The Kraft Heinz Company

Good day. My name is Daniel, and I will be your operator today. At this time, I would like to welcome everyone to the Kraft Heinz Company's first quarter 2020 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 thank you for joining our business update. We'll begin today's call with an overview of our first quarter 2020 results, as well as an update on our path forward. Miguel Patricio, our CEO, Paulo Basilio, our CFO, and Carlos Abrams Rivera, the head of our U.S. business. And then we'll open the lines for your questions. 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 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. And you can find the GAAP to non-GAAP reconciliations within our earnings release. Now, let's turn to slide three, and I'll hand it over to Miguel.

Thank you, Chris. And good morning, everyone. I want to begin my comments today with a few thoughts about purpose. To be leading one of the largest food companies in the world At the moment of an unprecedented crisis is at the same time a privilege and a big responsibility. Not only a big responsibility to our consumers and customers, but a big responsibility with our employees, our employees on the front lines, producing, distributing, and shelving our products. Our teams understand exactly and have embraced our sense of duty. They are proud to be feeding the world. And suddenly, our purpose has become much more obvious. To keep feeding the world. At the start of the year, if you recall, our main objective for 2020 was to lay the foundation for the future growth. The first step in a three-stage turnaround. I can tell you today, it's turning out to be just that. And so much more. In February, I said the essential ingredients for our turnaround were in place. People with deep experience in key roles to drive functional excellence, perspective on where consumers are going and how we can win, productivity initiatives with detailed jobs to be done, and a financial profile with strong free cash flow going forward. I think we have seen each one of these. On every front, in what we cover today, from our COVID-19 response where our people are rising to the challenge, to Q1 results that show the underlying business in line with initial expectations and how we have met an unexpected spike in demand and increased consumption of our brands, our turnaround progress for 2020, which is on track even as we adapt to this unprecedented call to action making us cautiously optimistic for the rest of the year and the fact that we are turning our strategic plans into action despite our strains of working virtually. As many of you have wrote, the next several months will be critical in understanding the path forward and potential for our industry. The same goes for Kraft Heinz and the pace of our turnaround in the near term. We are in a highly dynamic and precedented environment and what we think today may be significantly different from tomorrow. For now, let's focus on what this new world has meant for our business so far. In a nutshell, Our response to this pandemic so far and how our people are rising to the challenge is showing ourselves and the rest of the world just how strong a company really are. In procurement, the team has worked over time to make sure we had adequate supplies to meet demand. They were building scenarios very early when things first started happening in China. In late February, We established our global Kraft Heinz Coronavirus Task Force to actively monitor the COVID-19 outbreak worldwide and in the U.S. This has allowed us to take proactive steps to keep our employee and supply chain safe during this time. And we are learning through the journey, leveraging our global presence and sharing best practices across the organization at an unbelievable speed. But our people on the front lines, in manufacturing, distribution, and in store sales, are the real heroes in all this. And they are taking our business to the next level. Morale in our plants has never been so high, and I cannot say enough about our people's commitment. Our teams are producing with pride and purpose. Working smart by eliminating those products with significant changeover times in order to boost production. In sales, not only has the team deployed itself more broadly to assist distribution and stocking in retail shelves, but they have done an excellent job optimizing channel and SKU mix to make sure we get the right products where they are needed the most. And this Our IT, shared service, human resources, communication and legal teams have been anticipating our needs, enabling us to work closer even though we are physically farther apart. They have been coordinating with our external partners including government and community leaders so we can continue to be effective under various shelter-in-place rules state by state and country by country. And our finance team has been working tirelessly to improve both our liquidity and our forecast accuracy to enable industry-leading execution under multiple scenarios. Overall, Our business is strong. We are operating to peak capacity, performing at world-class levels, and leveraging our industry-leading safety, quality, and hygiene practices. Our entire organization is displaying agility as demand forecasts and news flow can change scenarios multiple times per day. Going forward, as we will talk about later, This crisis is causing us to accelerate our supply chain to complexity efforts, reprioritizing our merchandising calendars, and rebalance our marketing efforts. I think this is an important moment where our culture of accountability, the speed and agility our lean structure can bring, and our scale to be everywhere for consumers in times of uncertainty can be a real differentiator A big part of our strategy development was to get our marketers thinking about the future, building the future, to ask themselves what will happen next, what behaviors will change. Now, we have to think about future consumption if 40% of adults live alone and will eat more meals at home, if kids eat more breakfast and lunches at home versus school and If new consumers that have come online, stay online to their shopping. If consumers will continue consuming big, trusted brands, brands that bring them comfort and familiarity in moments of uncertainty. And if drive-thru and delivery becomes the norm, how we can be more creative with our food service customers and make our products more relevant. Turning to financial impacts, we've done our best to quantify the impact from the recent spike in demand. Although we acknowledge this does not come with our typical level of precision. On a net basis, we estimate that the additional demand that we experienced as a result of COVID-19 resulted in about six to seven points of incremental organic growth in the first quarter, and with a contribution of nine to ten points of additional EBITDA growth. Looking forward, while Kraft Heinz, our customers, and our peers will continue to operate in an environment of significant uncertainty, there are four expectations we have a high degree of confidence in sharing. First and foremost, we think it will be critical for our brands to reassert their advantages in taste, performance, value, and reliability. So, we will continue to step up investments behind our brands, and the work that's been done behind our new strategic plan has given us a head start on this front. Second, we expect our food service sales to decline between 30% and 70%, in each of our geographic zones, depending on channel mix as well as the creativity and agility both we and our customers display during this period. And keep in mind that food service represents roughly 15% of our net sales in each of our business segments. Third, and perhaps the most important, the scenario planning we do regarding both at-home consumption trends and the likelihood for global recession will be key to our near-term growth and profitability, as well as building more strategic, collaborative and long-term relationships with our customers. And finally, I will tell you that we do not believe Q2 consumption patterns will be a reliable first indicator of what the new normal is. Variables like at home versus away from home and recession versus growth will likely become clear as the second half of the year unfolds. And obviously, all of this will play out differently by country in each one of the segments. So, at this point, I will hand it off so Carlos and Paulo can discuss our business and financial results and outlook. And then, I will return with few words on our investor day before we go to Q&A. With that, I'm delighted to introduce you to Carlos Abrams Rivera, the new leader of our United States business. Well, to say that Carlos has hit the ground running would definitely be an understatement. Carlos.