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spk01: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1.
spk04: Good day and thank you for standing by. Welcome to the Kraft Heinz Company fourth quarter results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. I would now like to hand the conference over to your speaker today. Anne-Marie Magella, please go ahead.
spk06: Thank you, and hello, everyone. This is Anne-Marie Magella, Head of Global Investor Relations at the Kraft Heinz Company, and welcome to our Q&A session for our fourth quarter 2022 business update. During today's call, we may make forward-looking statements regarding our expectations for the future, including related to our business plans and expectations, strategy, efforts and investments, and related timing and expected impacts. These statements are based on how we see things today and actual results may differ materially due to risk and insurgencies. Please see the cautionary statements and risk factors contained in today's earnings release, which accompanies this call, as well as our most recent 10-K, 10-Q, and 8-K filings for more information regarding these risks and insurgencies. Additionally, we may refer to non-GAAP financial measures, which exclude certain items from our financial results reported in accordance with GAAP. Please refer to today's earnings release and the non-GAAP information available on our website at ir.craftheinscompany.com under News and Events for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. Before we begin, I'm now going to hand it over to CEO Miguel Patricio for some brief opening comments.
spk15: Thank you, Anne-Marie, and thank you, everyone, for joining us today. Let me first take a moment to say how proud I am of Kraft Heinz team. We have come so far on our transformation journey. It's quite amazing. And the fourth quarter was no exception. You can see the momentum building across our business. Service levels and market share trends are improving. Base volumes are positive. We are outpacing the competition in food service and emerging markets, and by a lot. And importantly, we continue to invest for growth. Once again, we have unlocked efficiencies, over $400 million this year. And this allows us to invest in new tools and capabilities for our teams, and new product innovation for our consumers. From a pricing perspective, 99% of all needed pricing has already been announced for 2023. As we look to the rest of the year, we have no current plan to announce new pricing in North America, Europe, Latin America, and most of Asia. I am very optimistic and very excited about how we are positioned to deliver long-term sustainable growth. With that, I'll have Andre, Carlos, and Hafa to join me. So let's open the call for the Q&A.
spk04: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your touch-tone telephone. If your question has been answered and you wish to draw yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster.
spk19: Our first question comes from Andrew Lazar with Barclays. Your line is open.
spk17: Great, thanks. Good morning, everybody.
spk07: Good morning.
spk17: Good morning, Andrew. Your EBITDA guidance for fiscal 23, excluding the impact from the 53rd week, is actually in line with your long-term algorithm. And when you detailed this, I guess, at Cagney a year ago, you sort of, I think, said it would take multiple years to reach this level of growth. So I guess, in this regard, I'm trying to get a sense of whether, if I have this right, whether you're ahead of schedule, and if so, what you attribute it to. like what's gone better or faster maybe than you anticipated. And I guess most importantly, are you in a place where you see this level of growth now as more sustainable? Thank you.
spk15: Thank you, Andrew, for the question there. Could you answer this question? Sure. Sure. Hi, Andrew. Good morning again. And thanks for the question, and thanks a lot for noticing it. In fact, we feel very, very proud about what we have been achieving as a company, and I think 2023, will mark another step up in our performance. And as you will notice, we are on the long-term algorithm already on sales and also on EBITDA if you remove the effects from currency and from the 53rd week. And I think this is a the best way to show that transformation is working through results, right? And it's good to see how 2022, we've reached a very strong momentum and how that's translating into a stronger performance in 2023. These are consequences of our market share in the U.S. continuing to improve, still negative, but improving. This food service continues to deliver at high, at about 20%, emerging markets growing double digits in a strong way. So all the three pillars of growth are working in our favor, Supply chain efficiencies continue to happen, and in 2023, as you might have noticed in guidance, we are expanding gross margin, and we see a path to go back to 2019 levels, which is allowing us to continue to increase the investment in the business for growth. So we are, in 2023, increasing investments behind marketing technology and people, which are critical neighbors for us to feel the growth of the company. So we feel good about where we are moving.
spk11: Still work to do, but feel good.
spk02: thank you very much one moment for our next question our next question comes from Brian's playing with Bank of America your line is open thanks operator good morning everyone um my my questions about just the the free cash flow and a couple questions related to that I guess the first is just simply Andre, can you give us a little bit more insight in terms of, I guess, the inventory build? You know, is it finished goods inventory? Is it raw materials? You know, the decision to do that. And I guess in the prepared remarks, it's tied to service level. So are you going to need to carry elevated inventories through 23 is my first question. Yeah.
spk15: Sure. Good morning, and thanks for the question. Look, as we said, as you have seen throughout 2022, we have to be rebuilding Venturi, right? Our schedule rate at the end of 21 was in the low 80s, which is extremely low. So we had a lot of recovery to do. So you have seen throughout the year the effect of us building Venturi. Keep in mind that if we finish it 2022, it's still in the low 90s. So it's still not what the retailers are expecting it should be and what we expect ourselves should be. Being said that, we do have, compared to historical levels, higher inventory coverage in average in raw and packaged materials, which is normal because also trying to build buffers given all the volatility and uncertainty. So we expect those raw and packaged materials to decline over time, including starting in 2023. And in finisher goods, even though we need to increase inventory in certain spots where the inventory service levels are still low, we still have a lot of opportunity to rebalance our inventory across the network. I think one of the consequences of the pandemic and the demand volatility is that we start to have inventory straight in the wrong warehouses to meet the demand. And that takes time to sort itself out, right? Because if it's too costly for us, it should be shipping items across the network. So because of these effects and all the investments that we have made in the past two years to automate demand forecasts We are investing a lot of resources in various supply training. We have a big project that's already started to network simplification. So the combination of these investments, plus the rebalance of the network, plus we're going back to the more historical levels of corporate enrollment back in Madeira should start your system recovery and inventory starting in 2023 or into the future.
spk02: So I guess we're kind of bridging that now to maybe how we should be thinking about free cash flow and free cash flow conversion for 23. Can you give us a little bit of perspective on, I guess, capital spending? Will inventory or working capital be a tailwind? Can we get back to more normal free cash flow conversion in 23, or is it still going to be somewhat, I guess, subdued relative to previous years?
