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The Kraft Heinz Company (NASDAQ:KHC)
Q4 2020 Earnings Call
Feb 11, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to The Kraft Heinz Company Fourth Quarter Results Conference Call. [Operator Instructions]

I will now turn the conference over to host Mr. Chris Jakubik. Sir, you may begin.

Chris Jakubik -- Head of Global Investor Relations

Thank you, and hello everyone. Thank you for joining our Q&A session today. As you know, during our remarks today, we will make some forward-looking statements that are based on how we see things today. Actual results may differ due to risks and uncertainties and these are discussed in our press release and our filings with the SEC. We will also discuss some non-GAAP financial measures today, during the call and these non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results. And you can find the GAAP to non-GAAP reconciliations within our earnings release.

Before we begin, I do want to highlight that we will provide greater details on our 2021 initiatives during our presentation at the CAGNY Conference, this coming Tuesday. So today's session will be most productive, if you limit yourself to one question and focus your questions on our results and the announcements that we have made today.

With that, I'll hand it back to the operator and we can start the Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Andrew Lazar of Barclays. Your line is open.

Andrew Lazar -- Barclays -- Analyst

Good morning, everybody.

Paulo Basilio -- Chief Financial Officer

Good morning, Andrew.

Miguel Patricio -- Chief Executive Officer

Good morning.

Andrew Lazar -- Barclays -- Analyst

Hi, there. So I guess for my question, I'd like to explore a bit your expectations for full year '21. Really in terms of your planning stance for demand. I guess, some companies have been more aggressive in terms of their expectations around return to normalization and the impact on consumption, others may be somewhat more conservative. So I'm just trying to get a sense of how KHC is thinking about this in its guidance or what end of the spectrum, the company is on and thinking about this and how conservative or not you're planning stance may be for '21? Thank you.

Miguel Patricio -- Chief Executive Officer

Hi, Andrew. This is Miguel speaking. Well, we are looking at 2021 in conservative way. We -- but I have to say that we saw very strong consumption gains in January and February is coming good, as well. And if this persists at this type -- at this level, we may have an upside in our results. But I think that with the environment so volatile we better continue taking a quarter-by-quarter approach, which was the outlook that we gave you. And really concentrating our minds and our efforts on our transformation through our operating model. Paul, I don't know if you have anything to add. But from my side.

Paulo Basilio -- Chief Financial Officer

No, that's it Miguel. I think also it's worth it to comment that we are -- in our outlook, we are including the view that we have for inflation and also we are not considering the two divestitures that we have announced.

Andrew Lazar -- Barclays -- Analyst

Great, thank you very much.

Miguel Patricio -- Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Chris Growe of Stifel. Your line is open.

Chris Growe -- Stifel Financial Corp. -- Analyst

Hi, good morning. Just...

Miguel Patricio -- Chief Executive Officer

Good morning.

Chris Growe -- Stifel Financial Corp. -- Analyst

Hi. I just had a question if I could, have you define the amount of inflation you expect for the year and then how you hope to overcome that? I suspect that's through a combination of pricing and promotional efficiencies, but I want to get a better sense of like the magnitude of the inflation? And I wondered if you could speak to that excluding Planters and cheese, I know those were kind of pass along commodity type categories, but just trying to think about the ongoing portfolio and the effect on the business overall this year.

Paulo Basilio -- Chief Financial Officer

Sure. Chris, this is Paulo here. So we are seeing the same inflation. We're also seeing the inflation that you're seeing and coming from non-commodities -- non-key commodities, ingredients, especially packaging and transportation in the U.S. and we think that the level and the type of inflation that we are seeing, it's manageable and is in our outlook as I mentioned. And we have two reasons that -- behind that. The first one that we are very confident on the supply chain efficiency programs that we have that we expect to unlock savings across our supply chain. And the second is on our revenue management initiatives across the globe that in combination with the innovation, renovation market investments that we're doing can help us with pricing, if we need.

And as I said, we have incorporated this inflation in our outlooks today. I don't know if Carlos want to comment something on top of that.

Carlos Abrams-Rivera -- United States Zone President

No, I think to reiterate your point, Paulo that we feel that is manageable and I think we are taking the appropriate revenue management initiatives to make sure that we can handle those things as they come. Thank you.

Chris Growe -- Stifel Financial Corp. -- Analyst

Just to be clear on that, is that mostly U.S. based inflation, as I think about freight in particular, that's more of a U.S. issue, or is there kind of a wider array of inflation across the portfolio? Thank you.

