Kraft Heinz Co.
’s finance chief is helping make permanent cuts at the food manufacturer as it looks to take out $2 billion in expenses.
The company, which makes Kraft macaroni and cheese and Oscar Mayer deli meat, on Tuesday announced next steps to reorganize its business, including plans to take out $1.2 billion in procurement costs, $800 million from its manufacturing and logistics businesses, and a sale of parts of its cheese business for $3.2 billion.
Over the next five years, Kraft Heinz intends to become more efficient, reduce waste and have its production lines run for longer hours, said Chief Financial Officer Paulo Basilio on Wednesday.
His role would be to allocate necessary resources and to ensure that the company’s initiatives are consistent with the overarching goal of finding savings that “last forever.” Mr. Basilio has been the company’s CFO since September 2019 following an earlier stint in the role.
Even though much of the cost-savings effort is led by the company’s supply-chain team, the finance organization plays an important role in structuring the process, Mr. Basilio said. “There are a lot of alternatives,” he said.
One issue for the food maker to figure out is the role of zero-based budgeting in its cost-cutting process.
Analysts have blamed Kraft Heinz’s wide ranging use of the budgeting tool that forces managers to start planning from scratch and question every expense for its previous slump.
Zero-based budgeting was applied on a broader scale following the 2015 merger of H.J. Heinz Co. and Kraft Foods Group Inc., said Christopher Growe, a managing director at investment bank
Stifel Financial Corp.
“They cut very deeply,” Mr. Growe said. Further, some of the costs that were taken out immediately after the combination of the two businesses were added back later, Mr. Growe said.
Kraft Heinz isn’t done with zero-based budgeting, Mr. Basilio said. “We believe it is important to keep doing it,” he said, adding that the tool helps bring down fixed costs, whereas the company is targeting variable costs now.
Other food companies, such as
Mondelez International Inc.,
Campbell Soup Co.
have moved away from zero-based budgeting, said Erin Lash, a director at Morningstar Research Services LLC, a research company. “Kraft Heinz is somewhat late to the game,” she said.
The food manufacturer plans to reinvest the majority of its savings through 2024 into the business, including a 30% increase in marketing spending, Mr. Basilio said. The company allocated about $1.1 billion to marketing in 2019.
Kraft Heinz reported net sales of $6.65 billion in the quarter ended June 27, up 3.8% from the same period last year. However, impairment charges of $2.9 billion—in part in relation to the company’s U.S. food services business—resulted in a loss of $1.65 billion.
Write to Nina Trentmann at [email protected]
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