spk15: So pre-cash flow will be better than 2022. We are still not going to be in the long-term algorithm of 100%. And that's in great part because of CapEx investments. As we have said as well during when we unveiled the long-term algorithm, we are investing for growth. And we have a step-up investment in CapEx. You have seen in 2022, we're spending a little more than $900 million, which is a big increase versus the 700, 750 that were in the past. We are renting out this again in 2023 and 2024 as part of our long-term plan. And then we should go back down to close to 3.5% of net sales starting 2025. That's the current perspective. So when the capex starts to come down, that will help us to give the step-up change to go back to achieve the 100% and to set a long-term outlook. So this year, I mean, if you were to expect something this year, it should be like about 80% or so if you want to have adjustable parking mics.
spk02: Okay, that's helpful. Thank you very much. Appreciate all the color.
spk19: No, thank you. One moment for our next question. Our next question comes from Chris Groye with CFO. Your line is open.
spk09: Hi, good morning. Hi.
spk03: Hi.
spk09: I just had a question for you in relation to promotional spending and You had some data and some charts or a chart that showed how it was down since 2019 and down more than your branded competition. I just want to get a sense of, do you expect to increase that? Is that kind of tied to service levels as those improve throughout the year? And then also to better understand What's the appropriate bogey for that level of rebuilding promotional spending? So what portion of that 5% decline you show since 2019 should rebuild? You've got some good data and capabilities now. Can you be more efficient with promotional spending? I think the answer is yes, but I just want to get a little more color on that. Thank you.
spk14: Maybe in there you can start and then Carlos comment specifically in the U.S.
spk15: Yeah. And thanks for the question. We have increased trade investment in a very significant way from 2017 to 2019, more than a billion dollars in the United States alone. So we start from a very high base. And since late 2019, we created a centralized revenue management organization. We have more than 50 people fully dedicated to that in North America alone. And we have started to gather our sales organization. We put a lot of discipline and science behind making promotional decisions in a way that benefits us and retailers. And you have seen a lot of that coming to fruition now in the results of the last three years. There is obviously an impact from service level as well. But just to put it in perspective, if you look at Q4, one sold on promotion, We had about 24% of unsold on promotion in Q4 of 2022. That's higher than 2021, but about 22%. So it's a two percentage point step up, still lower than the vendor competitors in our categories. But in 2019, it was about 34%. So that's too much. And to look at where we are right now in terms of promotional investments, we still have a significant amount of promotions that have negative ROIs. So it's not about cutting promotions, it's about deploying in a smarter way. So we are in the journey and have seen the results from that, but there's still a lot of opportunities for us to go ahead and redeploy in months that are increasing. It's difficult for me to give you a precise number of where this is going to land, but what I can tell you with confidence is that we're not going to get anywhere close to 2019 levels. Yeah, let me, as Carlos said, Chris, listen, what I'll say is just building on some of the comments that Andrew just mentioned is that, you know, as we think about promotional activity going forward, it really is about being surgical about how we invest those promotional dollars. It's thinking through making them around event-based activity. So that way we are thinking through how do we make sure that we are driving the best utilization of that particular event versus a price-based activity. And I think what happens then is it allows us to actually make sure we all are focused in terms of driving the positive ROIs. And I think if you, as you heard from Andrea, you know, we have made a huge try from when we went to 2019, and we're not going back. In fact, when you look at some of our focus on improving the ROI of our programs, today on average, If you think of 2022 versus 2019, we've actually tripled the level of ROI returns of our promotions from three years ago. So, again, it is a signal that all the investments we're doing in terms of revenue management, our agile scale work in terms of better understanding how to read the data and how to utilize our funding is actually driving specifically better ROI in every funding that we're doing. Thanks for the question.
spk08: Thank you. A lot of good color there. I appreciate it.
spk19: One moment for our next question. Our next question comes from Cody Ross with UBS.
spk04: Your line is open.
spk24: Thank you, operator, and good morning. Just a quick question around your organic sales guidance. You guided 2023 organic sales growth of 4% to 6%. Based on wraparound pricing from 2022 and the incremental price that you discussed for 2023, We estimate that your volume growth assumption is flat to down, low single digits. Is that correct? And then if so, what gives you the confidence that elasticity will remain so low as we move throughout the year? Thank you.
spk11: Andres? Yeah. Hi, Cody. Thanks for the question.
spk15: So as well noted, we are finishing Q4 growing about 10%. and we just have a new round of price that we just implemented. So that certainly has a positive effect in the first half of the year. We expect that gradually throughout the year for us to be, as we start to let the price increases from last year, that we end up landing in the second half on something closer to our long-term growth algorithm. Being said that, the growth in 2023 is all driven by price, so volume is still negative. Obviously, it improves throughout the quarters as we start to look at the prices, but even at the end of the year, it will still be negative. That's something that, as we think about the future, it's not the balance that we want. We want a good balance, as we think about top-line growth, between price and volume, and we're going to talk more about that next week in Kagan. we had content in the guidance an increased level of elasticity compared to what we saw in 2022, but it's still not the way up to the historical levels. In terms of what gives confidence, you saw the sellout for the industry throughout Q4. It was still very strong. In fact, if you look at sellout elasticity, just looking at price and volume based on the sellout, Q4 was better than any other quarter in the year. Now, we obviously need to keep actively monitoring, and we are Because throughout this year, we can see maybe consumers will change their behaviors. Carlos, do you want to comment something on that? The one thing I would add, Cody, is the fact that we also are making sure that we continue to expand in terms of the number of formats and price points that we offer within our categories to make sure we maintain the consumers that have been with us over the last couple of years. So that means that if you look at the data, for example, in Q4, those earnings over $100,000 in consumers, actually with that particular group, we actually grew over 13% in terms of consumption. And at the same time, we're making sure that as consumers go into club, we are actually increasing the number of offerings, whether it's mac and cheese and deli in terms of club. And those consumers who are going to dollar stores, we're actually improving the number of SKUs that we have available to them. So that way there's a point in which they can come into the category. And those who are choosing to look at value in terms of club sizes, we also have those formats. So it is for us to be agile in terms of how we think about the consumer continues to change, and we've been having an offer that provides the best value for them regardless of their socioeconomic situation.
spk19: Great. Thanks so much. One moment for our next question. Our next question comes from Ken Goldman with J.P. Morgan.
spk04: Your line is open.
spk16: Hi, I'm just hoping to get a better sense of the magnitude of the gross margin improvement you're expecting this year. And besides the obvious ones in terms of the cadence of inflation, if there's any considerations we should have about, you know, maybe the timing from quarter to quarter of that improvement.
