Good day. My name is Chelsea, and I will be your operator today. At this time, I would like to welcome everyone to The Kraft Heinz Company's Fourth Quarter 2018 Earnings Conference Call. I will now turn the call over to Chris Jakubik, Head of Global Investor Relations. Mr. Jakubik, you may begin..

Hello, everyone, and thanks for joining our business update. We'll start today's call with an overview of our fourth quarter and full year results as well as our view on the path forward from Bernardo Hees, our CEO; and David Knopf, our CFO. After that, Paulo Basilio, President of our U.S. zone, will join us for the Q&A session.

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 materially 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 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 and at the end of the slide presentation available on our website.

Lastly, as you may have seen in today's press release, we conducted an internal investigation into our procurement area with the assistance of external legal and accounting advisers and found we should have recorded $25 million in prior periods, which we booked in Q4 2018.

To be clear, we do not expect this to be material to our current period or any prior period financial statements. Now let's turn to Slide 2 and I will hand it over to Bernardo..

one, we are successfully driving sustainable consumption growth; two, we have the ability to deliver top-tier organic growth at industry-leading margins; and three, we need to better plan and execute our operational net savings initiatives. Before we outline the 2019 plans, David will provide more details on our 2018 financials..

Thank you, Bernardo, and hello, everyone. As we show on Slide 3, while our overall performance fell short of our expectations, the year-on-year drivers are straightforward. Consumption-driven growth, negatively impacted by cost inflation, net of savings in the U.S., with tax savings offsetting lower EBITDA, higher depreciation and interest expense.

From a trend perspective, there are a few important details to highlight. On the top line, consumption-driven growth momentum continued to build through Q4.

For total Kraft Heinz, Q4 volume/mix growth was 4%, with growth in every reporting segment, driven by innovation, marketing, white space and go-to-market investments and led by improved consumption in a vast majority of U.S. categories.

Total company Q4 pricing was down 160 basis points, including 80 basis points from key commodity pass-through in the U.S. Also note that the sequential decline in pricing versus Q3 was accentuated by a deceleration in contribution from price in our Rest of World segment. And regarding U.S.

pricing trends, as Bernardo mentioned, we were happy with the returns and results on this front. To provide more context and adjust for program timing, it's useful to understand the key drivers of U.S. pricing from a second half perspective. U.S.

pricing in the second half of 2018 was down 2.4 percentage points, with 1 point from passing through lower key commodity costs. So U.S. pricing, net of key commodity impacts, was down 1.4% in the second half.

Out of this, 40 basis points of the decline was primarily related to defending our natural cheese business by closing price gaps to private label. The remaining 1 point was a combination of opportunistic price investments and support of our innovation pipeline to stimulate incremental consumption with good lift and solid returns.

Looking forward and excluding the impact of key commodity pass-through, we do not expect pricing to be down in 2019, either in the U.S. or globally. Moving to EBITDA. We said on our last call that we expected our EBITDA growth rate to improve beginning in Q4.

While this turned out directionally accurate, Q4 constant currency adjusted EBITDA was significantly below the expectations we previously outlined. As Bernardo mentioned, this was driven by shortfalls in the United States.

To be more specific, while the one-off factors we outlined in Q3, by and large, fell away as expected, anticipated savings did not materialize, particularly in our procurement area and, to a lesser extent, we had higher-than-anticipated costs in both manufacturing and logistics.

Taken together, top line trends and bottom line results lead us to the key factors we considered over the past few months in finalizing our 2019 plans outlined on Slide 4, and I'll hand it back to Bernardo to start it off..

first, leverage our industry-leading margins to sustain our commercial momentum; second, more actively manage our portfolio; and third, strengthen our balance sheet as we continue to position Kraft Heinz for industry consolidation.

I will cover our commercial growth initiatives, and David will outline our portfolio, capital restructure and financial expectations. By far, the biggest and the best thing you can do to build the long-term value of our portfolio is to capture sustainable commercial growth by building on the sales momentum from 2018.

