Our Growth: The company’s plans to reinvest efficiency gains and apply agile portfolio management are designed to help the company fulfill and accelerate its strategy. The strategy will be driven by capital priorities that have not changed. These priorities include investing to accelerate growth and strengthen its long-term market position; continuing to provide shareholders with a strong return of capital, including its ongoing commitment to its strong dividend payout; and reducing net leverage to below 4x on a consistent basis. Fuel Our Growth also will include agile portfolio management to accelerate the company’s strategic plan, enhance its geographic profile, and sharpen its focus on areas of advantage while maintaining price discipline.
Long-Term Financial Profile
Taking into account its strategic review, the subsequent reorientation of the business, as well as confidence in its ongoing turnaround, Kraft Heinz set long-term growth targets, including:
- Organic Net Sales growth of 1% – 2%
- Adjusted EBITDA growth of 2% – 3%
- Adjusted EPS growth of 4% – 6% with greater than or equal to 100% Free Cash Flow conversion
“We are committed to returning Kraft Heinz to consistent growth on both the top and bottom lines,” said Paulo Basilio, Global Chief Financial Officer. “Leveraging our new platform structure to drive growth, our new productivity programs to deliver efficiencies, and our capital priorities to support reinvestment and accelerate our strategic plan will enable us to achieve our new long-term financial profile in the years ahead.”
Third Quarter & 2020 Outlook
“Our business momentum is stronger than expected and as a result, we are updating our outlook for the third quarter and full year 2020 with expected 3Q 2020 organic net sales growth in the mid-single-digit range versus the prior year period,” Patricio said.
- In addition, the company expects high-single-digit 3Q 2020 constant currency Adjusted EBITDA growth and mid-single-digit full year 2020 constant currency adjusted EBITDA growth versus 2019; and
- to reduce net leverage to approximately 4x by the end of 2020.
A more detailed outlook for full year results will be provided on the company’s third-quarter earnings call, expected to be held in late October.