spk15: Andres, please. Thanks for the question. You have seen, I think you fought It happened the way that we said we would. We had a relevant sequential improvement, which put us in Q4 in line with the 2019 gross margins. We expect in Q1 to maybe go a little bit down as we have contracts that are getting renewed and some inflation that was not passed over to us last year now is going to affect us. and we had to contemplate it in our guidance. But you should expect somewhere close to flourishing Q1 compared to prior year, and from there you should start to see expansion on a year-over-year basis. In terms of a ballpark, you should think about 50 bps to 100 bps, somewhat in the magnitude of growth margin expansion, which that is what's allowing us to increase investments behind marketing, technology, and people, which is so important to us.
spk19: Very helpful. Thank you. One moment for our next question. Our next question comes from Pamela Kaufman of Morgan Stanley.
spk04: Your line is open.
spk21: Hi. Good morning.
spk04: Good morning.
spk21: Can you talk about the competitive dynamics within your categories? In the prepared remarks, you indicated that private label share is increasing, but that it's primarily coming from your branded competitors. So maybe if you could just elaborate on what you're seeing there, that would be helpful.
spk14: Maybe Andrea and Carlos can comment on that. Sure. You know, let me start –
spk15: Thank you for the question, by the way. Liz, as you saw, and let me speak for the North American business first, and then maybe Andrea can give you a perspective over all the company. You know, we do see the continued share improvements as we continue to go forward. I mean, in Q4, you saw that, you know, misadjusted share actually improved by 20 basis points. And when you look at the market share, there is no misadjusted. And in December, it actually was flat. And what we're seeing is that, you know, the best that we're making in terms of continuing to invest in our businesses, in terms of us renovating our key products, making sure we invest in innovation, make sure we invest in our marketing, that actually is paying off. So if you see that in terms of those particular platforms and brands that we want to continue to drive our growth are, in fact, driving the share improvements as well. And that is in places like Lunchables, in places like Kraft Cheese, in places like Heinz Ketchup, mac and cheese, all those going to draw actually positive shares as you look at Q4. So for us it is how do we continue to make sure we build on those At the same time, that we are also making sure we address any of the potential still some supply chain constraints that we have in a couple of categories. So for us, it's making sure that as we are driving the investments that we're making in the brands, that those are, in fact, already transferring into share improvements, and now making sure that we are continuing to support the brands that are still a little bit challenged in terms of supply chain so that we can, in fact, unleash the continued growth of our retail environment. Is there anything you would like to add from an international standpoint on this question?
spk13: Well, Miguel, the only thing is that we have to look at a bit of different regions, right? Because, I mean, in Europe, indeed, the situation is a bit tougher from a private label perspective, growing more. I mean, the price gap has been widening, although the private label has been putting prices the same, but the gap has been widened. I mean, we have put a lot, a lot of initiatives in place, like relaunching value brands where, where we are not, we are not like we didn't have to like HP being, for example, that is in the best process category. So, and then also do a lot of activities in price back to architecture. So, so this is like, it's really keeping us like strong, especially versus branded competition, but then in the rest of the world, in the market specifically, You don't see that much of a private label issue, and we continue to gain share.
spk14: Okay. Yeah, just to put it in perspective, retail in Europe is about 5% of our business, and that's what Rafael was talking about. I just want to add to this point that two-thirds of our growth are coming from emerging markets and markets. and from service. And on these two channels, we continue gaining share and growing in a very, very positive way, double-digit.
spk20: Great. Thank you.
spk19: One moment for our next question. Our next question comes from Stephen Powers with Deutsche Bank. Your line is open.
spk10: Yes, hey, good morning. Two questions. The first one is on service levels and fill rates. On slide 16, you show how you've seen improvement in the fourth quarter, really every month within the fourth quarter. I guess the question is, number one on this, is just has that improvement continued into 23 thus far? And what have you really assumed sort of as the base case 423 relative to the ultimate goal of getting back to the high 90s. Is that an assumption in the guidance, or is that more of an aspiration and less than allowances in the outlook?
spk15: Let me comment to give you a perspective, I guess, the way we see it in North America. As you said, we are in fact seeing progress in our supply chain and our service level. When I look at December numbers, those were the highest service levels we had across the entire year. Now, at the same time, we are still seeing the industry having continued to see some challenges, particularly upstream when you think about ingredients and some packaging materials. Now, as we go forward, our goal is, in fact, to get to the kind of service levels our customers and we need towards the end of the year. You know, I think for us what we're seeing is that the recovery in some of the ingredients and packages is coming in very asymmetrical. So if you think about for us, you know, we're dealing, you know, still with the remnant of the avian flu and the impact that that had in terms of the industry in some of our business in POCOTS and in places like in our cream cheese soft business where some packaging materials have been a challenge. And so those are the type of things that now we're working through. It's places where, in fact, while most things are beginning to come in the terms of more stable supply chain, there are still a couple of places where we are seeing, you know, some of those kind of challenges. At the same time, our team is making sure that we are adapting to every situation that's happening. You know, I'll give you an example of that, which is as you sell the price of eggs, you know, go so high, we need to make sure that we also are adapting to the products that go with egg. So, a product like Just Cracking Egg, we need to make sure we actually bring down the inventory to make sure that, understand that consumers may not be having a reduced demand of that type of product. So, we're both focused on how do we make sure we continue to drive that service level towards the 98%, which is our goal. And then secondly is making sure that as we do that, we are agile in terms of responding to those specifically ingredients that may be challenged in the short term, but that we see improving significantly as we exit 2023.
spk10: Okay, great. If I could follow up also. Sorry. Go ahead. I was just going to ask if I could follow up on the elasticity point that you've been talking about. You also exited the year with elasticity sort of at their most favorable point, just kind of going off the data on slide nine. You've obviously talked about, you know, assumption of those elasticities sort of normalized directionally through 23. I guess the question is just, what's your base case, you know, assumption of the pacing of that normalization? And you talk about, you know, an ultimate assumption of not going all the way back to historical elasticity. So just how do we think about that as we expect 23 to be sort of the mirror image of 22 from an elasticity standpoint, or any more color you can offer around that would be great. Thank you.