And we have the stronger global pipeline we ever had to go after incremental consumer demand. In the United States, we'll be launching a record level of innovation, improving base consumption, velocities and leveraging brands and go-to-market investments.

In Canada, the priority is reignite consumption in peanut butter as well as sauces and condiments. In Europe and Rest of the World markets, whitespace initiatives will focus on driving incremental sauces consumption and opening new geographies. And in Foodservice, all regions have significant opportunities to gain distribution and whitespace.

We will support these initiatives with fully funded brand programs, taking advantage of our superior media efficiency or cost per impression, and increasing our media effectiveness, our sales lift per impression by deploying new creative tools in digital marketing.

In a nutshell, we plan to go to market in 2019 with a stronger innovation pipeline than we ever had, backed by more marketing dollars while leveraging advantaged, category managed and go-to-market initiatives to win assortment and improve distribution across all channels, including e-commerce.

And we plan to do this while we maintain industry-leading margins. Now let me turn back to David as the remaining objectives are a big part of his 2019 goals..

first, we intend to dedicate the divestiture proceeds from the sale of our India beverage and Canada Natural Cheese businesses to debt reduction. We also intend to do the same with proceeds from additional divestitures we are currently considering.

Second, today, we're announcing a reduction in our quarterly dividend to $0.40 per share or $1.60 per year, down from a rate of $2.50 per year. This will not only provide us greater balance sheet flexibility, it will also establish a base dividend that we can grow consistent with EBITDA growth over time.

And we are comfortable that this level of dividend can accommodate the 2 divestitures we have already announced as well as those we are currently considering. These initiatives will accelerate the strengthening of an already solid balance sheet with a fully funded pension plan and continue to position Kraft Heinz for industry consolidation.

Now I'll turn it back to Bernardo to close..

Thank you, David. Before we take your questions, I think it's useful to put our progress to date, our plans and priorities as well as our expectations beyond 2019 into context.

When we put Kraft Heinz together in mid-2015, our focus through 2017 was clarity on necessary product renovation and supply chain integration, taking out costs that drops no benefit to our consumers, establishing retool and routines, and testing and learning new tools to adapt to a rapidly changing environment.

Beginning in 2018 and into 2019, we'll focus on leveraging our industry-leading margins to establish key growth pillars through innovation and whitespace expansion, accelerate the global deployment of advantage capabilities across all channels and geographies and now more actively managing our portfolio for better growth and returns.

From 2020, we expect to see growth on both the top and bottom lines, as the full leverage of our advantage brands, cost structure and investments flows to the P&L.

So to summarize, we have continued to invest and focus on building our highly scalable operational model, to position ourselves for sustainable organic growth and returns and doing so at the time when the need for industry to modernize and consolidate is more evident than it was 5 or even 3 years ago. Now we will be happy to take your questions..

[Operator Instructions]. And our first question will come from the line of Andrew Lazar with Barclays..

I guess, I'll kick it off with you mentioned, I think, David, that you thought that there was an opportunity for greater strategic advantage, I think, were the words you used for greater divestiture activity today than previously. I was hoping to get a little more clarity on what you mean by that.

Is it a matter of just simply strengthening the balance sheet because you see more opportunities for more transformational deals now than you did before? Is it that valuation opportunities on those potential assets for sale are greater than maybe what you would have expected previously? I'm trying to get a better handle on that..

Andrew, it's Bernardo, let me take this part of the question. I think we're seeing a large [indiscernible] in the industry.

And we are going through commercially a good momentum, right, with acceleration in consumption, in share gains, in volumes, right? Also true that you're coming out of the integration, we know more about the categories and the competitive advantage of each one of our brands than ever before.

So with that in mind, our decision here was to execute the strategy on deleveraging faster so we can better position the company for future consolidation, right? As usual, we reward more things than we're actually doing. But as we did in the second half of last year, we did divestiture of India Beverage and the Canadian Natural Cheese business.

