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>>> Kraft Heinz CEO talks innovation, turnaround plan


By Julia Mericle

Pittsburgh Business Times

10-31-19


https://www.bizjournals.com/pittsburgh/news/2019/10/31/kraft-heinz-ceo-talks-innovation-turnaround-plan.html?ana=yahoo&yptr=yahoo


Kraft Heinz CEO Miguel Patricio said the financially struggling company, which is jointly based in Chicago and Pittsburgh is in a better place than where it started the year, but he kept predictions modest during the Kraft Heinz third quarter earnings call Thursday.

“We are still far from where we should be,” Patricio said, during the call. “While overall performance is improving, our numbers are still negative from the prior year.”

Kraft Heinz (NASDAQ:KHC) reported total net sales of $6.1 billion, down 4.8 percent year-over-year, and U.S. net sales of $4.4 billion, down 1.6 percent year-over-year.

But according to the CEO, who took the top spot at Kraft Heinz at the end of June, the future looks brighter.

Patricio spoke about the Kraft Heinz “turnaround program,” noting some changes in the company’s leadership team in the third quarter including the appointment of Nina Barton as chief growth officer. Kraft Heinz also reinstated Paulo Basilio to Global CFO and Andre Maciel to U.S. CFO.

“I was very glad to see in this quarter we could stabilize the cost of goods sold. We are all relieved with that,” Patricio said. “…And it gives us a lot of faith and a lot of hope that we are in the right direction.”

Jennifer Bartashus, a Bloomberg Intelligence analyst who follows Kraft Heinz, said most investors saw that stabilization as a positive surprise, particularly after last quarter when the company withdrew its guidance for the year in terms of achievement expectations.

“The results today were important because it gave people a little assurance that there are short-term things the company is doing to help their performance and don’t have to wait for huge initiatives to change the trajectory,” Bartashus said.

Looking toward the future of Kraft Heinz, Patricio, edging toward simplicity, said he intends to shift innovation practices to support fewer, but more researched and developed, initiatives. In 2020, Kraft Heinz plans to reduce the number of new projects by half.

Patricio said he will also take a hard look at the products that have low margins, negative margins or very low volume and strategically remove those from shelves. It’s an effort to shift from a company focused on current success and inorganic growth to one of future success and organic growth, he said.

“I think that innovation is an area that we have to improve dramatically,” Patricio said. “…We have to do bigger innovation, we have to do fewer innovation, we have to do bolder innovation, we have to do profitable innovation and it has to be incremental instead of doing everything and throwing new products in the market that will not really generate extra profitability for our company.”

Basilio said investors should expect Kraft Heinz fourth quarter 2019 results to look similar to the third quarter, in terms of year-over-year performance. Investors will need patience, as Patricio said 2020 will remain a year of continued stabilization and rebuilding a strong foundation for Kraft Heinz as it looks toward growth in 2021.

Patricio said he will announce the Kraft Heinz formal three-to-five-year enterprise strategy to investors early in the new year.

“That will be a true transformational type of plan for the organization,” Bartashus said.

Bartashus said investors will look for evidence of portfolio optimization, or a shift into categories of high growth projections and consumer demand, in this plan. While the company had previously been looking to divest certain brand and products, the effort was put on hold during a company-wide assessment when Patricio joined the company.

Investors will also look for evidence of cost control, Bartashus said. After Kraft Heinz went through some extreme cost cutting after the 2015 merger, Bartashus said investors are waiting to hear how Kraft Heinz plans to retain its budgeting mindset while increasing profitability through finding places to make the supply chain and operations more efficient.

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