spk15: Yeah, please. So, look, as we have said, right, we contemplated the guidance that elasticity gradually go back to the historical levels, and we expect historical levels in the guidance to be established toward the end of the year. We expect Q1 to be a little worse than it was in Q4, and again, if you want to think about that linearly, going back to historical levels towards the end of the year. There are obviously things that we keep a close eye on. We are obviously fully aware and have put the actions in place on the SNAP reduction in the subsidies, which is happening, and that has implications, and we are ready for that. So, I mean, we are monitoring each of those things, right? But we believe that the lactases will normally graduate back to the historical levels. So, do you want to say anything about the type of actions that you are taking? Yeah, I think, you know, for us, I understand. You know, we have seen this coming. So, for us, it's making sure that we continue to provide great value to consumers regardless of the situation they're in. And I think, as I mentioned earlier, you know, for us, it is, making sure we use kind of the full price-wise architecture in terms of options for consumers to then make sure that we also maintain them in the franchise. And like we talked about in terms of our promotion levels, you know, we're using much more rigorous way in which we can understand the ROI of those investments so that as consumers are looking for particular events where there is certain key holidays and so forth, we are present but in a way that actually allows us to be in a much more positive ROI than in the past. So it is part of what we see. And like Andrew said, in North America, we are seeing our stance right now is that by the end of the year, we'll go back to historical levels. And we are definitely kind of rebuilding our guidance as we think about 2023. Okay, perfect. Appreciate it.
spk05: Thank you. Operator, we'll take one more question.
spk04: Sure. One moment for our next question. Our next question comes from Michael Lavery with Piper Stanley. Your line is open.
spk23: Thank you. Good morning. I just wanted to drill into your food service growth pillar a little bit more. And slide 13 or 12, I guess it is, is interesting with some color here. Can you just unpack a little bit of how you're gaining share relative to competitors? Is it new items in existing customers? Is it broadening? your distribution into new accounts, and, you know, is it those customers gaining share? I'm sure there's some components of maybe a few different things, but what's the primary driver of outperformance there?
spk14: Michael, we are having a great momentum in food service across the globe, both on U.S. and North America and the international zone, so I will ask Carlos and then Rafael to comment on that.
spk15: Yeah, and I would say in North America, I would say, you know, in the items that you mentioned, it's all of them. So, you know, we grew in the Q4, we grew about more than 20%, and we actually gained share. And for me, the way I kind of look at it is the investments that we have put in place are paying off. So we have put new leadership in place. We have simplified our portfolio significantly, reducing almost 50% the number of SKUs that we had only a couple of years ago. We have renovated our footwear portfolio. We're bolstering kind of our sales team to make sure they drive distribution in the right places. And more importantly, we're also investing in capacity to make sure we support that growing demand. So as we look forward, you know, and just to give you a sense of the opportunity here is, You know, we still are only in 25 or top 50 QSR in the U.S. So we know that everything that we're doing continues to be an opportunity for us to further drive growth. And then going back specifically to your question is, you know, already what we are seeing is that, you know, we are, in fact, expanding distribution across all areas of food service. We are winning with distributors, so we are actually expanding with key distributors that are present. We're actually also expanding with no commercial accounts. So if you think about hospitality and particular consumers who service those kind of non-commercial businesses, we have also made an effort against those, and those are working. We have expanded in new restaurants with things like Fast Casual. Think about, you know, from Denny's type of restaurant that we actually have now increased the number of items we sell into them, and QSR, which continues to be a focus for us as a company, from, you know, Papa John's to Pollo Tropical are places in which we are actually now expanding the number of SKUs we sell into. So, you know, it's an area that we continue to be bullish on and why one of the places that we feel that we can be winning globally. And with that, I mean, Rafa, if you want to build on the… Let me just, before Rafa, just build on one thing Carlos mentioned.
spk14: One of the reasons of our improvement and growth as well is capacity. We've been investing throughout these years on capacity, on capacity. on food service, and we continue to do so. So now in May, we'll have an extra 25% capacity in the U.S.
spk15: on pouches, and we'll have 50% more capacity on dip and squeeze, which are absolutely critical items for the growth of food service. With that in mind, Rafael, please, you know, go ahead.
spk13: Sure. Look, a lot has been already said about our bright spot of food service. And I guess you'll see next week on Cagney, we're going to go deeper on the reasons for success. But I would say two things that are adding up on the international front where we are winning. And indeed, we are growing a lot and winning big time share in food service. One is global partnerships, really leveraging our scale and then global capabilities to offer our partners like more insights and customized solutions. Remember many times we compete with local players, but we having this global insight makes a big difference for us to test innovation on market and when successful scale up to additional market. And we've been building this model and replicating consistently across the globe and it's working really well. The second point is what we call the chef-led model. I mean, that could be called our secret sauce, let's say, in food service. The strategy evolves around, like, talent chefs. I mean, basically, if you don't have a chef, you know, it's very easy to be based on a discussion or price-led discussion, basically transactional only. And when we bring our chef to the conversation, I mean, we really partner with the customers in different needs. identifying manual concepts fit for for their specific products and those two things although sometimes basic like the execution the perfect execution of it is really driving the the food service and just to remind them within international food services still although growing very strongly it's one-third smaller as a percentage of the taste elevation than than in the us so Although like retail size of the business comparable means like we have a lot of room to grow student food service. So definitely we hope we're going to continue to see a very good, strong success with this within the next quarters and years.
spk15: Thank you, Rafael. But in a nutshell, I would say that on food service, I think in the past we were very transactional. And we, you know, define this as one of the strategic pillars for us for growth. And we've been investing on talent, on technology, on people, on portfolio.
spk14: And it's paying off. We are very excited with that. And Marie?
spk06: Yep. So that will wrap up our Q&A session. Thank you all for your calls. I am going to turn it over to Miguel for some closing comments.
spk15: I just want to say that we continue very excited about what we are doing. We see our transformation, you know, evolving. The journey is still very far from finishing, but we are evolving every day. And why are we so excited? We are excited because we see the momentum building, service level up, market share, especially in the growth of platforms growing, food service, and emerging markets. a gaming market share and with a great momentum. Second, we see a very different level of agility in our company. We are today a very agile organization that is able to change, to adapt, to predict much better than in the past. We are investing to grow.
spk14: Gross margin expansion feeds investment in technology, in people, in marketing, in R&D.
spk15: We are excited as well because, you know, we anticipated pricing. And today, we have 99% of all our pricing for 2023 already announced. We have about 95% of our pricing already accepted. And we have about 90% already implemented. And so, the way we see it, we'll continue delivering quarter after quarter, year after year.
spk14: With that, thank you so much for your attention, and I expect to see you on Cagney next week. I think we have a lot of excitement to share with you. Thank you.
spk04: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
spk01: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. Thank you. Thank you. Bye. Thank you.
