Kraft Foods Group Earnings Call Nuggets: Trade Deload and Pension Accounting Changes
Andrew Lazar – Barclays Capital: Tony, you had mentioned that some of the reason for this greater than expected trade deload was in a key EDLP customer you didn’t have the right offerings. So, I’m trying to get a sense of exactly what that means because I’m not really understanding, I guess, what led to that exactly.
W. Anthony Vernon – CEO: You know what, the best thing I can do is contrast what happens when we hit the good better best playbook right and when we don’t. And I think that will give you an example of what happens in a key EDLP setting. To the positive, Mac & Cheese, was challenged this year with a formidable entry from a significant industry player, with a lower price on Kraft Macaroni & Cheese, our franchise billion-dollar business. What we did to respond was take the full scale of the playbook which includes Lean Six Sigma low-cost producer advantages, the great innovation we have on that line and put in place as a competitive defense against a big entry. What we saw is bonus packs, buy five get one free, a big increase in advertising, some great innovation. Mac & Cheese grows 11% in the year in the face of a major entry from a competitor. On the other hand, Oscar Mayer Cold Cuts, another billion-dollar business in a key franchise. We see a major 16 SKU entry from a major vertically integrated meat player. We elected not to respond. We’ve got a great cold cuts business that has been growing share and volume for three years. We looked – we stood path with what we had and we saw a major share loss in fourth quarter to this competitor. Those are the choices we make as we roll out this playbook. In hindsight, I regret not responding on cold cuts exactly the way we responded on Mac & Cheese, but that’s what happens in an EDLP setting if you don’t deliver on that first rung on the good, better, best ladder.
Andrew Lazar – Barclays Capital: Such a key tenant to this story and the way you’ve set up this structure going forward, has to do with at a minimum growing in line or better than your categories over time. You’ve talked a little bit about market share in the quarter, but I guess, overall it doesn’t necessarily seem like that happened in the fourth quarter. Maybe you can give us a sense of however metrics makes sense for you, whether it’s the percent of the portfolio that are holding or gaining share, sort of where you were in the fourth quarter. I guess more importantly, why that gets a lot better obviously in ’13 and have you started to see the year shape up that way through whatever middle of February?
W. Anthony Vernon – CEO: Yeah. So, as far as market share, I think we’re doing better, not where we should be overall with a lot more left to do; very pleased with the three outlet shares. That hit a record high and are growing in the majority of our categories, probably the best performance on market share in three outlet in almost a decade. When we deliver on good, better, best, when we get the price points right, when the innovation comes together, our market share and our volume grows, and that’s our obligation to our retailer. When we haven’t – and you could look historically bacon, block natural cheese, our value and share performance suffers. Private label and third tier brands are making some progress in categories in the industry and they’re filling the lowest rung in that good, better, best hierarchy. And they’re just plain offering in some cases consumer better value. We can with the Kraft portfolio and the breadth of the portfolio deliver against that competitive threat, and I gave you some examples. I will tell you, we put in place some market share modifier for the year to pay all of our marketing and sales teams, and frankly, focus the whole organization on growing our share in the majority of our categories. That’s our obligation to you as shareholders and to our customers to beat their comps as the largest grocery player in the industry.
Andrew Lazar – Barclays Capital: And very quick last thing from me, it doesn’t appear to me that any of the shortfall in organic sales in the quarter had anything to do with the shift to your in-store merchandising effort with Acosta and such, but I wanted to make sure that was in fact the case or that I’m seeing it the right way?
W. Anthony Vernon – CEO: Yeah, I think you are; very pleased with Acosta and the in-store execution remains strong. They’ve actually been in place since second quarter.
Andrew Lazar – Barclays Capital: Right, April or so, okay.
W. Anthony Vernon – CEO: It was the fact that our programming was significantly below last year owing to some of this trade policy that I talked about.
Pension Accounting Changes
Bryan Spillane – Bank of America Merrill Lynch: Just a question going back to, I think it’s Slide 11, Tim where you walked through the gains from operations in ’13 and I just want to make sure I am understanding, looking at the Slide, it looks like a lot of the gains from operations or most of them are coming from the changes in pension accounting. Is that the right way to look at that or am I just missing something as I look at this slide?
Tim McLevish – EVP and CFO: Actually Bryan, quite to the contrary. I will say more than all of what you see as operations gains comes from real operational improvement. We have a number of offsets embedded within the $0.21 gain. The pension piece of it, the majority of the change in pension accounting took place in 2012. There is some incremental benefit from it. I would say somewhere in the $0.07 of that, but I will remind you that the full year of factors there’s about $0.10 headwind from dis-synergy. We picked up about a nickel’s worth of additional costs associated with transferring over the liabilities of the Mondelez retirees. So really you will be looking at a number significantly higher if you looked at true effect from the benefit of our top line improvements, the productivity initiatives, the carry-through of benefits from restructuring including the overhead savings initiatives that we’ve deployed.
Bryan Spillane – Bank of America Merrill Lynch: Then just in terms of the shifting in restructuring, some of the program moving from ’12 to ’13, does that affect at all the flow of savings flowing through for ’13. So I guess in terms of sort of what you were expecting previously to kind of drop through in ’13, is there any change in timing in that regard?
Tim McLevish – EVP and CFO: Not materially, Brian. It may be a tiny bit, but let me give you an example of one of the things that shifted. We sold our headquarters location and leased it back and the sale transaction was scheduled in late December and we completed in early January, so that one in and of itself would have no impact, but it’s things like that, so there is very modest if any delay in timing of the benefits.
A Closer Look:Kraft Foods Earnings Cheat Sheet>>