I think the good framework for the things we're looking today, and that's exactly the point you are right now..

Our next question comes from the line of Bryan Spillane with Bank of America..

I guess, two questions, or two points, I guess, related to the, I guess, the build from -- through -- from the end of '18 through getting back to growth in 2020.

One is just how much incremental investment is contemplated in your 2019 plan? So how much more are you spending in addition of -- in terms of what you stepped up in 2018? And then, second, the visibility in your business has not been very good. I think we've experienced that here in the second half.

So I think it would be really helpful if you could provide a little bit more color in terms of sort of how you see a bridge to actually getting to some growth in 2020..

first, the net inflation that we talked about that we expect to see again in 2019; the divestitures I talked about; FX; and to a lesser extent, variable compensation. So to be more specific, if you assume the midpoint of our range or a roughly $700 million decline year-over-year, let me elaborate on the four main drivers behind that.

So first off, on the commercial side, again, we should be neutral on the bottom line as we expect the positive contribution from further consumption gains to be in line with the stepped-up investments as we accelerate the pace of our innovation, base business performance and channel development; second, beyond that, roughly half of the total EBITDA decline or roughly $300 million to $400 million is driven by continued inflation, net of cost savings, in the low to mid-single-digit range, consistent with what we saw in 2018.

So this will be driven by another year of mid-single-digit growth -- low to mid-single-digit growth inflation, excluding key commodities. And given the recent experience, actions we've taken to replan the savings and pushing out the savings curve.

Third, we expect the combination of foreign exchange headwinds and the divestitures we've already announced, that should drive another $250 million headwind to adjusted EBITDA versus 2018. And then, finally, we have an impact from variable compensation, which is another roughly $80 million year-over-year.

So taken together, this will put us where we still have the highest margin in the industry, and we believe that is the right base to build from.

So to elaborate more on why we're confident even with the miss in expectations that we saw in Q4 and the decline in EBITDA that we're seeing in 2019, let me elaborate a little bit on why we're so confident in 2020.

First, on the top line, we should be very well positioned for solid organic growth globally, okay? We're already seeing real consumption-driven growth in the U.S. and globally today that we're able to create in the second half of 2018.

And in 2019, we expect to further improve our consumption rate behind the largest innovation pipeline that we've ever had and more support on the core business. And we have a rapidly growing international business with significant exposure to emerging markets and whitespace opportunities to accelerate that growth globally.

At EBITDA, in 2019, we are spending ahead to support an even larger innovation pipeline that I mentioned and accelerating channel development, particularly in e-commerce. So the right spending in commercial support levels, capabilities and marketing will have been established this year in 2019.

And then, on the cost side, the extraordinary inflation that we're seeing in 2018 and that we're now seeing in 2019 from things like tariffs and transportation should mitigate over time as we're starting to see in the spot markets today.

And we're also confident that we will be able to -- we'll be in a much stronger position to manage those costs through pricing and our savings curve going forward in 2020.

And finally, at EPS, our nonoperating below-the-line cost that I talked about should be at run rate levels, so that we can leverage the organic growth into both EBITDA and EPS growth 2020 going forward..

Bryan, just to add to what David just said to the numbers, we're seeing a strong consumption-driven growth in our business today that we plan to accelerate. And the base we're assessing for 2019 get us to the right metrics and KPIs in all our key investments, marketing, innovation, supply chain, channels, digital.

So with that base, we are very confident as we grow the business in 2019 and '20, that EPS and EBITDA grows together with that perspective..

Our next question comes from the line of Ken Zaslow with BMO..

I have one question.

What are the key changes that will take place to change the planning and execution of the savings so we can become more -- so they can become more reliable and kind of put it into a better action? Are they going to be management changes? Is it going to be a change to the methodology? Oversight? Can you talk about that?.

first, we had roughly a 3.5 percentage point impact of unanticipated cost headwinds, which I can explain further; second, we didn't have the anticipated savings curve that we expected to materialize in the quarter to partially offset the inflation we're seeing; and then, finally, we did have an incremental FX drag of about 1.5 percentage points in Q4 versus Q3.