spk04: Good day and thank you for standing by. Welcome to the Kraft Heinz Company fourth quarter results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. I would now like to hand the conference over to your speaker today. Anne-Marie Magella, please go ahead.
spk06: Thank you, and hello, everyone. This is Anne-Marie Magella, Head of Global Investor Relations at the Kraft Heinz Company, and welcome to our Q&A session for our fourth quarter 2022 business update. During today's call, we may make forward-looking statements regarding our expectations for the future, including related to our business plans and expectations, strategy, efforts and investments, and related timing and expected impacts. These statements are based on how we see things today and actual results may differ materially due to risk and insurgencies. Please see the cautionary statements and risk factors contained in today's earnings release, which accompanies this call, as well as our most recent 10-K, 10-Q, and 8-K filings for more information regarding these risks and insurgencies. Additionally, we may refer to non-GAAP financial measures, which exclude certain items from our financial results reported in accordance with GAAP. Please refer to today's earnings release and the non-GAAP information available on our website at ir.craftheinscompany.com under News and Events for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. Before we begin, I'm now going to hand it over to CEO Miguel Patricio for some brief opening comments.
spk15: Thank you, Anne-Marie, and thank you, everyone, for joining us today. Let me first take a moment to say how proud I am of Kraft Heinz team. We have come so far on our transformation journey. It's quite amazing. And the fourth quarter was no exception. You can see the momentum building across our business. Service levels and market share trends are improving. Base volumes are positive. We are outpacing the competition in food service and emerging markets, and by a lot. And importantly, we continue to invest for growth. Once again, we have unlocked efficiencies, over $400 million this year. And this allows us to invest in new tools and capabilities for our teams, and new product innovation for our consumers. From a pricing perspective, 99% of all needed pricing has already been announced for 2023. As we look to the rest of the year, we have no current plan to announce new pricing in North America, Europe, Latin America, and most of Asia. I am very optimistic and very excited about how we are positioned to deliver long-term sustainable growth. With that, I've had Andre, Carlos, and Rafa to join me, so let's open the call for the Q&A.
spk04: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your touch-tone telephone. If your question has been answered and you wish to draw yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster.
spk19: Our first question comes from Andrew Lazar with Barclays. Your line is open. Great, thanks.
spk17: Good morning, everybody.
spk07: Good morning, Andrew.
spk17: Your EBITDA guidance for fiscal 23, excluding the impact from the 53rd week, is actually in line with your long-term algorithm. And when you detailed this, I guess, at Cagney a year ago, you sort of, I think, said it would take multiple years to reach this level of growth. So I guess, in this regard, I'm trying to get a sense of whether, if I have this right, whether you're ahead of schedule, and if so, what you attribute it to. like what's gone better or faster maybe than you anticipated. And I guess most importantly, are you in a place where you see this level of growth now as more sustainable? Thank you.
spk15: Thank you, Andrew, for the question there. Could you answer this? Sure. Sure. Hi, Andrew. Good morning again. And thanks for the question, and thanks a lot for noticing it. In fact, we feel very, very proud about what we have been achieving as a company in, I think, 2023. will mark another step up in our performance. And as you will notice, we are on the long-term algorithm already on sales and also on EBITDA if you remove the effects from currency and from the 53rd week. And I think this is a the best way to show that transformation is working through results, right? And it's good to see how 2022, we've reached a very strong momentum and how that's translating into a stronger performance in 2023. This is a consequence of our market share in the U.S. continuing to improve, still negative, but improving. This food service continues to deliver at high, at about 20%, emerging markets growing double digits in a strong way. So all the three pillars of growth are working in our favor, Supply chain efficiencies continue to happen, and in 2023, as you might have noticed in guidance, we are expanding gross margin, and we see a path to go back to 2019 levels, which is allowing us to continue to increase the investment in the business for growth. So we are, in 2023, increasing investments behind marketing technology and people, which are critical neighbors for us to feel the growth of the company. So we feel good about where we are moving. Still want to do, but feel good.
spk02: thank you very much one moment for our next question our next question comes from Brian's playing with Bank of America your line is open thanks operator good morning everyone um my my questions about just the the free cash flow and a couple questions related to that I guess the first is just simply Andre, can you give us a little bit more insight in terms of, I guess, the inventory build? You know, is it finished goods inventory? Is it raw materials? You know, the decision to do that. And I guess in the prepared remarks, it's tied to service level. So are you going to need to carry elevated inventories through 23 is my first question. Go ahead.
spk15: Sure. Good morning, and thanks for the question. Look, as we said, as you have seen throughout 2022, we have to be rebuilding inventory, right? Our schedule rate at the end of 21 was in the low 80s, which is extremely low. So we had a lot of recovery to do. So you have seen throughout the year the effect of us building inventory. Keep in mind that if we finish it 2022, it's still in the low 90s. So it's still not what the retailers are expecting it should be and what we expect ourselves should be. Being said that, we do have, compared to historical levels, higher inventory coverage in average in raw and packaged materials, which is normal because we're also trying to build buffers given all the volatility and uncertainty. So we expect those raw and packaged materials to decline over time, including starting in 2023. And in finisher goods, even though we need to increase inventory in certain spots where the inventory service levels are still low, we still have a lot of opportunity to rebalance our inventory across the network. I think one of the consequences of the pandemic and the demand volatility is that we start to have inventory straight in the wrong warehouses, should be the demand. And that takes time to sort itself out, right? Because if it's too costly for us, it should be shipping items across the network. So because of these effects and all the investments that we have made in the past two years to automate demand forecasts We are investing a lot of resources in various supply stranding. We have a big project that's already started to network simplification. So the combination of these investments, plus the rebalance of the network, plus we're going back to the more historical levels of corporate enrollment package material should start to see some recovery in inventory starting in 2023 or into the future.
spk02: So I guess we're kind of bridging that now to maybe how we should be thinking about free cash flow and free cash flow conversion for 23. Can you give us a little bit of perspective on, I guess, capital spending? Will inventory or working capital be a tailwind? Can we get back to more normal free cash flow conversion in 23, or is it still going to be somewhat, I guess, subdued relative to previous years?
