Kraft Heinz Company (KHC) — Q3 2019 Earnings Call Transcript

Hello, everyone, and thank you for joining our business update. We'll begin today's call with an overview of our third quarter and 9-month results as well as an update on our path forward from Miguel Patricio, our CEO; and Paulo Basilio, our CFO, and then we'll open the lines for your questions. Please note that 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 during the call today. 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. Now let's turn to Slide 3, and I'll hand it over to Miguel.

Thank you, Chris, and hello, everyone. On our previous call, I promised to be candid with you from the start and to update you on our progress along the way. I also highlighted some potential risks to the second half performance. Three months on, and we are getting to deeply understand our business. That business is on a better footing because we are increasing visibility and control of our costs. The team is making excellent progress and we are gaining confidence in our path forward. We are not where we believe we can be, but we are excited with the evolution we had in the third quarter and what we have ahead of us. This comes from directing our efforts to three work streams: stabilizing the business as we execute to the 2019 plan; setting our near-term transformation in motion; and establishing a true north through our enterprise strategy work. As we committed to you earlier, we will give you a detailed plan coming out of the enterprise strategy work early next year. But we do want to share the progress we have made and set early high-level observations with you today. In terms of delivering our 2019 plan and how we are running the business day-to-day, our performance improved from the first half of the year, and we are seeing signs of continuous improvement taking hold. As I said on our last call, my number one focus is our people and developing the team because it's our people that will deliver continuous improvement and the turnaround of Kraft Heinz. Since our last call, we have made a number of moves to enhance our leadership team, both at the global level and within business units. For instance, I named Nina Barton to a new role, Chief Growth Officer, where in addition to leading the development of our enterprise strategy, Nina has responsibility for overall channel growth, global e-commerce and digital, innovation, marketing services, and R&D. In Finance, our need is to move with speed and have in place proven well-respected leaders that know the business from the start. With that, I'm delighted to have Paulo Basilio back to the position of Global CFO and also Andre Maciel to be our Head of the U.S. Finance, a job he held for the first few years following the merger. To build morale and ensure a high level of engagement, I have held nine town halls and put out roughly 20 internal videos to shine a spotlight on activities that employees across the world, across Heinz, are doing to address the company. In this past month, we held a global Kraft Heinz Meal Packathon where employees from 15 locations across nine countries got together with Rise Against Hunger to pack one million meals for children in need. Not only did we reach the target, but we over-delivered by packing more than 1.2 million meals. And although we have still a lot to do to build our bench strength, in terms of recruiting, I'm very encouraged by the number of people we've seen that want to be part of our turnaround. Results-wise, organic net sales growth was up slightly on a sequential basis. And year-on-year, adjusted EBITDA was down roughly 4.5% in Q3 on a constant currency basis versus 16% in the first half. Pricing is coming through and inflecting from negative to positive in both the United States and EMEA, with overall elasticity in line with our expectations. Net inflation in our supply chain costs fell from 3.3% in the first half of the year to below 1% in the third quarter, marking the first quarter since 2017 that we have been seeing stability on the cost side. And we began to lap stepped-up marketing and e-commerce spending and investments in sales and customer service from the previous year. In addition, we are seeing significant positive momentum where we have something to say, and this includes mid-single-digit retail takeaway in our U.S. condiments and sauces, cream cheese, snacks, desserts, and seasonal franchise. In ketchup, specifically, we are getting great traction around the world behind our Heinz 150th anniversary, including our first-ever global Heinz campaign featuring pop music star, Ed Sheeran. And our total U.S. sauces business, which includes ketchup, mustard, mayo, Miracle Whip, salad dressings, and pasta sauce, has continued to build momentum since 2017. Brazil is growing double digits in both retail and foodservice channels, and we are seeing solid growth of 14% in our China soy sauce business. At the same time, we are still far from where we should be. While overall performance