So given all these factors, the year-on-year decline in Q4 is much closer than Q3, and we didn't see the sequential improvement. With that, I'll hand it over to Bernardo to answer your other question..

Ken, I think it's a very fair point, and even though we're disappointed with the miss, that's pretty much focused, like David said, in the supply chain operations in United States.

We did took several actions to not allow this to happen again, right? Actions in the planning process, in organization structure and position ourselves to make sure our savings curve really match, right, the timing and the effectiveness for the year.

So even though we understand the reasons of the miss, and we saw in the Q4, higher cost and more volumes coming through the pipe. And we could not offset to timing of our savings curve, we did took actions, process, planning and structure to not repeat that again..

And our next question comes from the line of Dara Mohsenian with Morgan Stanley..

First, just for clarification, can you provide a bit more detail on the circumstances behind the SEC subpoena on the procurement side? It sounds like it originated externally as opposed to finding something internally. So just curious for the circumstances there. And then, on the pricing front, you mentioned increases in the U.S. by the end of Q1.

Can you give us a rough idea of what percentage of your business that represents? And given we've seen the price gap move up versus private label in a lot of your key product categories in the U.S.

over the last few years, do you think there might need to be a broader reset of price gaps at some point, particularly with the market share momentum we're seeing at private label?.

This is David. Thanks for the question. So I'll answer the first part of your question and then hand it over to Paulo to U.S -- pricing in the U.S. So the company was notified by the SEC regarding an investigation into the company's procurement area.

Following this, we conducted a very thorough internal investigation with the support of an independent law firm and accounting firm. And we determined that we should have recorded $25 million in prior periods, which we booked in Q4 2018.

And to put into context, that compares to our overall procurement spend of over $11 billion, which excludes big 4 commodities spend. So this misstatement was not material to our current or prior year financial statements.

And finally, we did implement several improvements to internal controls and took remedial measures to mitigate the likelihood that this happens again. So with that, I'll hand it over to Paulo to address pricing..

Thanks, Dave. Let me start from the -- answering the private label question and then we move to the 2019 pricing. Why we're seeing the private label expanding and it's doing so at a more -- we are seeing this happening at a more restrained pace, around 0.2 points of share in Q4. It was a material step down from previous quarters that we're seeing.

And we are seeing the most pressure in areas where low commodities, excess capacity and retail competition come together, mostly now in some subsegments of our cheese portfolio.

In natural cheese, we see also the retailers have used price matching to drive traffic, and being able to invest back, that was part of our price investment we've had in the second half to narrow the price gaps. And after that, we saw branded and private label share starting to stabilize.

So again, we're always monitoring the value proposition of the market and continue to innovate and differentiate our brands and products on that matter. When you think about 2019 pricing, we already have announced our pricing.

We did an analysis in terms of to define the right part of the portfolio that we are pricing, being very conscious about the balance between sales and cost while still providing the best value equation and helping to drive category growth. And we are seeing, we already announced, this thing is going to take effect in Q1.

And we expect overall -- our overall pricing to turn positive over the course of '19..

Our next question comes from the line of Ken Goldman with JPMorgan..

Bernardo, as you know, one of the bare thesis over the years on the 3G philosophy has been that, I guess, the intense cost-saving efforts will, over the long run, sort of erode brand equities. And I realize you've had a better top line lately, but one could argue, it took a $300 million spending infusion to get there.

And I think, more importantly, you took a $15 billion write-down on 2 of your biggest brands, Kraft and Oscar Mayer. And to me, that literally means the brand equities there aren't what they used to be. So when investors are looking at the consistent financial disappointments at Kraft, maybe even bringing the eye into the discussion.

And if they ask why -- if the 3G belt-tightening strategy goes too far and if it damages brands, is there at least some evidence starting to point to yes there? I'm just curious for your thoughts on that..