spk15: So pre-cash flow will be better than 2022. We are still not going to be in the long-term algorithm of 100%. And that's in great part because of CapEx investments. As we have said as well during when we unveiled the long-term algorithm, we are investing for growth. And we have a step-up investment in CapEx. You have seen in 2022, we're spending a little more than $900 million, which is a big increase versus the 700, 750 that were in the past. We are ramping up this again in 2023 and 2024 as part of our long-term plan. And then we should go back down to close to 3.5% of net sales starting 2025. That's the current perspective. So when the capex starts to come down, that will help us to give the step-up change to go back to achieve the 100% and to set a long-term outlook. So this year, I mean, if you were to expect something this year, it should be like about 80% or so. If you want to have just a ballpark in mind.
spk02: Okay, that's helpful. Thank you very much.
spk04: Appreciate all the color. Well, thank you.
spk19: One moment for our next question. Our next question comes from Chris Groye with Seafloor. Your line is open.
spk09: Hi, good morning. Hi, I just had a question for you in relation to promotional spending and You had some data and some charts or a chart that showed how it was down since 2019 and down more than your branded competition. I just want to get a sense of, do you expect to increase that? Is that kind of tied to service levels as those improve throughout the year? And then also to better understand, What's the appropriate bogey for that level of rebuilding promotional spending? So what portion of that 5% decline you show since 2019 should rebuild? You've got some good data and capabilities now. Can you be more efficient with promotional spending? I think the answer is yes, but I just want to get a little more color on that. Thank you.
spk14: Maybe in there you can start and then Carlos, you know, comment specifically in the U.S.
spk15: Yeah, so... And thanks for the question. We have increased trade investment in a very significant way from 2017 to 2019, more than a billion dollars in the United States alone. So we start from a very high base. And since late 2019, we created a centralized revenue management organization. We have more than 50 people fully dedicated to that in North America alone. And we have started to gather our sales organization. We put a lot of discipline and science behind making promotional decisions in a way that benefits us and retailers. And you have seen a lot of that coming to fruition now in the results of the last three years. There is obviously an impact from service level as well. But just to put in perspective, if you look at Q4, one sort of promotion, We had about 24% of unsold on promotion in Q4 of 2022. That's higher than 2021, but about 22%. So it's a two percentage point to step up, still lower than the vendor competitors in our categories. But in 2019, it was about 34%. So that's too much. And to look at where we are right now in terms of promotional investments, we still have a significant amount of promotions that have negative ROIs. So it's not about cutting promotions, it's about deploying in a smarter way. So we are in the journey and have seen the results from that, but there's still a lot of opportunities for us to go ahead and redeploy in months that are increasing. It's difficult for me to give you a precise number of where this is going to land, but what I can tell you with confidence is that we're not going to get anywhere close to 2019 levels. Yeah, let me, as Carlos said, Chris, listen, what I'll say is just building on some of the comments that Andrew just mentioned is that, you know, as we think about promotional activity going forward, it really is about being surgical about how we invest those promotional dollars. It's thinking through making them around event-based activity. So that way we are thinking through how do we make sure that we are driving the best utilization of that particular event versus a price-based activity. And I think what happens then is it allows us to actually make sure we all are focused in terms of driving both the ROIs. And I think if you, as you heard from Andrea, you know, we have made a huge try from when we went to 2019, and we're not going back. In fact, when you look at some of our focus on improving the ROI of our programs, today, on average, If you think of 2022 versus 2019, we've actually tripled the level of ROI returns of our promotions from three years ago. So, again, it is a signal that all the investments we're doing in terms of revenue management, our agile scale work in terms of better understanding how to read the data and how to utilize our funding is actually driving specifically better ROI in every funding that we're doing. Thanks for the question.
spk08: Thank you. Well, the good color there. I appreciate it.
spk19: One moment for our next question. Our next question comes from Cody Ross with UBS.
spk04: Your line is open.
spk24: Thank you, operator, and good morning. Just a quick question around your organic. Good morning. Just a quick question around your organic sales guidance. You guided 2023 organic sales growth of 4 to 6%. Based on wraparound pricing from 2022 and the incremental price that you discussed for 2023, We estimate that your volume growth assumption is flat to down, low single digits. Is that correct? And then if so, what gives you the confidence that elasticity will remain so low as we move throughout the year? Thank you.
spk11: Yes. Yeah. Hi, Cody. Thanks for the question.
spk15: So as well noted, we are finishing Q4 growing about 10%. And we just have a new round of price that we just implemented. So that certainly has a positive effect in the first half of the year. We expect to be gradually throughout the year for us to be, as we start to let the price increases from last year, that we end up landing in the second half on something closer to our long-term growth algorithm. Okay? Being said that, the growth in 2023 is all driven by price, so volume is still negative. Obviously, it improves throughout the quarters as we start to look at the prices, but even at the end of the year, it will still be negative. That's something that, as we think about the future, it's not the balance that we want. We want a good balance, as we think about pipeline growth, between price and volume, and we're going to talk more about that next week in Kagan. We had content in the guidance an increased level of elasticity compared to what we saw in 2022, but it's still not the way up to the historical levels. In terms of what gives confidence, you saw the sellout for the industry throughout Q4. It was still very strong. In fact, if you look at sellout elasticity, just looking at price and volume based on the sellout, Q4 was better than any other quarter in the year. Now, we obviously need to keep actively monitoring, and we are Because throughout this year, we can see maybe consumers will change their behaviors. Carlos, do you want to comment something on that? The one thing I would add there, Cody, is the fact that we also are making sure that we continue to expand in terms of the number of formats and price points that we offer within our categories to make sure we maintain the consumers that have been with us over the last couple of years. So that means that if you look at the data, for example, in Q4, those earnings over $100,000 in consumers, actually with that particular group, we actually grew over 13% in terms of consumption. And at the same time, we're making sure that as consumers go into club, we are actually increasing the number of offerings, whether it's mac and cheese and jello in terms of club. And those consumers who are going to dollar stores, we're actually improving the number of SKUs that we have available to them. So that way there's a point in which they can come into the category. And those who are choosing to look at value in terms of club sizes, we also have those formats. So it is for us to be agile in terms of how we think about the consumer continues to change, and we've been having an offer that provides the best value for them, regardless of their socioeconomic situation.
spk19: Great.
spk15: Thanks so much.
spk19: One moment for our next question. Our next question comes from Ken Goldman with J.P. Morgan.
spk04: Your line is open.
spk16: Hi, I'm just hoping to get a better sense of the magnitude of the gross margin improvement you're expecting this year. And besides the obvious ones in terms of the cadence of inflation, if there's any considerations we should have about, you know, maybe the timing from quarter to quarter of that improvement.
