Kraft Heinz Company (KHC) — Q3 2020 Earnings Call Transcript

Hello, everyone, and thank you for joining our earnings call. 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 during the call today. These non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results. You can find the GAAP to non-GAAP reconciliations within our earnings release. We will begin today's call with Miguel Patricio, our CEO, providing a brief business update. Carlos Abrams-Rivera will then review performance in our U.S. business. Paulo Basilio, our CFO, will discuss our financial performance and near-term outlook, and then we will all be available to take your questions. With that, I'll hand it to Miguel.

Well, thank you Chris. And good morning, everyone. I would like to start our business update by sharing the sentiment I provided earlier today in our earnings release. You have heard me say frequently that we were cautiously optimistic about the path forward. But our momentum has been building, causing us to turn more confidently optimistic. This is based on three facts. First, in the previous two quarters, our results benefited from the scale that Kraft Heinz could bring in response to the pandemic. Our exceptionally strong third quarter performance reflects the agility of our organization and our ability to sustain momentum. Second, the changes in consumer priorities continue to support greater at-home consumption and increased demand for our brands. And third, our strategic work is moving from planning and organizing into action. Based on these three factors, we are raising our 2020 outlook and continue to expect 2021 results to be ahead of the strategic plan we finalized earlier this year. To better make these points, let me share a few relevant charts. Slide 6 presents an updated view of our at-home or retail versus away-from-home or food service sales performance. The charts show Kraft Heinz's year-on-year sales growth by geography from Q1 through Q3. The abrupt and unprecedented shift between at-home and away-from-home consumption that we saw in the first half of the year continued through the third quarter. At our Investor Day, we spoke at length about the many things we have been doing to become more creative, more agile, and more efficient. And despite both volatile demands and in some areas constrained capacity, our teams around the world are demonstrating their ability to adapt to demand through a mindset of growth. Our agility led to a very strong second half of September, as retail demand accelerated yet again, and we responded effectively and efficiently. As a result, our Q3 top and bottom line performance was stronger than what we projected at our Investor Day on September 15. We have talked about 2020 being the first year of a turnaround. We said it would be a year in which we laid the foundation for future growth, stabilized our underlying profitability, and maintained our industry-leading margins, all while we rebuilt our business momentum. It is clear that this is happening, as you can see on slide seven. From the first half through the third quarter, we have sustained underlying top and bottom line momentum. Even as we take on additional COVID-related costs and supply constraints, we have been keeping our cost of goods under control. Also, as we outlined in February, we are resetting our base through divestiture, business exit, and the normalization of incentive compensation. Our underlying growth is tracking with our strategy. Platform growth is consistent with the portfolio roles we have defined, with grow platforms up 7% year-to-date and energize platforms up 8%. What we find very encouraging is that while taste elevation is growing in the middle single-digits, excluding food service, taste elevation is growing roughly 20%. Emerging markets growth is accelerating, up 9% in Q3 versus 7% year-to-date. The simplification that our platform approach and portfolio roles bring is a key enabler in guiding us and measuring our success as we move through our offense. This visibility is critical as consumer preferences evolve and we need to adapt to serve different needs. Which brings me to another reason for our confidence in our path going forward. We are seeing consumer preferences evolve in ways that indicate that elevated demand for both at-home consumption and big trusted brands will remain strong. We are seeing stickiness in at-home consumption, as consumers discover or rediscover cooking at home and the at-home meal experience. We see them reassessing the shopping trip with bigger baskets and greater bundling. Affordability is the rising concern, which should benefit those companies that are fast to adapt and have a strong presence up and down the price-value ladder. Consumers are gravitating towards big brands, and our retail partners are reassessing assortment with availability and velocity being key determinants. Consumers are increasingly choosing brands that can better align with their values. These consumer trends are tailwinds, causing us to turn more confidently optimistic in the near term. The actions we have already taken to put our operating model in motion and the things that we needed to fix the most heading to our turnaround are many of the same things needed to adapt to an unpredictable environment with faster, greater changes in consumer demand. For instance, since late last year, we focused on improving our people efforts by revamping and deploying new training and development programs. In many ways, we were also ahead of the game in our efforts to reduce stress and burnout and boost morale. Just last week, Kraft Heinz was named to the top quartile of Forbes Magazine's list of World's Best Employers, after not even making the list of 750 companies last year. This is very positive reinforcement for all our efforts. We have talked about our plans regarding many initiatives as a way to transform our company, from adapting our innovation pipeline to eliminating waste, driving productivity, better planning with our partners, and ramping up investments in our brands and our capacity, as well as our reach in e-commerce and emerging markets. The point is that we now have the framework and visibility to allocate resources and reverse savings where we have the most advantage and the greatest opportunities to grow. Most importantly, we are moving from planning and organizing to action. I will close my opening comments by summarizing a few points. We had stronger than expected Q3 results due to the greater agility we are creating. The consumer trends we are seeing and the actions underway give us more confidence that our momentum will remain strong in the near-term. We expect to continue exceeding our regional strategic plan into 2021. I will pass it on to Carlos now to provide more color on how we are seeing this taking shape in our biggest business.