Paulo Basilio -- Chief Financial Officer

When you think about the non-key commodities, ingredients and packaging across the globe and think about the freight, the transportation, it's more focus in the U.S. And one thing also that you've mentioned, when you think about the key commodity, the big four commodities that we have, we are not really seeing a lot of year-over-year inflation through the year, OK. When you add all of them. So we were really talking about the non-key -- non-big four commodities and packaging and transportation in the U.S.

Chris Growe -- Stifel Financial Corp. -- Analyst

Thank you.

Miguel Patricio -- Chief Executive Officer

Welcome.

Operator

Thank you. Our next question comes from Ken Goldman of JP Morgan. Your line is open.

Ken Goldman -- JP Morgan -- Analyst

Hi, good morning. Just to stay on the subject of cost and pricing, a few years ago some manufacturers tried to pass through some list prices because of higher transportation costs, I think some of their customers at that time, on the retail side, pushed back saying, look, we'll give you some pricing when your ingredients go up. We've done that in the past, but kind of trucking is, you're on your own. I would imagine that this time around it's a little bit different. I just kind of wanted to get a sense for, given your higher costs in packaging, higher transportation and given the lack of elasticity among consumers right now, how reluctant are some of your customers to allow you to take some pricing, whether it's on the list side or on fewer promo? I just wanted to get a sense for your relationship with them and how much pushback we're getting on any kind of price increases you're trying to push through.

Carlos Abrams-Rivera -- United States Zone President

Let me -- I'll take that one, just to give you kind of view in terms of the U.S. and what we're seeing with our customers. First, I would say, yes, what we see -- let me start with the consumer. Our consumer right now, as we have shifted toward being very much focused on understanding whether going through and so forth. I think they are certainly showing quite a amount of resiliency through this process that we're going through. And I think for us, our focus is how do we make sure we drive the renovation of our portfolio to make sure that we in fact continue to drive the right value for us as -- for the consumer.

Now, we're balancing that too with making sure that we have the right revenue management initiatives. And when I say that I say, using the full availability of our tools in our toolbox to be able to kind of handle the different pressures that may coming at us, because of inflation. So the way I think about it is, our focus is driving that better value to consumers by making sure we are improving our portfolio, making sure we continue to invest behind the marketing and improving the quality of our menu and making sure that we are seeing how that actually translating us driving on improvement in shares throughout, like we did in 2020.

So at this point, I will say, yes, these are things that we can manage and we don't see that as a major derail as we go forward.

Operator

Thank you.

Carlos Abrams-Rivera -- United States Zone President

Thanks for the question.

Operator

Our next question comes from Bryan Spillane of Bank of America. Your line is open.

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

Hey, good morning. So I guess my question is just related to the divestitures and maybe Paulo, could you give us a sense of -- I know we have a sense now of what the deleveraging impact will be, but could you give us a sense of maybe what the dilution would be to EBITDA or to earnings? And I guess trying to get underneath not just EBITDA going out of the door but maybe the scope of stranded overhead or are there any other meaningful costs that we should be thinking about as we're sort of trying to look at the Model ex. divestitures?

Paulo Basilio -- Chief Financial Officer

Sure. So we -- when you look at this business, is a business that has an average margin that is lower than the average -- that has a margin that is lower than the average margin of the company and we are really expecting minimal dilution from these divestitures, OK. And also, we are also working internally here from now until we close to try to even offset that. So I think what I could tell you today is exactly that, that it's a business with a margin below the average of the company and we expect -- are expecting minimal dilution. And I think we have time even for this minimal dilution to work internally to try to offset it.

Ken Goldman -- JP Morgan -- Analyst

Okay. And that's true for the cheese business as well. So when we look at both divestitures, we shouldn't expect a lot of earnings dilution from both of them.

Paulo Basilio -- Chief Financial Officer

When you look about the cheese divestitures as I mentioned before we were expecting, around 5% dilution and -- but again the same way for these divestitures, we are also working now with these two business out of the company to limit this other -- the dilution.

Ken Goldman -- JP Morgan -- Analyst

Okay, great. Thank you.

Operator

Thank you. Our next question comes from Jason English of Goldman Sachs. Your line is open.

Jason English -- Goldman Sachs -- Analyst

Hey, good morning folks. Thanks for sneaking me in, I appreciate it. I guess I kind of want to come back a similar question that it's all about trying to determine where you're going in an EBITDA of the year. Can you put a finer point on the comment that you made in your press release that you expect EBITDA to come in ahead of your strategic plan, what does it imply? Like where would your strategic plan place you how much upside do you see?

