Dive Brief:
- With its stock price at an all-time low, better supply chain visibility and more accurate forecasting are the first steps toward a healthier bottom line, Kraft Heinz's new CEO Miguel Patricio said on his Thursday earnings call.
- "If we have the proper visibility we can build a solid pipeline of efficiencies-oriented initiatives across our value chain," Patricio said. The company posted a nearly 5% drop in sales and roughly 500-basis-point decline in EBITDA margin year-over-year at the end of June — which Patricio called "unacceptable." The margin loss, Patricio said, is due to controllable inflation in packaging, freight, overtime and maintenance costs.
- The company withdrew all previously issued financial guidance Thursday. With just 40 days on the job, Patricio said he was not comfortable issuing new guidance.
Dive Insight:
After roughly nine months of investigations and reporting delays, Patricio said he would offer "straight talk" about how Kraft Heinz is run.
The company earned perhaps the most attention in the last year for having to restate several years of earnings due to procurement misconduct that triggered a Securities and Exchange Commission investigation. But the procurement problems were ostensibly a symptom of a larger problem leftover from the combination of Kraft and Heinz in 2015 when cost-cutting was the number one priority.
To meet his goals of bringing the company back to health, Patricio said the supply chain teams need to focus less on cost-cutting and firefighting and more on "competencies for the future with the mentality of 'make it better every day.'"
Better supply chain visibility will allow the company to function more nimbly and keep costs in check through inherently efficient operations and not simply cost trimming, he said.
"In 2018, it’s clear we lost forecast accuracy and our ability to execute productivity initiatives to offset market inflation. I believe we persisted with integration-minded cost-cutting and did not give it to a continuous improvement productivity-driven mindset soon enough," Patricio said.
He didn't go into specifics of which parts of Kraft's supply chain needed the most work — after all, he is still getting to know the company. But he said he has the full support of the board to make big changes. "Transformation is also a moment of opportunity," he said.