Thank you, Miguel, and good morning everyone. I think that analogy I will use to describe this past quarter is that we successfully have been driving down the road at 90 miles per hour to keep up with all the demand while we are changing the tires. Now that takes ownership and agility, and our teams are showing it in speed. As Miguel mentioned, our third quarter results demonstrate our new organization quickly adapt to opportunities, and it was evident across our U.S. business as we finish out the quarter. As you can see on Slide 12, we maintain strong momentum in both the top and bottom line. Organic net sales growth reflected higher household penetration and repeat rates and revenue management discipline. Outstanding execution and efficiency in operations and procurement resulted in strong adjusted EBITDA gains, even as a number of headwinds began to have a greater impact in Q3. With this, while demand shifted between channels on a week-to-week basis, the organization advanced the divestiture of our natural cheese business. Although we can’t predict the future, three things give us further cause for concern. As Miguel mentioned, we are encouraged by the continuing trend towards greater at-home consumption. Secondly, we are seeing more consumers coming back to our brands. And third, we are now better positioned to retain and grow both new and loyal consumers, respond to rapidly changing demand, and further capitalize on the gains we have made in the last nine months. Keeping with the driving analogy, operationally, we have turned a corner. I am pleased to share that we have rapidly moved from reorganizing to execution. We are now in a position to properly deploy resources and execute in a way that continues to build on the positive consumption trends we're experiencing. To give you a better idea of what this means, in people, our new business unit structure is now fully operational and fully staffed. We have made recent external leadership additions in consumer insights and sales leads with major customers. These additions complement several internal placements in new or evolved critical roles, all helping to carry out a new foundation of processes with a growth mindset. The work we have done to put people first is paying off. We have seen higher engagement among our current employees, and we are continuing to attract top-tier talent into the organization more rapidly than ever before. We're building and strengthening both organizational and individual capabilities. This includes leveraging digital as an enabler, which will allow us to accelerate our growth and raise the bar on what it means to be better. Turning to our platforms, significant work on all six platforms is underway in the U.S. zone, and results will be more evident in 2021. I'll show in a moment that we have already stored resources and investment to fuel our grow and energize platforms. In our ops centers, collaboration across our entire supply chain contributed a significant amount to our success this quarter, including holding cost of goods under control, despite incremental COVID-driven costs, demand volatility, and supply constraints. Our focus on operational excellence in manufacturing has enabled us to increase year-over-year production in the low single-digit range overall, and by roughly 20% on lines where we have constrained supply relative to strong demand. In Q3, this included relieving constraints in high-demand categories like Ketchup, cream cheese, mac and cheese, and stuffing, helping us to sustain already strong household penetration and share trends, which I'll talk about shortly. Anticipating continued demand, we expect to go from double to triple-digit investment dollars to improve capacity in 2021. We've also made significant progress in our partner program, with customers citing much earlier and deeper planning than in the past. To date, we have conducted more than 40 top-to-top meetings with key retailers, with another 40 planned in the coming weeks. In each meeting, we are sharing our transformational plans as well as joint business plans for the coming year. It's allowing us to be more strategic in category development and value creation. While we're doing a lot to maintain retail momentum, we're also finding opportunities to better support our foodservice partners. From piloting new innovations like steel-touch dispensers to helping create unique menu items to drive traffic and sales for our partners. We have quickly adapted to market needs. All of this is beginning to result in consumers voting more often for us. As you can see on Slide 14, our retail market share has been continuously improving over the past year, running up to the end of September. This has been driven by an improvement in the overall health of the portfolio, as we have increased capacity, invested in marketing, adapted our communication, and built stronger collaborations with our customers. The percentage of our retail sales where we grew market share has gone from only 20% in the first half to 41% in Q3 and up to 58% in September. We're also improving in our biggest categories. The percentage of our categories where we are gaining market share has gone from 36% to 49% over the same period. Some of this is due to resolving supply constraints in key categories. For instance, Oscar Mayer Ketchup, part of our fast fresh meals platform and an area we are energizing saw share growth this quarter for the first time in 18 months. This was the result of quickly adapting our product mix to raw materials availability and capacity constraints, as well as the agility to activate and execute differently with customers. Our greater focus and prioritization that our platform approach is bringing is also notable. For instance, in our taste elevation platform, we grew market share during Q3 in over 70% of the categories we compete in. More importantly, we are well-positioned and have the right plans in place to build upon these gains. I have shown previously that our household penetration is one of the inherited strengths of our portfolio relative to the industry, and how this has strengthened further since the onset of COVID-19. We continue to see increased household penetration and repeat rates across a sizable portion of our portfolio, including core brands like Kraft Mac and Cheese, Philadelphia, and Planters. What is most encouraging is the rate of new buyer repurchasing our products two or more times; we've now doubled the rate versus what we’ve seen last year. To build our base of loyal consumers and keep this momentum going, we are stepping up our marketing investment by 40% in the second half of this year, compared with the second half of last year, and 70% compared with the first half of this year. We will have more work in dollars as a percent of our spend as well. To close here, our third quarter was very encouraging, as we began to see ourselves bringing agility to our scale. With our organization prioritization and 2021 plans in place, we are well-positioned to sustain the momentum we have benefited from so far in 2020. With that, I'll turn it over to Paulo to talk through our financial results and outlook.

