The Kraft Heinz Company (NASDAQ:KHC) Q2 2023 Earnings Call Transcript - Page 5 of 5 - InvestingChannel

The Kraft Heinz Company (NASDAQ:KHC) Q2 2023 Earnings Call Transcript

Andre Maciel: So commodities in general continue to come down, and as hedges roll off and our contracts get adjusted, some of them are based on indexes. We are seeing costs continue to move favorably, which has been allowing us to expand the gross margin, and by consequence has been allowing us to accelerate the investment behind the business, particularly in marketing, R&D and technology. [Cross Talk]

Cody Ross : Any particular commodities?

Andre Maciel: That are declining?

Cody Ross : Yes. That you would call out, that’s driving that.

Andre Maciel: I don’t think there is a particular one. I mean our portfolio is large, there are so many commodities in the business. There is a general movement of commodities coming down. The exceptions to that sale are tomato, potato, that have bad crops, and sweetness. Other than that, we are seeing generally commodities moving favorably.

Cody Ross : Understood. And then in light of the declining commodities or your outlook for inflation, do you think you took too much price, given you said you took price ahead of competitors and they have not followed? And then I’ll pass it on.

Andre Maciel: No. I would say…

Miguel Patricio: Let me answer that one. I would do everything again. We’ve had very high inflation, and we are leaders in the vast majority of categories where we play, and it’s our role as leaders to try to compensate these price increases with – this inflation with price increase. So I would do everything again. I mean, we can always go back on price if we think we have to or when we have to, but we had to lead price increases. So yes, that would be my answer to you.

Andre Maciel: And the only thing I would say is remember that we never get to be very systematic in terms of pricing to offset the inflation, and that’s what we have done. We have no price ahead of inflation. If you look at our gross margin in Q2, it’s still slightly below 2021 levels. And the other thing that is worth mentioning in the gross margin, we showed that in prepared remarks. Our efficiency plan is trending very well, and we are ahead of – we are pacing ahead of the $500 million that we have said we’ll deliver by the year, so another good news.

Carlos Abrams-Rivera: Let me build on that point from Andre. I think that the only sustainable way to keep increasing our investments behind the brand and to grow our volumes and shares for the future is by improving gross margins and investing back in marketing, R&D and technology, which is exactly what we are doing. Because we had very high, very good gross margin this quarter, we could increase marketing this quarter by 23%. We could increase R&D by 10%. We could increase our investments in technology. And as Andre said, that was possible because in one side, yes, we had price increases, but on the other side, because we are every month delivering more and more efficiencies in supply, we’re excited with that part as well and that’s my answer.

Andre Maciel : And I expect that people noted the difference as well, how they are operating, because we have been intentionally opting to use those resources, to put back in the long term behind marketing and technology. We could have opted to be adding more promotions, but that would not make sense, because we’d be adding promotions to low return. We are thinking about the long term here. I hope people note the difference of how they are being – they are getting the big base very different.

Anne-Marie Megela : And that will wrap it up for today’s Q&A session. Thank you all for your questions. I will turn it over to Miguel, who will just kind of wrap up the call for us.

Miguel Patricio: I just want to thank you all for the time and for the attention and the patience with us. So thank you so much, and hope to talk to you and to see you very soon.

Operator: Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.

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