PITTSBURGH — The Kraft Heinz Co. will classify certain items as “big bets,” or innovations that will receive more assessing and consumer insights before launch. Examples of current successful “big bets” are Heinz yellow mustard, P3 portable protein packs and, in Europe, hot sauces, said Bernardo Hees, chief executive officer.
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| Bernardo Hees, c.e.o. of Kraft Heinz |
“In a sense, what we’ve tried to do with the big bets, not only here in the United States but Canada, Europe and all, we are going to fewer bets, but really bolder and stronger in that sense,” he said in a Feb. 25 earnings call. “So in order to get there and mitigate the risk, we need really to test the profile in the pipeline from consumer insight up to the shelf as a program in a much more effective way.”
He said the company’s pipeline is in good shape to commercialize “trend-bending” products.
“And we’ll be in even better shape as we execute our footprint initiatives over the next two years,” Mr. Hees said. “Let me give you a few quick examples of what to look for on your next round of store checks. Capri Sun Organic is now in the marketplace, with advertising scheduled to hit later in the second quarter. We are making changes to ensure that mac and cheese is more relevant today than ever before, with no artificial flavors, preservatives or synthetic colors, and you will hear us making noise about this very soon.
“Also, we are working to improve our nutritional frozen needs offering, which we will talk about later in the year. We will support these and other big bets with a solid increase in working media dollars.”
George Zoghbi, chief operating officer of the U.S. commercial business, explained the difference between working media costs and non-working media costs.
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George Zoghbi, c.o.o. of Kraft Heinz's U.S. commercial business |
“The nonworking media (are) things such as production costs, undersize agency costs, and that sort of thing, and working media is actually what we pay for the ads to be aired or put on digital, carrier, or in print and so forth,” he said. “That part of marketing will be growing by about $50 million this year versus prior year in the United States.”
The Kraft Heinz Co. was created through the merger of Kraft Foods Group, Inc. and the H.J. Heinz Co., which was completed last July.
“Overall, 2015 was a year of significant accomplishments for Kraft Heinz,” Mr. Hees said. “We came together as one global organization and began building on the rich history of our dynamic company. The integration team executed an extensive action plan with two main objectives: one, operating as one company with one set of goals and business objectives, and, two, achieving solid alignment for the 2016 budget, built from the bottom up by country and field teams.
“In many ways, we are pleased with what did not happen in 2015, namely, business disruption. We made difficult but necessary decisions around the organization restructuring that will improve our efficiency, making Kraft Heinz more competitive, and accelerating our investment in our brands, products and people.”
Kraft Heinz reported a net loss attributable to common shareholders of $266 million in the fiscal year ended Jan. 3, which compared with a loss of $63 million in the previous fiscal year.
“In 2015, we incurred $829 million of costs, with roughly two-thirds of those costs related to severance and employee benefits,” said Paulo Basilio, executive vice-president and chief financial officer.
He said the company realized about $125 million of savings in 2015.
“And we continue to target and remain confident in our ability to deliver aggressive cost savings of $1.5 billion, net of inflation, by 2017,” Mr. Basilio said.
In the fourth quarter, net income attributable to common shareholders was $285 million, or 23c per share on the common stock, which compared with a loss of $17 million in the fourth quarter of the previous year.
Kraft Heinz also gave pro forma financial results. The pro forma condensed combined statements of income for the quarters and years ended Jan. 3, 2016, and Dec. 28, 2014, reflected the results of operations of Kraft and Heinz as if they had been combined in all periods presented.
Pro forma net sales of $27,447 million in the fiscal year were down 6% from $29,122 million in the previous fiscal year. Pro forma net sales of $7,124 million in the fourth quarter were down 5% from $7,496 million in the fourth quarter of the previous year.
Kraft Heinz had sequentially weaker organic net sales growth in the fourth quarter, Mr. Basilio said.
“This was due to weaker overall volume mix,” he said. “The primary sources of the volume mix decline were consistent with what you have seen all year: category trends and a volume loss associated with higher net pricing in ready-to-drink beverage, powdered beverages and boxed dinners. Category and market share declined in nutritional frozen meals and lower food service shipments due to lost bids at some key customers.”