Thank you, Carlos. And good morning everyone. I will quickly walk through some key highlights of our results and then provide our expectations for the plans forward. I will begin where Carlos left off, with the U.S. business. Organic net sales in the U.S. increased 7.4% despite a roughly 1-point drag from the Mac FX impact that began on July 1. Volume mix growth across retail, e-commerce, and club channels was strong and more than offset lower food service sales. Pricing was up 4% from a combination of lower promotional activity in certain categories to protect customer service, selective price actions, and commodity-driven pricing primarily in cheese. These effects are expected to fade in Q4 as we begin to wrap prior year pricing actions, and we expect to return to more normal levels of promotional activity. At adjusted EBITDA, even though we saw the key headwinds mentioned on our last earnings call, better retail performance, positive pricing, favorable mix, and strong procurement efficiencies more than offset those impacts. In our international segment, Q3 top-line performance checked three of the boxes of the strategy we outlined at Investor Day. First, we delivered mid-single-digit growth with a relatively balanced contribution from volume and price. Second, growth was led by emerging markets with positive gains in priority markets, including Russia, Brazil, and in taste elevation in China. Finally, we advanced our aspiration of global leadership in taste elevation with over 1% share growth in that segment. Taken together, this top-line growth fueled 6.8% constant currency adjusted EBITDA growth and more than offset higher supply chain costs, including incremental COVID-related expenses and normalized incentive compensation. Looking forward, our outlook for the International segment is largely consistent with what we expressed in July. We anticipate results specifically on the top line to soften in the remainder of the year compared to the year-to-date trend. Finally, in Canada, Q3 organic net sales growth decelerated relative to the first half. Here, lower coffee and food sub-shipments more than offset pricing gains and strong platform growth. In fact, Q3 retail consumption for easy meals made better in taste elevation, our two priority consumer platforms in Canada, grew at a double-digit rate and we increased share in 70% of all categories. Constant currency adjusted EBITDA improved sequentially, as we fully lapsed the divestiture of the Canadian business built in Q3. That said, we still saw declines versus the prior year due to the Mac FX. Excluding the Mac FX impact, constant currency adjusted EBITDA would have been virtually flat with the prior year as consumption growth offsets supply chain cost inflation, mainly logistics, as well as high incentive compensation. For Q4, we expect a combination of softer food service sales this year and seasonally strong Mac FX sales in the prior year to weigh on organic sales. These effects are likely to mask strong, although moderating retail consumption growth and carry-forward price initiatives. EBITDA is likely to be more resilient and remain near run-rate margin levels with positive pricing and favorable mix more or less offsetting higher operational costs. Looking at the total company results, there are two things I'd like to highlight before going to our outlook. One is the low EBITDA items and the other is free cash flow. In July, we reiterated our prior forecast for $0.38 below the line headwinds due to a combination of higher tax, lower other income, and higher equity compensation. Those three factors played out mostly as expected in Q3 with $0.12 negative impacts to adjusted EPS. That brought the year-to-date impact to $0.31 and remains in line with an approximate impact of $0.38 for the full year. Also, keep in mind that this impact is primarily non-cash in nature. In terms of free cash flow, year-to-date 2020 free cash flow has more than doubled compared with the first nine months of 2019. Much of the increase has been driven by year-to-date sales and adjusted EBITDA growth, but some of it is also due to favorable approval timing and lower CapEx spending, which we expect to reverse in Q4. Furthermore, working capital as a source of cash should be comparatively less than it was in Q4 last year as we aim to reduce inventory levels. That said, we are confident that free cash flow will be significantly better than 2019 levels, and we would expect free cash flow conversion to be roughly in line with our long-term target of 100% for the full year in 2020. Given where we are in the year and based on what you have seen to date, we are raising our outlook for Q4 and for the full year. We now expect organic net sales to grow mid-single digits in Q4, which would result in mid-single-digit growth for the full year. For adjusted EBITDA, we see high single-digit constant currency growth in the fourth quarter. For the full year, we are now expecting high single-digit constant currency adjusted EBITDA growth. In terms of cash flow and leverage, we expect the strong performance to date to result in 100% free cash flow conversion for the year and net leverage to be approximately four times by the end of the year. Looking into 2021, we now have things in place to accelerate our investment with strong visibility on returns built on the momentum we established this year. It is difficult to predict consumer behavior and the balance between at-home versus away-from-home consumption going forward, so we will focus on what we do control. Our objectives are clear: from an organic sales perspective, our focus will be to retain and develop the market household gains we made in 2020 and improve our growth trajectory through agile portfolio management. For EBITDA, we will accelerate growth investments, especially towards emerging markets, and deliver adjusted EBITDA above our strategic plan. We continue to be committed to a strong return of cash to shareholders, and we will continue to reduce gross debt outstanding, accelerated by the proceeds of the pending cheese transaction. With that, let me turn it back to Miguel to close.