Ken, let David talk about the impairment here that you just mentioned. Then I come back here to talk about the model that what is implicit in your question here. Thanks for that.

David, can you start?.

first, the Kraft natural cheese business; second, our Oscar Mayer cold cuts business, where we've talked about issues that we had in the first part of the year; and then, third, our Canada retail business.

And really, the fundamental driver behind the reduction in expectations was driven by our second half performance, okay, which was primarily driven by supply chain issues that we had in the cost side as you know.

And then, just to provide a little more context, since the merger, we've also seen significant pressure on valuations from a higher discount rate come into play, which has partially offset albeit by factions but that's really the context around the impairment. And I'll hand over to Bernardo to answer the rest of your question..

Ken, look, we still believe strongly that our model is working and has a lot of potential for the future, right? First, let's remember, we continue to be rated with leading industry margins, right? And now, we are growing, right, at the same level as the top-tier companies within similar portfolio, right? So that's very important to put in perspective.

Second, the miss we had, and we're acknowledging here properly, has been focused on operations, supply chain, United States. The commercial momentum -- consumption growth continue to accelerate rightly so. With the investments that we're doing since 2018, now 2019.

We can say we have the right base to be growing, through consumption, volumes and share, at the same time, maintaining high leading margins to the industry. Into 2020, like David highlights to their alternate numbers, right, we do believe to that base, we are going to be in a very solid position to be growing top line and bottom line.

Not only that, we are working more actively the portfolio. And now, with the reduction of the dividend, allows us to have more flexibility in our balance sheet to really deleverage faster and position ourselves to more consolidation in the future that we believe is necessary and will happen with that model.

And so we are confident in the things we're doing, even though we acknowledge, we did have the miss in the fourth quarter, like highlighted by David..

Can I ask you a very quick follow-up? David and Bernardo, thank you for that, that's helpful. David, I think you mentioned that it was more of a short-term, like the last couple of quarter issue with the 2 brand and maybe discount rates have risen.

The companies generally don't take write-downs because recent performance was bad and because discount rates have risen.

Isn't there something broader and longer term that usually leads to these kind of impairments?.

Yes, that's a great question and thanks for that. Just to be clear, by far and away, the majority of the impairment, which was really concentrated in these 3 businesses that I mentioned, it was, by far and away, driven by the second half performance and the new level of margin and profitability that we're talking about versus what it was before.

So the margin profile and what we established in the second half was really the key driver behind the impairment..

And our next question comes from the line of David Driscoll with Citi..

I just had a couple of questions, but I think they're reasonably short. Can you give us some sense of the size of the assets that you wish to sell that haven't been announced? And would it be something like on the magnitude of 5% of the revenue base? And then, I had a question about the savings programs.

I think you made a statement, David, in your script that in the forecast, the savings programs had been "pushed out." So I'm a little confused as to kind of why that's happening and why can't you achieve the internal savings at the same time that you're generating the revenue performance? And then, related to that, if you didn't hit the savings that you expected in the fourth quarter, don't those savings programs show up in like the first quarter of '19 or second quarter of '19? I mean, I don't think there's -- they shouldn't disappear but it feels like, within the guidance, that they did, and I just maybe don't understand what's happened right there..

David, it's Bernardo. Let me drive the first part of the question. We're not discussing here size or our soul. What you're saying is that we will work our portfolio to strengthen our balance sheet as we're doing the dividend to have more flexibility for future consolidation as we see it.

As David said, our objective is to deleverage, right, to 3x in the middle term at a faster pace than we're doing today. With that, and the knowledge you have of the portfolio today, with our competitive advantage by brands and category, allows us to be in a very good position to understand the magnitude that what we can do or we cannot do.

I don't want to elaborate more than we are doing right now.

With that, David, can you open again the '18 and '19 to clarify here to David?.

David, this is David. Thanks for the question. So on the savings side, we were overly optimistic on our ability to offset significant inflation in the quarter. And again, that drove a significant part of the miss. So this savings miss was really a combination of 2 things, under-delivery from supplier negotiations and delayed manufacturing projects.