is improving, our numbers are still negative versus the prior year, and our performance remains uneven across categories and across geographies. This includes ongoing share and distribution losses within our natural cheese, cold cuts, and coffee business in the United States, lower-than-anticipated promotional lifts in Canada, ongoing infant nutrition declines in both EMEA and China, as well as increasing supply chain costs in our Rest of the World segment. To change our trajectory, we must improve our execution around the category, brand and sales initiatives by making critical fixes and closing any capability gaps; and drive greater efficiency in our supply chain across procurement, manufacturing and distribution. So while we have been working hard to finish the year in a much better place than we started, we have also been investing a lot of energy in our future. We are developing nine transformational projects that touch the core areas of our company to improve our capabilities and make us a more efficient company. Our teams are making rapid progress understanding root causes, defining what needs to be done, and already taking some actions that will benefit 2020. The nine projects currently underway include five projects focused on top line, two projects focused on operational efficiencies, and two projects focused on organizational effectiveness. The projects and the scope of each are shown on Slide 10, but let me provide some examples to illustrate. In marketing, we are defining the framework and optimal marketing spend, both by brand and by working/non-working allocations. And so far, we identified the opportunity to reallocate a substantial amount of dollars to work in 2020 as well as redirect dollars disproportionately towards support of our flagship brands. Based on this alone, we will see a significant percentage increase in media spend and an even greater increase for the brands that are the biggest drivers of our profitability. Around our innovation efforts, we are revamping our product development process so we can be faster and more consumer-centric with our new products. And we are evaluating shifting innovation support to fewer, bigger, better initiatives, launches that promise to be more incremental to our base. As a result, in 2020, we will reduce the number of projects being launched by half and better align our post-2020 pipeline with our enterprise strategy. In sales, the work is concentrated in three areas. First, strengthening day-to-day execution through ways of working and timing of our planning process to tighten the connectivity between sales, our category teams, and more importantly, with our retail partners. The second is developing a roadmap for price, mix, promotion and trade improvements. And the third is developing a channel strategy, to better define roles and priorities for each part of the portfolio, by channel and by customer. In supply chain, we have several projects underway that collectively can deliver significant efficiencies to help offset inflation with the goal of funding our long-term strategy. A key driver of this will be examining every SKU, cutting anything with a negative margin, and in the process, removing complexity from the system to boost productivity and improve mix. Based on our work to date, we see scope to rationalize a significant portion of the SKUs in our U.S. business and with minimal impact on profits. There is also more work being done elsewhere, including the transformation of our financial planning and forecasting that Paulo is heading up. Taking a step back, I think it's important to recognize here that even though we are putting things in motion now, the purpose of all these projects is to lay a foundation that will support us for the long run. Finally, regarding the long term, in the third quarter, we initiated and we are on track with the development of our enterprise strategy. We are developing a much better understanding of the consumer with a view to the future. We are setting our strategic direction, where we believe we can drive the greatest growth and returns by brand, by category, by geography, and by channel with the full support and participation of our Board. There is still much work ahead of us, but we remain confident in our ability to launch our enterprise strategy and share it in detail with you early next year. Personally, I'm encouraged and excited at how our people are embracing change, their desire to get better through new ways of doing things and to move with speed. After all, these are the key ingredients to building a continuous improvement mindset. And as I said on the last call, one of our key principles and goals for the company going forward is not only to identify the new investments needed to grow both the top line and the bottom line, but keeping expenses under control and using that capital to support those investments. With that, I will turn over to Paulo to discuss where we are and where we expect to go from here on the financial front.