Thank you Paulo. To quickly summarize what we have seen and what we see going forward, our momentum remains strong as we rebuild our company through a mindset of growth. We are now moving to offense, able to reinvest savings and realize near-term upside in a purposeful prioritized way. We expect to continue performing ahead of our strategic plan. Now, we would be happy to take your questions.

Hey, good morning. You mentioned affordability as an increasing concern for consumers but, at the same time, that’s happening we're seeing private label across almost all categories do quite poorly in terms of share. I'm just curious, you have some exposure to store brands in your categories; what is your research recently telling you about maybe why private label isn’t doing a little bit better in this environment?

Well, let me start that and then I'll hand it over to Carlos. We haven’t really felt the effect of the crisis that we have. So that is, ex-GDP. We continue to see pretty significant acceleration in consumption. Of course, part of that is due to how consumption has grown because of the pandemic. But secondly, consumers are returning to trusted brands. At this moment, there's a significant need for brands that people trust, which is a trend compared to the past when there was a need for experimentation. What we see presently related to affordability is a change as we are selling more branded products than we were before. So there is a mix impact. Carlos, do you want to complement if you have?

Yes, Miguel. So, let me just go back to something that I said during Investor Day, which is not about competing with private label but rather co-existing with them. I think at this time, what consumers are looking for from us is to ensure we continue to emphasize the value that we can bring, and we certainly do that with our brands. If you consider all the recessions, big brands tend to win as well as some private labels, but smaller brands typically do not perform as well. I think that's playing out in this situation. So, if you look at our Q3 results, our shares have actually improved throughout the quarter. As we head into Q4, we can continue to invest behind our marketing. We've seen that trend continue in the next quarter as well.

Thanks. Can I have just a quick follow-up to Paulo, just a clarification? You said you expect to reduce gross debt next year. Is there anything we should read into that, that you said gross and not net debt? Do you also expect, I guess, to have your net debt lower at the end of '21 than it is at the end of 2020?

Yes, I made that clear. We are generating cash. As we said, we will have very strong cash generation this year. We have already paid down more than $1 billion in debt. Just to reiterate, we intend to continue paying down debt next year with the cash flow that this company generates. The mention of gross debt was primarily to point out that we will be focusing on gross debt reduction every year, and of course, as you generate cash, our net debt will also go down.

Great. Thank you.

Good morning, everybody. Carlos, we've noticed you've obviously brought on quite a bit of new talent at high levels in a number of areas, but perhaps most visibly in sales, having recently hired a new Head of U.S. Sales and National Accounts. Maybe you can talk a little bit in terms of what skill sets you were looking for when you brought some of these folks on. And some of the other efforts you've been making, specifically on the sales side. And maybe what you're seeing as far as results, especially with key retail partners, which I know has certainly been an area of focus for the company?