And to give you a little bit of color on what some of those projects were like, they included line optimizations, yield improvements and assumed even better performance on some of our footprint plans that we discussed previously.

So because of this miss, as Bernardo said, we took significant action to address our processes, planning and structure internally and simultaneously have spent a lot of time and focus really revisiting our savings projects and we replanned.

As a function of that, our savings curve is being pushed out as we implement those changes, as we revisit our savings programs going forward. So that's really what's driving the delay in the savings curve, and that's embedded in my 2019 expectations..

And our next question comes from the line of Jason English with Goldman Sachs..

Your guidance for next year suggests that the majority of the synergies you realized on consolidating Heinz and Kraft will have effectively been wiped out. In that context, I'd love to hear your thought process or rationale on continuing to pursue a strategy of consolidation.

Where do you see the value creation coming from? This would certainly suggest that maybe there's not as much opportunity as some of us maybe once envisioned..

Thanks for the question. This is David. So since the merger, EBITDA has been held back by more than $1 billion versus what we had really kind of set out for.

And within that, we had nearly $0.5 billion of costs that we put back into the business, okay? These are costs that are different and independent from the cost that we took out in the integration, right? So most of the synergies and the integration savings that we captured were nonconsumer, noncommercial-related cost savings, okay? So the synergies that we realized are very much intact.

The costs that we put in are squarely within different areas, and we're putting costs in that are consumer-facing and drive commercial growth, okay? So these are things like expanding our innovation pipeline, our go-to-market infrastructure in the U.S. and international, our digital and e-commerce capabilities.

And while there's a significant amount of investment we put behind us, we are starting to see the returns, which is why we're growing in the second half. On top of that, we also had significant amount of FX headwinds that also affected our sales and EBITDA trajectory.

And then, finally, the inflation and the inability to executing it to the saving curves as we talked about that. With that, I'll hand it over to Bernardo to address it as well..

Jason, I actually was -- as Dave said, the investments we're doing and the things we're doing are not correlated to the savings we got to the merger. That is still here, and we are guiding more as the year goes. I actually would say the opposite.

I think we are more prepared in the capabilities and we're more ready for industry consolidation to better performance in the future than we were 2, 3 or 5 years ago. To that sense, I think we're having more firepower with a better balance sheet profile is important..

Our next question comes from the line of Michael Lavery with Piper Jaffray..

Just wanted to understand, you mentioned your -- that you should be measured on organic growth, and that hasn't come through the way I think people might have expected. But I think there's been forgiveness around that because you are deal guys and [Technical Difficulty] about the outlook..

Michael, I'm sorry, you faded a bit there. We didn't quite hear the....

Deal-driven but....

Michael, could you repeat the question? You kind of faded there a little bit..

Yes. Sorry. No problem. You've said a couple of years ago that you should be measured on organic growth for your business, and that obviously has had some struggles. You're also known as deal guys but we haven't seen a deal yet either.

Can you just help us understand why somebody should be excited about the prospects from here? Is it a deal that you know you can get done? Is it organic growth or is it a combination?.

Lavery, it's Bernardo again. Look, I think, if you see the second half performance of our commercial initiatives and returns of our investment, it's going to see a very positive scenario in that sense, right? We're having volumes, consumption and market share gains in the vast majority of our categories.

Even categories that have been declining for quite some time are seeing a momentum, right? And we do know there is more to come. Not only that, even with the miss of the fourth quarter, we continue to operate at industry-leading margins, and we think the 2019 base that David just highlight is a base we can grow sales and EBITDA going forward.

With the actions we're taking on dividend and the work we're doing in portfolio, it remains to be successful and we are confident we can be. We will have a balance sheet that's more flexible and more prepared for future consolidation. So in that sense, I think the commercial momentum is happening. In that sense, I think even with the miss in U.S.

operations, we still have the base of the margin here that allows us from this base to build 2020 and beyond and the balance sheet flexibility for future consolidation for us to be a consolidator if the industry goes our way..