Thank you, Miguel, and good morning, everyone. I will start with a quick overview of our third quarter performance, which showed both sequential improvement versus the first half as well as the beginning of business stabilization. Our top line improved versus the first half, with organic net sales down 1.1%. Pricing turned from negative in the first half to positive in the quarter. This was driven by realization of the pricing actions we announced in the first part of the year in the United States and EMEA, as well as ongoing pricing to offset inflation in Latin America. Volume/mix was lower versus the prior year as we are lapping the strong gains in the prior year and continue to see unfavorable changes in retail inventory levels versus the prior year. In Q3, retail inventory change resulted in a negative 110 basis point impact to U.S. volume/mix. That translated into a roughly 80 basis point decline versus the prior year for total Kraft Heinz results. And for the fourth quarter, I will note here that we currently expect a roughly 50 basis point headwind from lower retail inventory levels for our U.S. business. With respect to profitability, EBITDA is beginning to stabilize. Constant currency adjusted EBITDA in Q3 was down 4.6% versus the prior year. And this includes a roughly 1.5 percentage point negative impact from divestitures. Excluding these factors, the reduction in EBITDA was driven by a mix of negatives and positives. On the positive side, we are getting supply chain costs under control in the U.S. EMEA returned to EBITDA growth on a constant currency basis. And we had favorable timing of marketing and selling expenses in the U.S. versus the prior year. At the same time, supply chain costs were still negative year-on-year on a global basis in Q3, driven by higher supply chain losses in the Rest of the World markets. A combination of lower pricing and higher input costs led to another weak performance versus the prior year in Canada, and both of these need to be fixed going forward. Finally, at adjusted EPS, Q3 results were better than we anticipated three months ago. This is mainly due to a combination of a better-than-expected outcome in other income and expenses due to favorable FX gains, favorable order income that we do not expect to repeat, lower-than-expected interest expense as a result of successful refinancing, as well as more favorable discrete items in the tax line. With respect to our effective tax rate, we are now expecting a rate in between 19% and 20% for the full year versus the 21% expected previously, which brings me to our financial outlook and near-term expectations. On a personal note, it was an honor when Miguel and the Board asked me to step back into the CFO role here at Kraft Heinz. Much has changed since I last held it. As Miguel has been saying, this period calls for new thinking and new ways of doing business. One area that I believe must be of greater focus is the company trajectory in gross profit. As mentioned, we are revisiting the efficiency in many areas of our supply chain, the effectiveness of our programming, our profitability at an SKU level, as well as product mix to create a better portfolio sales. In the process, the elimination of ink-to-volume made paper organic net sales in the near term. In addition, key commodity inflation and price volatility in both cheese and meats is likely to remain a challenge in both Q4 and into next year. While we are implementing pricing in both these areas, the reaction in the market remains unclear at this point. So as always, we will need to balance market share, distribution, and profitability. And finally, please note that the divestitures we closed earlier this year will and unfavorable currency may continue to temper our reported results in the near term. At EBITDA, we are focused on continuous improvement with the goal of stabilizing constant currency adjusted EBITDA, excluding divestitures on a year-on-year basis. As mentioned, our visibility on net inflation within our supply chain is improving. We also have significant scope to drive the business forward through greater investments in media that we are determined to make happen. So far, we have been encouraged by our ability to find and fund efficiencies to help offset inflation and to help fund those investments. That said, we are still defining our interest price strategy and finalizing our broader ambition to see if more will be needed. So far as guidance goes, we continue to think it would not be productive for the organization to provide specific point-estimate financial guidance. I will tell you, however, in recognizing that we are still at early stages, it would be prudent to expect year-on-year top and bottom line performance in Q4 to be generally similar to what we saw in Q3. And from an earnings per share perspective, while we have delivered better-than-expected income and expenses below adjusted EBITDA, we still expect these items to be unfavorable on a year-on-year basis in the fourth quarter. Collectively, we expect these below-the-line items to negatively impact EPS by up to $0.10 versus the prior year in Q4. Now before we move to Q&A, there is another area I think is important to address in terms of progress to date, where we currently stand and where we go from here, and that is our capital structure. Here, we have been making significant progress against our balance sheet priorities, and we believe they have strong credit momentum to build on. From the merger to the end of 2018, we diligently reduced gross debt by $2.4 billion. In Q3, we announced an additional $2.3 billion of cash-funded debt take-out that was enabled by a combination of divestiture proceeds and solid cash generation. And along the way, we have taken a number of actions to put our pension in an overfunded status and have prefunded most of our post-retirement benefit obligations. As a result, we have minimum future contribution requirements going forward. Also in Q3, we undertook a successful leverage near to $3 billion refinance that further strengthens our liquidity. We have a strong investor participation in our offering that we think reinforces investor confidence. And this refinance gives us significant flexibility through 2025, especially given the fact that we currently have no commercial paper outstanding and a $4 billion revolving credit facility that has never been drawn. Refinancing our debt as well as establishing our long-term strategy are critical steps to defining how we will continue to deleverage our company and maintain our investment-grade status. Now we would be happy to take your questions.