Thank you, Andrew, and we appreciate you recognizing the changes we're making. Let me provide a bit of context around how we are rethinking our sales organization. For us, it was about how do we build agility into the organization across three different pieces: how do we reorganize our structure, upgrade our processes, and really install discipline in how we spend? I think you're referring to the reorganization we've made. We've brought in new talent, and what I'm most proud of is the significant experience and diversity of thinking we're also bringing into Kraft Heinz. We're also changing our account structure so that we can focus on our critical partners. Internally, we have centralized our customer development and revenue management teams to better leverage our scale. Some key hires account for over 50% of our overall sales in the U.S., which is a significant leap in leadership we have placed in critical roles. As we engage with our customers, I've observed that we have also upgraded our processes. We are accelerating our planning cycle to better align with their timelines, which is something we have not done in the past. We are building clear planning timelines we commit to and deliver on, while driving accountability and speed internally. If you take a step back, the improved execution is reflected in our growth, as well as the sequential improvement in our market share. I am very pleased with the talent we've brought into the organization, with its discipline, experience, and diversity of thinking that I believe will continue to strengthen us going forward. Thank you.

Thanks for that. Just a quick follow-up: You've talked a lot about adding capacity, particularly in some categories where you’ve been most constrained. Is there any way to dimension, maybe what percentage of that capacity is third-party manufacturers versus putting more of your own capital in the ground? And the reason I ask that is to understand your expectations around how much of this incremental demand could really be sticky by putting more of your own capital in versus flexibility with a co-packer. Thanks so much.

No, thank you, Andrew, and thanks for the question. To think about capacity, there are indeed pockets of capacity constraints, but nothing significant that will hold us back. We have made substantial strides in improving our capacity in those constrained lines. Notably, in these constrained lines, we've achieved 20% production increases. We are reacting to these constraints and also remain agile in allocating existing capacity where needed, collaborating with our customers. For example, when we focus on Mac & Cheese, we encountered constraints primarily with the Mac & Cheese cups. Therefore, we worked collaboratively with our retail partners to adjust marketing and promotions to emphasize our box Mac & Cheese, allowing us to utilize our available capacity in the most effective manner. This meticulous segmentation and collaboration with customers has proven effective, which is reflected in our share performance.

Thank you.

Hi, thanks. A couple of questions. The first is on the market share improvements; they look impressive. Can you give a little more color on which categories are improving the most and explain what has been done to ensure that these shares are sticky? Was it product, pricing, or something else? Secondly, regarding inventory and supply chain, I'm glad to see you're accelerating everything. Are retailers asking for more inventory than normal? Given your expectation of a return to normal in the fourth quarter, can you provide a bit more context on what that environment may look like, especially as infection rates are rising? Do you actually need to expand capacity beyond your normal situation to satisfy what retailers want?

If I can take that one for the U.S., then Miguel, if you have anything to add about performance on share. I will say that with respect to how we're thinking about business, we’re looking to transition from 55 categories to six platforms that we identified during Investor Day. The good news is we are seeing strong performance across all six growth platforms, particularly in the two designated growth platforms, which are taste elevation and easy meals made better. These platforms are showing very strong penetration rates. It's not just about driving improved share; we are also significantly increasing penetration in targeted areas. For example, in taste elevation, we see Heinz benefiting as we focus on specific consumer occasions like burgers and fries and nuggets, all of which are seeing increasing demand. Regarding easy meals made better, we've seen continued strength in products like mac and cheese, as consumers have come to appreciate the quality of our products. The combination of improved consumer focus with concentrated marketing efforts has yielded strong results. As for inventory levels, we observed in Q3 some rebuilding of retail inventories compared to prior years due to downtimes experienced in Q1. This status varies by customer, and we are not clear yet how inventory levels will stabilize moving forward. What we do know is we are collaboratively preparing for the holiday season, which we believe may look unprecedented. In places where we have seen a recovery, particularly in our mid-business, we've observed improved performance as we head into the holidays.

Great, thank you.

Hey, good morning, everybody. I wanted to follow up a little on Andrew Lazar’s question about capacity additions regarding the implications for the stickiness of elevated demand. My impression from the investor day was that the baseline expectation you were setting was that you weren't expecting much of the extra demand we picked up in 2020. Now, my question is this: Are you expecting more of that demand to stick? If so, what has changed regarding your outlook on that? What are you doing to monitor this and maintain the stickiness? Is it increased advertising, new products, or something else to ensure that demand remains intact?

