The Kraft Heinz Company Unveils Its Strategic Transformation Plan, Updates 2020 Outlook, and Provides Long-term Financial Algorithm
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“I am extremely confident that unlocking the power of scale with agility, combined with our new operating model, will return
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.”
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
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,
Net Sales(1) growth of 1% – 2%
- Adjusted EBITDA(1) growth of 2% – 3%
- Adjusted EPS(1) growth of 4% – 6% with greater than or equal to 100% Free Cash Flow(1) conversion
“We are committed to returning
“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
- In addition, the Company expects high-single-digit 3Q 2020 Constant Currency Adjusted EBITDA(1)(2) growth and mid-single-digit full year 2020 Constant Currency Adjusted EBITDA(1)(2) 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.
(2) Third quarter and 2020 full year guidance for Organic
For 150 years, we have produced some of the world’s most beloved products at
This press release contains a number of forward-looking statements. Words such as “plan,” "believe," "anticipate," "reflect," "invest," "make," "expect," "drive," “improve,” “intend,” "assess," "evaluate," “establish,” “focus,” “build,” “turn,” “expand,” “leverage,” "grow," "will," and variations of such words and similar future or conditional expressions are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements regarding the Company's plans, impacts of accounting standards and guidance, costs and cost savings, legal matters, taxes, impairments, dividends, expectations, investments, innovations, opportunities, capabilities, execution, initiatives, pipeline, and growth. These forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties, many of which are difficult to predict and beyond the Company's control.
Important factors that may affect the Company's business and operations and that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the impact of COVID-19; operating in a highly competitive industry; the Company’s ability to correctly predict, identify, and interpret changes in consumer preferences and demand, to offer new products to meet those changes, and to respond to competitive innovation; changes in the retail landscape or the loss of key retail customers; changes in the Company's relationships with significant customers, suppliers and other business relationships; the Company’s ability to maintain, extend, and expand its reputation and brand image; the Company’s ability to leverage its brand value to compete against private label products; the Company’s ability to drive revenue growth in its key product categories, increase its market share, or add products that are in faster-growing and more profitable categories; product recalls or product liability claims; unanticipated business disruptions; the Company’s ability to identify, complete or realize the benefits from strategic acquisitions, alliances, divestitures, joint ventures or other investments; the Company’s ability to realize the anticipated benefits from prior or future streamlining actions to reduce fixed costs, simplify or improve processes, and improve its competitiveness; the Company’s ability to successfully execute its strategic initiatives; the impacts of the Company’s international operations; economic and political conditions in
Non-GAAP Financial Measures
The Company has presented Organic
Management uses these non-GAAP financial measures to assist in comparing the Company's performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect the Company's underlying operations. Management believes that presenting the Company's non-GAAP financial measures (i.e., Organic
Adjusted EBITDA is defined as net income/(loss) from continuing operations before interest expense, other expense/(income), provision for/(benefit from) income taxes, and depreciation and amortization (excluding integration and restructuring expenses); in addition to these adjustments, the Company excludes, when they occur, the impacts of integration and restructuring expenses, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, and equity award compensation expense (excluding integration and restructuring expenses).The Company also presents Adjusted EBITDA on a constant currency basis. The Company calculates the impact of currency on Adjusted EBITDA by holding exchange rates constant at the previous year's exchange rate, with the exception of highly inflationary subsidiaries, for which it calculates the previous year's results using the current year's exchange rate. Adjusted EBITDA and Constant Currency Adjusted EBITDA are tools that can assist management and investors in comparing the Company's performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect the Company's underlying operations.
Adjusted EPS is defined as diluted earnings per share excluding, when they occur, the impacts of integration and restructuring expenses, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, losses/(gains) on the sale of a business, other losses/(gains) related to acquisitions and divestitures (e.g., tax and hedging impacts), nonmonetary currency devaluation (e.g., remeasurement gains and losses), debt prepayment and extinguishment costs, and
Free Cash Flow is defined as net cash provided by/(used for) operating activities less capital expenditures. The Company believes Free Cash Flow provides a measure of the Company's core operating performance, the cash-generating capabilities of the Company's business operations, and is one factor used in determining the amount of cash available for debt repayments, dividends, acquisitions, share repurchases, and other corporate purposes. The use of this non-GAAP measure does not imply or represent the residual cash flow for discretionary expenditures since the Company has certain non-discretionary obligations such as debt service that are not deducted from the measure.