To demonstrate the effectiveness of this technology, we have analyzed Kraft Heinz Company's earnings calls with QBA.
Kraft Heinz Company’s stock dropped 27% following its earnings release on Feb 21, 2019. QBA evaluated 5 consecutive quarters of KHC’s earnings call transcripts at each of the points in time (from Q4 2017 to Q4 2018). Using a standard technique commonly used by data science to evaluate the accuracy of assessment, we use the results from the last 3 quarters to verify if QBA made the right assessment on the first 2 quarters.
QBA time-series on complex events with entity-relationships from KHC’s past 5 quarters earnings explains what is going on, and the causations of the latest disappointment. QBA automatically discovers entity relationships and generates a heat map showing the progression of business focus from quarter to quarter. Highlights of the entity relationships in the heat map is shown below.
Q4 2017 (Feb 2018):
Management upbeated on growth, investments, and savings. QBA assessed these goals as “momentum”.
Q1 2018 (May 2018):
Management anticipated more benefits from investments. QBA assessed these scenarios as “work-in-progress”, a challenge to anticipated outcome.
Q2 2018 (August 2018):
Management looked into expanding brands into geographic whitespace, QBA assessed these scenarios as “work-in-progress”, a challenge with anticipated outcome.
Q3 2018 (November 2018):
Management believed execution was improving, pipeline getting stronger, but profitability being held back by several one-off factors. QBA assessed these scenarios as “challenge”.
Q4 2018 (February 2019):
Management faced challenges on several fronts, facing dilemma of maintaining or expanding margins but risk forfeiting commercial growth due to savings shortfall and high inflation. QBA assessed these scenarios as “challenge”.
Notice that “savings” was mentioned in Feb 2018 but not visible again until Feb 2019. Did the integration yield the anticipated savings? Did it generate growth as expected? Did the commercial investment pay off?
QBA time-series on complex events with entity-relationships from KHC’s past 5 quarters earnings explains what is going on, and the causations of the latest disappointment.
In KHC’s Q4 2017 Earnings Call, through KHC’s management statements, QBA detected momentum of execution:
“Again, …we closed the integration program and we’re really happy with the performance there, delivering just over $1.7 billion of net incremental savings to the business, … that’s net of $200 million of commercial investments behind it ...
What did QBA identified in the subsequent quarter that followed?
When management provided their report on performance in the subsequent quarter (Q1 2018), QBA identifies issues related to the implementation and labeled it as work-in-progress (WIP), cannot confirm the strategy is momentum.
When look further out beyond the second quarter, it confirms QBA’s finding. The subsequent 3 quarters of 2018 confirm that as management continues down the path, results deteriorates and arrives at the undesirable situation on its executive.
QBA evaluated 5 consecutive quarters of KHC’s earnings call transcripts at each of the points in time. Using a standard technique commonly used by data science to evaluate the accuracy of assessment, we use the results from the last 3 quarters to verify if QBA made the right assessment on the first 2 quarters.
Assuming the management team has the benefit of visibility provided by the report, in retrospect, it is obvious the business focus starting off as momentum has shifted to WIP for 3 quarters that follow and fallen into challenge.
What is even more compelling is that from the outset, in Q4 2017, with the identification of the momentum, QBA detected on subsequent quarters’, execution of momentum turn into some uncertainty and become work in progress. As much as management point of view still full of optimism, the underlined issues should not be overlooked.
“First, the transitory challenges in the U.S. during the first half should not just jade but are likely to turn into positive year-on-year contributors, given strong go-to-market plans for Planters nuts, Oscar Mayer cold cuts and our frozen business.
Second and also in the U.S., we expect to begin seeing more benefit from the investments in category management and go-to-market capabilities, benefiting both the strong innovation agenda we have planned as well as our in-store presence with key customers.”
Without the benefit of the report, management continues its execution down into several quarters with no improvement, and in Q4 2018, savings is not realized.
“Our industry has been and is likely to remain challenged on several front, continued fragmentation of consumer demand, a general lack of affordability to reinvest in brands, retail competition where assortment is likely to grow in importance and, finally, in the short term, ongoing cost inflation."
Giving our savings shortfall and the high inflation we’re seeing, we could focus on maintaining or expanding margins but risk-forfeiting commercial growth and market share”
The observation validates the correctness of the second quarter evaluation detected by QBA
While management is very positive about its strategy, CIF Analytics is flashing warning signals. Why would AI detect as WIP? Why challenges become positive when there is no deductive reasoning? That is the value of CIF symbolic AI.
Based on what’s happening, the QBA report provides management the visibility to pinpoint areas of cautions. In this case study, perhaps scaling back the footprint or ambitions; more focus on organic growth to preserve capital ...
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