We've touched on this previously, but let me provide a bit more context. We see significant consumer return to our brands, as reflected in Q3 with consumers coming back much stronger than before. Specifically, the rate of new buyers repurchasing our products two or more times has doubled compared to last year. We also observe this with key brands like Philadelphia, where repeat purchases are up 23% as consumers explore new usage occasions beyond traditional applications. For Oscar Mayer, we see increased at-home lunch preparations involving our products. So when you add all these elements together, it illustrates positive trends for sustained demand and improved share performance. Regarding our capacity, there are pockets of constraints, but we’re actively managing those without significant bottlenecks. We have implemented strategies that enable us to flexibly meet capacity needs and to establish good collaborative relationships with our customers, which enables us to meet demand effectively. Overall, I feel positive about the momentum and collaborative work we've achieved as we aim to maintain strong performance moving into Q4.

Morning, everyone. Can you hear me okay?

Yes.

Yes.

Right. So, can I ask about the pricing dynamics? You talked about strength in pricing this quarter, particularly in the U.S. But do you expect that to change going forward as promotional activity starts to ramp up again? I'm curious about the conversations you're having with retailers in that regard. Are they looking for more promotional activity? And in a capacity-constrained environment, how are those conversations progressing?

I can take this one, Alexia. To begin, we will experience some pricing dynamics transitioning as we move into Q4 and start to lap some of the pricing increases that occurred last year. As indicated, we're also preparing to return to a more normalized level of promotional activity. I will ask Carlos to elaborate further on the U.S. situation.

Thank you, Paulo. In the U.S., we are indeed beginning to return to more normal levels of promotional activity. For example, we saw some of this happening during the Labor Day time period, and if we assess back-to-school performance, it was similar to last year's. That performance suggests we are returning to a landscape where our customers want to ensure they have the right pricing in place as we approach the rest of the year. Our ability to maintain retail momentum while balancing this with supply capacity aligns well with our existing strategies and investments.

Great. Just a follow-up on the emerging markets. They’re obviously strong right now. But should we be concerned about macroeconomic slowdowns in those regions, and how that may impact demand for branded products?

We are not seeing any signs of that; our momentum in emerging markets is quite robust. I see no immediate reasons for concern about changes in this momentum. In fact, certain markets are performing exceptionally well, like Brazil, which is experiencing solid upward trends.

Great, thank you very much. I'll pass it on.

Thank you.

Good morning, thanks very much. Just one question. A lot of retailers have talked about SKU reductions and a more efficient supply chain as a reaction to the challenges brought on by COVID. I'm curious about how you think this will play out over the next 12 months. Do you anticipate more SKUs and items returning, or do you believe we will end up with a more streamlined business model? How will this impact margins or your retailer relationships in a comprehensive sense?

I can address that. Carlos, feel free to chime in if you'd like. I think the initial response to maximize capacity during market strain was to significantly reduce the number of SKUs to boost short-term productivity. Some of these SKUs, however, have been valuable and will return. So while we will not revert to the previous SKU levels, this refinement is favorable for us as it allows for better analysis of profitability and efficiency, while streamlining unnecessary SKUs.

To add on, it’s challenging to predict how customers will adjust their inventory and SKU levels. Internally we're implementing strategies to maintain an agile supply chain, including reducing our SKU count by about 20% as we look towards 2021. This reduction ensures that we can provide better service to our core SKUs while still focusing on innovation. We've reduced the number of innovations by half in 2020 compared to 2019 and we're aiming for a further third reduction in 2021. However, this targeted innovation approach will yield a greater impact on overall sales as we move forward.

That’s great, thank you.

Okay, well, thank you very much for your presence here with us. I just want to emphasize some points made during this call. We had stronger than expected Q3 results, reflecting the agility we are creating in our performance. We are effectively managing the shift in consumption towards at-home versus away-from-home, at an impressive speed. We are retaining new households and consumers at a higher rate than anticipated, and our market share has shown significant improvements. Our strategy has transitioned from planning to execution, and we are investing in our business. We have a much improved team and performance across all fronts, positioning Kraft Heinz to sustain its gains. As previously mentioned, we remain confidently optimistic about near-term performance. This is why we have raised our 2020 outlook, and we are well poised for 2021, with financials exceeding what is forecasted as we grow our strategic plan. Thank you once again, and have a great day.