So obviously, this was a pretty encouraging quarter relative to the first half of the year. Investors that I speak to are very keen to know about what the path forward is to stabilization. We don't need to worry about 2020 at this point. But as you look out to the fourth quarter, I think Paulo alluded to this, are you expecting to see a similar pattern to what we saw this quarter in terms of broadly stable or maybe slightly down top line and something broadly in line with the fairly modest declines in EBITDA that you saw this time around?

Thank you for the question. This is Paulo. As we look at our Q4 results, we expect performance to be similar year-over-year compared to what we observed in Q3, both in sales and EBITDA. This is primarily influenced by divestitures, foreign exchange effects, and higher commodity costs anticipated in Q4, along with a strong volume and mix comparison, particularly in the U.S. On a positive note, we will benefit from the outcomes of our pricing strategies and have good visibility regarding costs and net inflation. Thus, we expect sales and EBITDA to show similar year-over-year performance as in Q3. However, we anticipate approximately a $0.10 headwind compared to the prior year. That summarizes our outlook for Q4 this year.

Fantastic. And given the comments on the uses of cash and the leverage and the investment-grade rating that you made at the end of the prepared remarks, should we assume that, at least for the time being, there are no plans to cut the dividend? Or is that something that we'll have to wait for the Investor Day early in 2020 to get confirmed?

So investment-grade status remains very important for us. We've recently declared the dividend, and we are in a strong position regarding liquidity following our recent refinancing and the cash flow generation that will enable us to reduce our leverage over time. We are now conducting a thorough strategic review of the business to understand the future performance of the company. Capital structure will be a key aspect of this analysis. We plan to return to the market at the beginning of next year with a complete view of the company's expected performance and strategy, including details on capital structure.

Miguel, you discussed a little bit about your desire or the plan to move the organization more in the direction of a continuous improvement, productivity sort of mindset from what I think you described as more integration-led cost-savings programs that we all kind of know prove less sustainable. I realize you're probably not in a position yet to fully size this sort of opportunity. But I guess, do you see any structural reason that would preclude KHC from driving similar levels of ongoing productivity as peers, let's say, as a percent of cost of goods? And the reason I ask is because I presume this is where it can be quite helpful in terms of funding the media spend investment that you mentioned today on the call, other things, inflation and such that come up all in the context of managing EBITDA to be more stable within the confines, I guess, of a constrained balance sheet. So perhaps, any color on that you can provide would be helpful.

Andrew, thank you very much for your question and I think we think alike. From day one, when I looked at the past and I saw that there was a pretty big deterioration of gross profit because of decrease of COGS, we defined supply as a big area for improvement for two reasons. First, because we had pretty big disruptions in the past with our customers because of low service levels. But second, because COGS has been increasing in our company. And I do not see a reason for that. I think that if we change the mentality of the company for a mentality of continuous improvement, if we invest in that, on people, in our factories, in our way of thinking on believing if we change the mentality from basically cost-cutting into continuous improvement, I think we can do it and we should do it. And as you said, I see it as a great source for investment in the business. I was very glad to see that in this quarter we could stabilize cost of goods sold. And this is big for us. We are all relieved with that. It's just the first step. Everything needs to be proved, but the first step was good and gives us a lot of faith, a lot of hope that we are in the right direction.

You mentioned capability gaps, which I found to be an interesting way to express that. Could you elaborate on the specific capabilities where you see funding needs? Are these different from the typical areas we consider, such as media spending or product quality, that provide immediate returns? Are there significant structural investments in generating insights that you believe require funding? If so, can you specify where those gaps lie? Additionally, regarding SKU reduction, are there new insights or capabilities that suggest it's the right time to reconsider SKUs in North America? It seems to me that Kraft Heinz has excelled at evaluating SKUs that are not effective and concentrating on the essentials. What insights informed that decision?

Thank you, Jonathan. Let me start by addressing the SKUs you mentioned, and then I'll share my overall perspective. The company has experienced a surge of innovation over the last few years, trying to offset the decline in net sales by launching new products. Unfortunately, we have not been successful in this endeavor. While we introduced a lot of complexity to the system, this innovation did not translate into increased sales. Instead, it resulted in cannibalization, leading to more complexity, supply chain losses, and lower margins. Much of this innovation was handled by third-party manufacturers. Upon my arrival, I began asking essential questions, one of which was to understand profitability and volume by SKU. There are numerous SKUs that have negative margins, are insignificant, or both, adding unnecessary complexity to our system. Therefore, we plan to reduce this complexity. We need to maintain the discipline to eliminate low-margin, negative-margin, or very low-volume SKUs while simultaneously innovating and launching new products. Innovation is critical, and while we need to improve in this area, it is essential that we focus on fewer, bolder, and more profitable innovations that can drive growth in the future, particularly in the food industry, rather than simply flooding the market with new products that do not enhance profitability.