Our next question comes from the line of Rob Moskow with Crédit Suisse..

Bernardo, I had a question about the supply chain. It was a -- you had very poor order fill rates. I think, a year or 2 ago, you had issues in frozen potatoes, you had issues with sliced lunchmeat. And now, this year, we're having more supply chain issues.

And the commentary that there's some cost savings going on in the supply chain, I'm still, I guess, uncomfortable with it because it indicates that maybe you need to try to make it more efficient. It sounds like you need a bigger investment in the supply chain. Maybe you need to expand the footprint, increase flexibility and increase capabilities.

Is there going to be a big dollar investment in people and in the footprint that's necessary as part of this rebase?.

Thanks, Rob, for the question. No, actually, I think it's important to understand what did not happen in the fourth quarter was this ramp-up of the savings, right? We are in the same level as the third quarter. And actually, let me put perspective a little bit to what you said. We came into 2018 as one of the best service provider in the industry.

Our own time in food tends to raise. Like we said in the original highlight is really now at top quartile worldwide. So in that sense, the whole investment in footprint, right, capacity and service is already behind us. Do we have more -- we always have things to do and improve, but to the day that you're asking, it's actually the opposite.

We did believe there was more saved timing on the savings curve, and that for that, we're taking full responsibility, did not materialize, and they will come to life in 2019, '20 and beyond.

But there is no bigger investment in supply chain, to your point because I'm operating better or in the same level of the third quarter, with one of the best service in United States today. With that said, let me pass over to Paulo to detail the supply chain cost here in United States..

quality; safety; and a great service to support the strong volume that we had in the year. In cost, we all -- throughout the year, we're not able to deliver the additional savings we're expecting, and we are not having more inflation also -- we're also expecting at the end of the year..

And our next question comes from the line of Chris Growe with Stifel..

I have two questions for you. A real quick one would be just to be clear on the $250 million of EBITDA pressure from divestitures.

Does that include -- incorporate what's already happened or would also could happen going forward? And if I could just ask a second question in relation to a comment you make in the release about your return on investment being strong in the fourth quarter and the year.

Obviously, if you measure that based on market share or even top line growth, that's a fair comment. But the degree of profit that it took to achieve that growth is quite significant and I think would really weigh on that overall calculation of that return on investment.

So I just want to get a better sense of how you're measuring your return on investment as you call it and how do we think about that going forward, given the extreme cost in this quarter?.

Chris, this is David. Thanks for the question. So I'll answer the first part and then hand it over to Paulo to address your second.

So the $250 million you mentioned, approximately $70 million of that is related to the divestitures that we've made to date, okay? And then, the remaining amount is really the FX headwinds that we're seeing in some of our international markets. So this does not include any future divestitures that we're considering.

It only includes the divestitures that we've executed to date, the two deals that Bernardo mentioned earlier..

So I'm going to talk a little bit about the pricing and the return on the pricing investment that we had here.

If you consider -- you think about our second half as a whole, okay, and you consider that, actually we invested 1% in price when you exclude the impact from commodity, and the 0.4% that we invested specifically to close the gaps in the natural cheese, and you see the performance in volume that we had growing almost 4%, I think it's clear to see that even though this was only -- was not the only lever of the volume improvement, you can see that we have a very strong return on this particular investment.

But also it is important to say that our volume improvement was also supported with a much better service level, as we're talking, strong innovation launches, renovation and additional brand and channel support besides the high level of in-store activity and promotions that we're discussing here..

And this concludes today's question-and-answer session. I'd now like to turn the call back to Mr. Chris Jakubik for closing remarks..

Thank you, everybody, for joining us this evening. For analysts that have follow-up questions, myself and Andy Larkin will be available for follow-ups all evening and until tomorrow. And for those in the media with follow-ups, Michael Mullen will be available to take your calls. Thanks very much, and have a great evening..

Thank you, all..

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone, have a great day..