spk15: Andres, please. Thanks for the question. You have seen, I think you fought It happened the way that we said we would. We had a relevant sequential improvement, which put us in Q4 in line with the 2019 gross margins. We expect in Q1 to maybe this gross margin to go a little bit down as we have contracts that are getting renewed and some inflation that was not passed over to us last year now is going to affect us. and we had to contemplate it in our guidance. But you should expect somewhere close to flourishing Q1 compared to prior year, and from there you should start to see expansion on a year-over-year basis. In terms of a ballpark, you should think about 50 bps to 100 bps, somewhat in the magnitude of gross margin expansion, which that is what's allowing us to increase investments behind marketing, technology, and people, which is so important to us.
spk19: Very helpful. Thank you. One moment for our next question. Our next question comes from Pamela Kaufman of Morgan Stanley.
spk04: Your line is open.
spk21: Hi. Good morning.
spk04: Good morning. Good morning.
spk21: Can you talk about the competitive dynamics within your categories? In the prepared remarks, you indicated that private label share is increasing, but that it's primarily coming from your branded competitors. So maybe if you could just elaborate on what you're seeing there, that would be helpful.
spk14: Maybe Andrea and Cass can comment on that. Sure. You know, let me start...
spk15: Thank you for the question, by the way. As you saw, and let me speak for the North American business first, and then maybe Andre can give you a perspective over all the company. You know, we do see the continued share improvements as we continue to go forward. I mean, in Q4, you saw that, you know, misadjusted share actually improved by 20 basis points. And when you look at the market share, there is no misadjusted. And in December, it actually was flat. And what we're seeing is that, you know, the best that we're making in terms of continuing to invest in our businesses, in terms of renovating our key products, making sure we invest in innovation, make sure we invest in our marketing, that actually is paying off. So you see that in terms of those particular platforms and brands that we want to continue to drive our growth are, in fact, driving the share improvements as well. And that is in places like Lunchables, in places like Kraft Cheese, in places like Heinz Ketchup, mac and cheese, all those are going to draw actually positive shares as you look at Q4. So for us it is how do we continue to make sure we build on those At the same time, that we are also making sure we address any of the potential still some supply chain constraints that we have in a couple of categories. So for us, it's making sure that as we are driving the investment that we're making in the brands, that those are, in fact, already transferring into share improvements, and now making sure that we are continuing to support the brands that are still a little bit challenged in terms of supply chain so that we can, in fact, unleash the continued growth of our retail environment. Andreas, is there anything you would like to add from an international standpoint to this question?
spk13: Well, Miguel, the only thing is that we have to look at a bit of different regions, right? Because, I mean, in Europe, indeed, the situation is a bit tougher from a private label perspective, growing more. I mean, the price gap has been widening, although the private label has been putting prices the same, but the gap has been widening. I mean, we have put a lot, a lot of initiatives in place, like relaunching value brands where, where we are not, we are not like, we didn't have to like HP being, for example, that is in the class process category. So, and then also do a lot of activities in price pack architecture. So, so this is like, it's really keeping us like strong, especially versus branded competition. But then in the rest of the world, in the market market specifically, You don't see that much of a private label issue, and we continue to gain share.
spk14: Okay. Yeah, just to put it in perspective, retail in Europe is about 5% of our business, and that's what Rafael was talking about. I just want to add to this point that two-thirds of our growth are coming from emerging markets and and from food service. And on these two channels, we continue gaining share and growing in a very, very positive way, double-digit.
spk20: Great. Thank you.
spk19: One moment for our next question. Our next question comes from Stephen Powers with Deutsche Bank.
spk04: Your line is open.
spk10: Yes, hey, good morning. Two questions. The first one is on service levels and fill rates. On slide 16, you show how you've seen improvement in the fourth quarter, really every month within the fourth quarter. I guess the question is, number one on this, is just has that improvement continued into 23 thus far? And what have you really assumed sort of as the base case 423 relative to the ultimate goal of getting back to the high 90s. Is that an assumption in the guidance or is that more of an aspiration and you've left some allowances in the outlook?
spk15: Let me comment to give you a perspective. I guess the way we see it in North America, like you said, we are in fact seeing progress in our supply chain and our service level. When I look at December numbers, those were the highest service levels we had across the entire year. Now, at the same time, we are still seeing the industry having continued to see some challenges, particularly upstream when you think about ingredients and some packaging materials. Now, if we go forward, our goal is, in fact, to get to the kind of service levels our customers and we need towards the end of the year. You know, I think for us what we're seeing is that the recovery in some of the ingredients and packages is coming in very asymmetrical. So if you think about for us, you know, we're dealing, you know, still with the remnant of the avian flu and the impact that that had in terms of the industry in some of our business in Polkotsch and in places like in our cream cheese soft business where some packaging materials have been a challenge. And so those are the type of things that right now we're working through. It's places where, in fact, while most things are beginning to come in the terms of more stable supply chain, there are still a couple of places where we are seeing, you know, some of those kind of challenges. At the same time, our team is making sure that we are adapting to every situation that's happening. You know, I'll give you an example of that, which is, as you saw, the prices of our eggs you know, go so high, we had to make sure that we also are adapting then the products that go with egg. So, a product like Just Cracking Egg, we needed to make sure we actually brought down the inventories to make sure that, understand that consumers may not be having a reduced demand of that type of product. So, we're both focused on how do we make sure we continue to drive that service levels towards the 98%, which is our goal. And then secondly is making sure that as we do that, we are agile in terms of responding to those specifically ingredients that may be challenged in the short term, but that we see improving significantly as we exit 2023. Okay, great.
spk10: If I could follow up also. Sorry. Go ahead. I was just going to ask if I could follow up on the elasticity point that you've been talking about. You also exited the year with elasticity sort of at their most favorable point, just kind of going off the data on slide nine. You've obviously talked about, you know, assumption of those elasticities sort of normalized directionally through 23. I guess the question is just what's your base case, you know, assumption of the pacing of that normalization? And you talk about, you know, an ultimate assumption of not going all the way back to historical elasticity. So just how do we think about that as we expect 23 to be sort of the mirror image of 22 from an elasticity standpoint, or any more color you can offer around that would be great. Thank you.