And back to Spillane question, how much EBITDA is leaving with Planters and cheese please? Thank you.

Paulo Basilio -- Chief Financial Officer

So, hey, it's Paulo again. So listen, we are not giving point estimations for our full-year 2021 EBITDA. But what we are conveying here is that, we -- as Miguel mentioned, we are having a very good start for 2021. I think we gave a good clarity on our Investor Day about the curve that we had for our EBITDA through our strat plan. And again, we are seeing upside on that and this upside is coming from -- not only from at-home consumption, that we are seeing come -- coming from this COVID situations, but also from better performance that we have in the business, in many areas of the business, including supply chain. So that is how we are seeing that.

And again, of course, we're going to be lapping at a very strong 2020 performance, but we are very confident in how we are starting the year and the potential upside that we have. And are very happy that we are seeing a stronger beginning of the year and a stronger potential performance for us in 2021.

About the impact from divestitures is pretty much what I was mentioning the question before, about we expect pretty much from the Planters business a minimal dilution and we are working internally to offsetting can even this dilution. This small dilution that we can see now.

Operator

Thank you. Our next question comes from David Palmer of Evercore ISI. Your line is open.

David Palmer -- Evercore ISI -- Analyst

Hi, good morning. Just wanted to follow up on the cost picture productivity savings and other things that might impact '21 versus '20. It sounds like you said that commodity costs would be fairly benign, but perhaps you can dig into that versus freight and logistics, where we've heard about some inflation and how that might net across against your productivity plans? Thanks.

Miguel Patricio -- Chief Executive Officer

Paul, you want to start on that one?

Paulo Basilio -- Chief Financial Officer

Sorry, can you repeat the question? Your cut here.

David Palmer -- Evercore ISI -- Analyst

Sure. Question on some of the gives and takes, with regard to your margins and EBITDA for '21...

Paulo Basilio -- Chief Financial Officer

Okay.

David Palmer -- Evercore ISI -- Analyst

You mentioned commodity costs were fairly benign and I'm wondering, if maybe you could put some expectations or quantify that a little bit more about your commodity outlook. And also talk about freight and logistics, I -- we've heard a good bit of inflation is out there on the shipping side, if you could maybe break that out or speak to that net of productivity plans for this year? Thanks.

Paulo Basilio -- Chief Financial Officer

Yes. As -- yes, that -- no, that's clear. We are seeing the inflation as I was mentioned before, we are seeing the inflation. When you separate this we are seeing inflation coming from the same type of inflation that we're seeing. So it's a broad inflation from non-key commodities and also packaging and we also see inflation coming on the transportation in the U.S., OK?

On the big four commodities that we have, we are not seeing any of the inflation, OK? So it's more stable. And as I was mentioning the type inflation that we're seeing and the level that we are seeing, we believe it's manageable through not only the supply chain initiatives that we have, but also with the revenue management initiatives that we were describing. Carlos was mentioning in few questions ago. But again, we are seeing the inflation. We believe it's manageable and is embedded in our outlook.

David Palmer -- Evercore ISI -- Analyst

Thanks.

Paulo Basilio -- Chief Financial Officer

Welcome.

Operator

Thank you. Our next question comes from Alexia Howard of Bernstein. Your line is open.

Alexia Howard -- Bernstein -- Analyst

Good morning, everyone.

Miguel Patricio -- Chief Executive Officer

Good morning.

Paulo Basilio -- Chief Financial Officer

Good morning.

Alexia Howard -- Bernstein -- Analyst

So you talked about the Taste Elevation platform doing very well and you've got Slide 7 to demonstrate that. Can you talk explicitly about exactly which products and which geographies are working best there? And whether you expect that momentum to continue?

Miguel Patricio -- Chief Executive Officer

Well, actually we are doing pretty well on Taste Elevation across the board. And there is not a one specific country, of course that since U.S. is so critical in our portfolio. U.S. is a big part of this growth. But I would mention Canada, U.K., Australia, but even the emerging countries, right. Brazil, Russia, Middle East, we are doing very well on Taste Elevation. We are having record shares with our brand Heinz with Ketchup and sauces everywhere in the world. But it's not only Heinz we have Lea & Perrins, we have Heinz Mayo, we have -- basically our portfolio -- the entire portfolio on Taste Elevation doing very, very well. Both growing volume and share.

Alexia Howard -- Bernstein -- Analyst

And do you expect that momentum to continue even as the pandemic eases?

Miguel Patricio -- Chief Executive Officer

I do. And I think that we have a pretty strong innovation plan ahead that will strengthen that performance. I think we have great momentum and that will continue.

