Given just eight weeks before, Kraft Heinz CEO Miguel Patricio was outlining the US food group’s vision and strategy to analysts at an investor day, the news this week he is to step down from the helm of the ketchup maker came as something of a surprise.
But what it should not deflect from is the job he has done to stabilise Kraft Heinz, a business reeling when he sat down in a very hot seat back in 2019.
The former Anheuser-Busch InBev executive joined Kraft Heinz four years ago, weeks after the Oscar Mayer meats maker had stunned the industry and Wall Street with a multi-faceted announcement that included – wait for it – an SEC probe into the company’s procurement, fourth-quarter profits that missed expectations, an outlook for 2019 that also disappointed Wall Street and a $15bn write-down on certain assets.
At the time of that surprise announcement, the then Kraft Heinz CEO Bernardo Hees issued a robust defence of the company’s strategy, insisting: “We still believe strongly that our model is working and has a lot of potential for the future.”
Patricio got to work, seeking to realise to some of that potential. It wasn’t all plain sailing – more impairment charges followed – but the new Kraft Heinz chief unleashed cost savings, streamlined the company’s portfolio (including selling-off assets), made its innovation more focused and, crucially after the annus horribilis that was 2019, strengthened the company’s balance sheet.
Patricio steps down at a time when Kraft Heinz’s organic sales growth is stronger than pre-pandemic, albeit supported by recent price increases to help offset inflation. Volumes have suffered but it would be facile to overly criticise Kraft Heinz, as many FMCG companies have seen moves to up prices put pressure on unit sales.
“Even against macro upheaval, the strides that have been made since Patricio took the helm are quite noteworthy,” Morningstar analyst Erin Lash said this week.
“For one, Kraft Heinz has proactively taken steps to enhance its financial flexibility, with net debt/EBITDA hovering in the low-three times range, down from north of four times in 2019. We believe this affords Kraft Heinz the ability to reinvest in its operations and selectively pursue acquisitions while bolstering shareholder returns,
“Further, he has instilled enhanced operational agility in aligning its mix with evolving consumer trends that we think should unlock modest low-single-digit sales growth while holding margins. The success of these efforts is evident in organic sales that are running more than 5% above pre-pandemic levels.”
Challenges lie ahead, of course, not least seeing if the company can return its volume/mix sales metric to growth. Speaking to analysts earlier this month when Kraft Heinz announced its second-quarter financial results, CFO Andre Maciel said the company expects those volume declines to “moderate”.
He added: ”We expect volume to turn positive in 2024, with future top-line growth balanced between volume and price.”
For Patricio, improvements in gross margins, which are now approaching 2021 levels, will allow Kraft Heinz to invest. “With these margin gains, and in line with our strategy to drive further growth, we are investing more in marketing, R&D and technology,” he added.
Patricio will move to chairman, with Carlos Abrams-Rivera, the head of Kraft Heinz’s North American business – and a man involved in the company’s commercial strategy – taking the reins.
Lash describes Abrams-Rivera as a “sound fit for the role”. She added: “We don’t expect Kraft Heinz will veer off its current course under his watch.”
That, in itself, is an indication of a business now on a more solid footing than four years ago.