spk15: Yeah, please. So, look, as we have said, right, we contemplated the guidance that elasticity gradually go back to the historical levels, and we expect historical levels in the guidance to be established toward the end of the year. We expect Q1 to be a little worse than it was in Q4, and again, if you want to think about that linearly, going back to historical levels towards the end of the year. There are obviously things that we keep a close eye on. We are obviously fully aware and have put the actions in place on the SNAP reduction in the subsidies, which is happening, and that has implications, and we are ready for that. So, I mean, we are monitoring each of those things, right? But we believe that the lactases will normally graduate back to the historical levels. So, do you want to say anything about the type of actions that you're taking? Yeah, I think, you know, for us, I understand. You know, we have seen this coming. So, for us, it's making sure that we continue to provide great value to consumers regardless of the situation they're in. And I think, as I mentioned earlier, you know, for us, it is, making sure we use kind of the full price-wise architecture in terms of options for consumers to then make sure that we also maintain them in the franchise. And like we talked about in terms of our promotion levels, you know, we're using much more rigorous way in which we can understand the ROI of those investments so that as consumers are looking for particular events where there is certain key holidays and so forth, we are present but in a way that actually allows us to be in a much more positive ROI than in the past. So it is part of what we see. And like Andrew said, in North America, we are seeing our stance right now is that by the end of the year, we'll go back to historical levels. And we are definitely kind of rebuilding our guidance as we think about 2023. Okay, perfect. Appreciate it.
spk05: Thank you. Operator, we'll take one more question.
spk04: Sure. One moment for our next question.
spk19: Our next question comes from Michael Lavery of Piper's Family. Your line is open.
spk23: Thank you. Good morning. I just wanted to drill into your food service growth pillar a little bit more. And slide 13 or 12, I guess it is, is interesting with some color here. Can you just unpack a little bit of how you're gaining share relative to competitors? Is it new items in existing customers? Is it broadening customers? You're just reaching into new accounts, and, you know, is it those customers gaining share? I'm sure there's some components of maybe a few different things, but what's the primary driver of outperformance there?
spk14: Michael, we are having a great momentum in food service across the globe, both on U.S. and North America and the international zone, so I will ask Carlos and then Rafael to comment on that.
spk15: Yeah, and I would say in North America, I would say, you know, in the items that you mentioned, it's all of them. So, you know, we grew in the Q4, we grew about more than 20%, and we actually gained share. And for me, the way I kind of look at it is the investments that we have put in place are paying off. So we have put new leadership in place. We have simplified our portfolio significantly, reducing almost 50% of the number of SKUs that we had only a couple of years ago. We have renovated our footer portfolio. We're bolstering kind of our sales team to make sure they drive distribution in the right places. And more importantly, we're also investing in capacity to make sure we support that growing demand. So as we look forward, you know, and just to give you a sense of the opportunity here is, You know, we still are only in 25 or top 50 QSR in the U.S. So we know that everything that we're doing continues to be an opportunity for us to further drive growth. And then going back specifically to your question is, you know, already what we are seeing is that, you know, we are, in fact, expanding distribution across all areas of food service. We are winning with distributors, so we are actually expanding with key distributors that are present. We're actually also expanding with no commercial accounts. So if you think about hospitality and particular consumers who service those kind of non-commercial businesses, we have also made an effort against those, and those are working. We have expanded in new restaurants, things like Fast Casual. Think about, you know, from Denny's type of restaurants that we actually have now increased the number of items we sell into them, and QSR, which continues to be a focus for us as a company, from, you know, Papa John's to Pollo Tropical are places in which we are actually now expanding the number of SKUs we sell into. So, you know, it's an area that we continue to be bullish on and why one of the places that we feel that we can be winning globally. And with that, I mean, Rafa, if you want to build on the… Let me just, before Rafa, just build on one thing Carlos mentioned.
spk14: One of the reasons of our improvement and growth as well is capacity. We've been investing throughout these years on capacity, on capacity. on food service, and we continue to do so. So now in May, we'll have an extra 25% capacity in the U.S. on pouches, and we'll have 50% more capacity on dip and squeeze, which are absolutely critical items for the growth of food service. With that in mind, Rafael, please, you know, go ahead.
spk13: Sure. Look, a lot has been already said about our bright spot of food service. And I guess you'll see next week on Cagney, we're going to go deeper on the reasons for success. But I would say two things that are adding up on the international front where we are winning. And indeed, we are growing a lot and winning big time share in food service. One is global partnerships, really leveraging our scale and then global capabilities to offer our partners like more insights and customized solutions. Remember many times we compete with local players, but we having this global insight makes a big difference for us to test innovation on market and when successful scale up to additional markets. And we've been building this model and replicating consistently across the globe and it's working really well. The second point is what we call the chef-led model. I mean, that could be called our secret sauce, let's say, in food service. The strategy evolves around, like, talent chefs. I mean, basically, if you don't have a chef, you know, it's very easy to be based on a discussion of price-led discussion, basically transactional only. And when we bring our chef to the conversation, I mean, we really partner with the customers in different needs. identifying menu concepts fit for for their specific products and those two things although sometimes basic like the execution the perfect execution of it is really driving the the food service and just to remind them within international food services still although growing very strongly uh it's one third smaller as a percentage of the taste elevation than than in the us so Although like retail size of the business comparable means like we have a lot of room to grow student food service. So definitely we hope we're going to continue to see a very good, strong success with this within the next quarters and years.
spk15: Thank you, Rafael. But in a nutshell, I would say that on food service, I think in the past we were very transactional. And we, you know, define this as one of the strategic pillars for us for growth. And we've been investing on talent, on technology, on people, on portfolio.
spk14: And it's paying off. We are very excited with that. Marie?
spk06: Yep. So that will wrap up our Q&A session. Thank you all for your calls. I am going to turn it over to Miguel for some closing comments.
spk15: I just want to say that we continue very excited about what we are doing. We see our transformation, you know, evolving. The journey is still very far from finishing, but we are evolving every day. And why are we so excited? We are excited because we see the momentum building, service level up, market share, especially in the growth of platforms growing, food service, and emerging markets. a gaming market share, and with a great momentum. Second, we see a very different level of agility in our company. We are today a very agile organization that is able to change, to adapt, to predict much better than in the past. We are investing to grow. Gross margin expansion feeds investment in technology, in people, in marketing, in R&D. We are excited as well because, you know, we anticipated pricing. And today, we have 99% of all our pricing for 2023 already announced. We have about 95% of our pricing already accepted. And we have about 90% already implemented. And so, the way we see it, we'll continue delivering quarter after quarter, year after year.
spk14: With that, thank you so much for your attention, and I expect to see you on Cagney next week. I think we have a lot of excitement to share with you. Thank you.
spk04: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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