Alexia Howard -- Bernstein -- Analyst

Great, thank you very much.

Carlos Abrams-Rivera -- United States Zone President

Just to build on Miguel's point, you're going to hear more about it when we go through our CAGNY discussions. Because I think that this -- our Taste Elevation has proven to be an advantage part of our business that will be something that we'll continue to lever as we go forward. Thank you.

Alexia Howard -- Bernstein -- Analyst

Great. Thank you all.

Miguel Patricio -- Chief Executive Officer

And then just to continue building on that, this is our true global platform and we are benefiting from experiences and tests that we are doing in countries and leveraging and scaling it up in other countries, much faster than we did in the past. We are working much better as a team.

Alexia Howard -- Bernstein -- Analyst

Great, thank you both.

Miguel Patricio -- Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Michael Lavery of Piper Jaffray. Your line is open.

Michael Lavery -- Piper Jaffray -- Analyst

Good morning. Thank you. You noted that your marketing spend was up 11% last year. Does that get you to where you think is about the right level or should we expect more investments there? And when you say further prioritization efforts are under way, is that a reallocation of spending or does that mean just giving more money to the priority initiatives or a bit of both?

Miguel Patricio -- Chief Executive Officer

So we -- in our strategic review, we talked about increasing 30% marketing in five years. So last year we increased more than what would be the CAGR for five years, of course. This year we are seeing great opportunities for us on efficiencies in marketing. We are buying media in a much better way. We have a new contract with great savings on media. We are improving our creative and content and really sweating the assets and leveraging a better ROI. So I think that things are in accordance to plan in marketing and we are going to get better every year. We are very excited with that. Carlos, I don't know if there is anything you want to add? But...

Carlos Abrams-Rivera -- United States Zone President

I don't think, you've covered very well. Thanks, Miguel.

Michael Lavery -- Piper Jaffray -- Analyst

Great, thank you very much.

Operator

[Operator Instructions] Our next question comes from Jonathan Feeney of Consumer Edge. Your line is open.

Jonathan Feeney -- Consumer Edge -- Analyst

Good morning. Thanks very much for the question. When I look at that Naturan Cheese divestiture versus Planters, certainly some similarities around the challenges in differentiating your customer, but also some important differences. And I would love to know what's the bright line within Planters? You listed some things that makes sense to me, but you have -- where you decide it was maybe divest -- something that wasn't a problem not worth trying to solve relative to many other brands, where you are having success rethinking, reframing, driving the brand to success, where it hasn't been in the past? Just, what were the attributes of it that really put you over the line, like, hey, this is something that's better in someone else's hands.

Miguel Patricio -- Chief Executive Officer

Look, Planters is a very iconic very strong brand. So this is not something that we took lightly. But to improve our portfolio, we must focus on areas where we see the greatest competitive advantage, the greatest potential and returns. And when I -- we look at Planters, Planters is one of the brands that is most affected by private label in our portfolio, it's also of course affected as a commodity. And so when we looked at that, in order to have more flexibility toward the future on building a portfolio, I think that, we made that choice and we are very happy with that.

Jonathan Feeney -- Consumer Edge -- Analyst

Clear answer. Thank you very much, I appreciate it.

Miguel Patricio -- Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Steve Powers of Deutsche. Your line is open.

Steve Powers -- Deutsche Bank -- Analyst

Yes. Hey, thanks. So I guess two follow-ups on the Planters divestment, if I could. First is just the 15 times EBITDA multiple that you articulate on Slide 22 of your deck today, I just want to clarify, does that include overheads in the implied EBITDA base that will be stranded? I appreciate that you will try to offset that, but just wanted to confirm.

And then strategically, I guess just to press a bit on Jonathan's question from a moment ago, back in September Real Food Snacking was something that you highlighted as a growth platform and I'm assuming it still is, Planters was part of that. And so, I appreciate and understand the rationale that you articulating today around why Planters might not fit as well going forward, especially at the deal price that you've announced today, but what was -- was there a strategic pivot, was there something that happened between September and today, aside from an offer coming in that changed your perspective on Planters? Because again, it was positioned as part of our growth platform five, six months ago. Thank you.

Paulo Basilio -- Chief Financial Officer

Okay. So let me get the first one here and then ask Carlos to take the second part of your question. So yes, when you look at the multiple that we disclosed that is like 15 times 2020 and 17 times 2019, it includes some smaller location of strand costs, a small part of that. It includes in both numbers. Okay. In the 17 times '19 and the 15 times 2020. I'm going to ask Carlos, to get the second part of your question about the platform.