A couple of questions. One is, Miguel, on the slides, you focused a lot on giving us a plan for 2020 but I kind of thought that investors were looking for like a 3-year plan or something of a longer-term nature. Are you going to give us kind of a ramp of what those next 3 years might look like when you give us the review? And then secondly, a more detailed question. In your conversations with customers, have you found that customers are giving you any kind of insight on their perception of Kraft versus your peers? My perception is that Kraft has had some pretty rigid structures in terms of pay-for-performance with customers, and maybe that led to some of the disputes that you've had in the past. Is there any insight you can give us in that regard?

Yes. There are two different questions here. Let me first address the first one, Robert. I am currently focused on delivering the results for 2019 while also building the budget for 2020 and looking towards the future. For 2020, my priority is to stabilize the business and lay the groundwork for growth in 2021. So, the answer is yes, the strategy we are developing will have a long-term perspective, and we will address our 3-year plan. Regarding customers, I have been engaging with them and gaining valuable insights. Their primary concern revolves around service levels and past disputes, which have impacted our relationship. Although we have made improvements this year, the effects of prior issues still linger. When they recall our previous service level challenges, it raises doubts about sustainability. Therefore, service level is their top priority. Additionally, they are concerned about our planning and strategy. We need to improve our planning process to align better with their cycles, as I see an opportunity there that we will pursue. Currently, due to discrepancies in our budget planning, there is a mutual feeling of being behind schedule. Another aspect they want us to focus on is communicating our strategy more effectively and providing long-term training. Lastly, execution in their stores can be improved. In summary, when I think about our customers, my focus is on service level, planning, strategy, and execution.

I'm following up on Andrew's question regarding supply chain opportunities and potential improvements within cost of goods sold. I'm looking for some insights on the EBITDA changes from fiscal '17 compared to the last 12 months, which show a decline of approximately $1.6 billion. Can you help clarify the factors that contributed to this shift? Specifically, I'm interested in understanding how much of this decline was due to issues beyond our control versus factors we can address internally.

Thank you for the question. If we look back at our peak margins in 2017, there are two main reasons for the decline we’ve seen over the last 12 months. About 60% of the decrease is attributed to gross margin, which can mainly be broken down into inflation in our supply chain that we didn’t adequately offset, investments in customer service levels, an unfavorable product mix from our business launch, and the slow adjustments to our pricing in response to inflation and insufficient efficiency initiatives. This accounts for roughly 60% of the gap. The remaining 30% of the gap comes from SG&A expenses, with about 70% of that related to the commercial investments we made. We implemented international go-to-market initiatives, developed new areas like digital, and made additional market investments. Unfortunately, due to a fragmented approach to innovation, some resources were allocated to non-essential efforts rather than supporting our innovation pipeline. Additionally, approximately 30% of that 25% SG&A decline is linked to bond accruals that were not present in 2017. Internally, we have been reflecting on our performance and its root causes, identifying key learnings that we plan to address, and implementing near-term projects to tackle these issues. Overall, we were not quick enough to transition from the initial integration phase to establish an organic growth plan for the company, especially during a time of significant industry transformation affecting both customers and retailers. Going forward, we are actively building workstreams to address these challenges. We have found numerous opportunities for investment, particularly in media and concentrated innovation support. We are assessing our costs to determine how we can reallocate resources to fund these investments, and we expect to uncover more areas for opportunity and savings as we continue refining our strategy.

Miguel, I'd like to come back to the innovation approach. Because when you speak to the fewer, bigger, better ideas, I'm curious as to how you think about the capabilities there. Because those are, as you say, bets which may or may not work out. So can you speak to where the company stands right now and its ability to identify the idea that could become successful, big bets, because the company has pursued this for the last couple of years of very limited success. And I guess my follow-up would be, what's changing or what still needs to change in terms of the capacity there?

That's a great question. I believe we need to make a fundamental shift in the company from a focus that has been more on immediate results and inorganic growth to one that emphasizes organic growth and a deeper understanding of the future. This is a significant change that requires a new mindset and a clear strategy regarding where we anticipate growth will occur. We need to evolve into a more consumer-driven company that looks ahead, rather than just focusing on the present. It's essential to pursue both paths simultaneously, and I believe we can and should accomplish this. Consequently, we must innovate beyond just plan extensions and focus on areas we identify as having growth potential. For instance, I previously mentioned Boca, which was the first company to introduce veggie burgers 15 years ago. However, due to a lack of vision for future trends, Boca has not been prioritized, and we failed to capitalize on market developments in that space. To move forward, we need to enhance our insights and creativity, and we are streamlining our R&D efforts by appointing a Head of R&D to unify the process. We've also appointed a Chief Growth Officer to drive our direction. I hope this answers your question, John, and I'm happy to discuss anything further related to this topic.