Carlos Abrams-Rivera -- United States Zone President

Yeah. Thank you. You're right. The idea was focusing Real Food Snacking is something that we laid out in September and we continue to be very much focused on driving that as part of our growth platform. And that -- just want to be clear that has not change. I think today you saw in the press release that we highlighted, there's still two specific areas within Real Food Snacking that we believe we have huge amount of advantages and we're going to continue to drive those as we go forward.

Specifically, we think about real fuel for kids where Lunchables is a cornerstone of that particular area and segment as well as real meal alternative where we think about adult opportunities to substitute meals, things like where we see in areas like P3 for example. So when I look at entire strategy I think is for us, we continue to stay focused on Real Food Snacking. The transaction today is actually only going to help us add additional fuel to support that strategy that we laid out in September.

Steve Powers -- Deutsche Bank -- Analyst

Thanks for the question.

Operator

Thank you. Our next question comes from Jenna Giannelli of Goldman Sachs. Your line is open.

Jenna Giannelli -- Goldman Sachs -- Analyst

Hi, good morning. Thanks so much for taking the question. In your prepared comments you said that IG was important to you, but obviously without sacrificing the speed of the transformation. I'm curious in your mind, where the business and leverage needs to be in order to get to IG and in your mind, what are the primary benefit of achieving that rating? Thank you.

Miguel Patricio -- Chief Executive Officer

Hi. Let me take this one. Listen, we believe now investment grade, as I said is important for the company as we were mentioning also we closed the year at 3.7 times. We want to be consistently before below 4 times net leverage in the organization and this is -- and we believe we are on track to get -- now to stay there to stay -- to get and any stay below 4 times even without the two divestitures that we have announced. Okay. This addition -- the proceeds of these two additional divestitures would give us additional half a turn of deleveraging and this would give us a flexibility and I think that is important, flexibility to accelerate our strategy and this acceleration would kind of like organically, inorganically with the initiative that we are following here.

And again, that is the plan that we have today. We want to keep the leverage below 4 times and we are on track to be there. I think the proceeds from the divestitures are going to give us additional flexibility to accelerate our strategy. And again, we are very comfortable with the path that we have in terms of deleveraging with our credit position. So we are feeling very good on the capital structure and credit side.

Jenna Giannelli -- Goldman Sachs -- Analyst

Thank you.

Operator

Thank you. At this time, I'd like to turn the call back over to Miguel Patricio for any closing remarks.

Miguel Patricio -- Chief Executive Officer

Okay. Well, thank you all for being with us here. I just wanted to finish and say that we couldn't be more optimistic and positive about the momentum that we have in the company right now. We are progressing fast in this transformation journey that we are -- we have today a very different company that we had just 12 months ago. Have a much better team, we have a far better employee morale and engagement, despite the fact that we've been all working from home.

We have the priorities in terms of strategy and geographies very well defined. So we have a north, we talked about efficiencies and -- in the supply area, and we brought them, we executed them despite the fact that we had the best year in quality and safety in our plants. We put back in marketing $100 million in 2020 and we are starting the year strong. Jan and Feb are strong months for us. Have new households with getting better in market share, every quarter, we have a very strong renovation and innovation that we are going to share with you better at CAGNY. Investment levels are ramping up and from a financial standpoint, this transformation is well under way.

We are on track to remain below 4 times leverage. The 2021 financial will be ahead of our strategic plan and the divestitures that we just announced will accelerate the leverage increasing flexibility for accretive investments. So we -- one year ago, we had a lot of hopes and plans. I would say, we are ahead of where we thought we could be. Thank you very much. Thank you for your time.

Operator

[Operator Closing Remarks]

Duration: 31 minutes

Call participants:

Chris Jakubik -- Head of Global Investor Relations

Paulo Basilio -- Chief Financial Officer

Miguel Patricio -- Chief Executive Officer

Carlos Abrams-Rivera -- United States Zone President

Andrew Lazar -- Barclays -- Analyst

Chris Growe -- Stifel Financial Corp. -- Analyst

Ken Goldman -- JP Morgan -- Analyst

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

Jason English -- Goldman Sachs -- Analyst

David Palmer -- Evercore ISI -- Analyst

Alexia Howard -- Bernstein -- Analyst

Michael Lavery -- Piper Jaffray -- Analyst

Jonathan Feeney -- Consumer Edge -- Analyst

Steve Powers -- Deutsche Bank -- Analyst

Jenna Giannelli -- Goldman Sachs -- Analyst

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