Miguel, I have a quick follow-up to Alexia's question, and I appreciate you haven't fully ironed out the Board plan at this point in time. But can you help investors at least think through the obvious and, more importantly, the less obvious implications of the dividend policy as you think forward? That would be helpful. And then I have a quick follow-up.

Can you help me giving you exactly what you have in mind, Steve? I want to address your question in the right way.

Sure. Yes. So when I have conversations with investors, we receive the puts and takes of whether the company has excess capital to really pay out at the levels that they do today. And how do you think about some of the considerations of, if you have fewer brands in the portfolio moving forward, or the priority is to paying down debt? So to sum up, the question would really be, what are the very obvious considerations of keeping it versus not keeping it? And then what would be some of the unintended consequences that maybe most investors might not see from our vantage point?

This is Paulo. Let me try to address how we're thinking about that. In our cash flow information, for example, in Q3, we generated a free cash flow to equity after capital expenditures of $860 million. This is sufficient to cover the dividend, which is roughly below $500 million. The key point is that we are discussing the company's future, the strategy moving forward, and where we plan to invest to grow the business over the next 3 to 5 years. As we develop this plan, it’s important to note that capital structure is a critical aspect. For us, maintaining our status as an investment-grade company is very important. Our timeline includes developing our strategic plan, setting future performance expectations, addressing our portfolio, categories, brands, and regions, along with our capital structure to support these initiatives, which we will share with the market early next year.

Steven, just repeating what Paulo said. I think that when we define our strategy, we'll define what are the areas that we think that we can have substantial growth. What are the areas that we don't think we can have substantial growth but can generate very good cash to support the growth? And what are the areas that our products or categories that actually could have a better fit with somebody else? And I think that with this in mind, we can identify categories that we can have divested in the future.

Yes. Thanks, Miguel, for sharing in details your progress. Very insightful, thank you. Actually, I do have two quick ones. I mean, first is other income. Could you please explain what is in the other income line this quarter? As you'd explained, about half of the beat in the quarter are about $0.08 in our math. And then more on the Plasmon business in Italy. Could you please explain why you changed your position in regards to the divestiture? And it will be interesting for us, I mean, in understanding the rationale here, I mean, as we further assess, I mean, other possible, I mean, the right opportunities for you?

Thank you for your question. This is Paulo. I'm not going to comment on the consensus expectations for other income, but our other income was quite similar to the levels we experienced last year. It was slightly better than our expectations, driven by three main factors: improved returns from our investments in the capital markets, gains from our hedging positions, and favorable foreign exchange impacts. This is how our other income performed against our internal expectations. For the fourth quarter, I want to provide some additional details; we anticipate a decline in other income of approximately $20 million, which represents a $10 million reduction compared to last year. This will contribute to the headwinds we mentioned below the EBITDA lines. Miguel, would you like to elaborate on the topic of divestitures?

Yes, sure. I wanted to discuss our baby food segment. While individually, the baby food business across countries like Russia, China, Australia, Italy, the U.K., New Zealand, Canada, Colombia, and Mexico is relatively small—Italy being the largest—it collectively amounts to a $0.5 billion business, which is significant. However, we are experiencing declines in most of these markets. I believe this is largely because baby food is not a key focus in these countries, and we lack substantial expertise in this area. Additionally, we do not have the necessary scale to develop that expertise in each country. With the recent structural changes and the appointment of Rafael as our Zone President International, overseeing Latin America, Asia Pacific, and Europe, we'll be able to consolidate these businesses into a more impactful portfolio. Rafael will assemble a team dedicated to understanding the baby food market, the trends, and the needs of mothers and infants, which we currently do not address effectively due to lack of scale. This is a prime example of how changing our structure can help us build the capabilities needed to enhance this business. That sums up my thoughts on baby food.

Well, thanks, everyone, for joining us this morning. For the analysts that have follow-up questions, both myself and Andy Larkin will be available. And for members of the media that have follow-up questions, Michael Mullen will be available to take your calls as well. Thanks very much, and have a great day.