The Kraft Heinz Company

Good day. My name is Kevin, and I'll be your operator today. At this time, I'd like to welcome everyone to the Kraft Heinz Company second quarter 2020 earnings 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 second quarter 2020 results, as well as an update on our path forward. From Miguel Patricio, our CEO, Paulo Basilio, our CFO, and Carlos Abrams Rivera, the head of our U.S. business. We will then open the lines to take 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. 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.

Well, thank you, Chris, and good morning, everyone. I think it's appropriate to start today by saying that more than anything else, the strength of our second quarter results Reflect the hard work and dedication of our remarkable employees around the world. Without them, we would not have reported numbers anywhere near what you saw in our press release today. On our April call, I said that the coming months would be critical in understanding the path forward and potential for our industry, for Kraft Heinz, and the pace of our turnaround. Three months later, I can tell you that while the path of the economy and consumer behavior remains difficult for any of us to predict, our team has done an excellent work anticipating and responding with speed, agility, and creativity. And we can see this in the quality of our second quarter results. More importantly, we continue to make great progress on our turnaround. Our people are drawing functional excellence throughout the organization. We are developing better perspectives on where consumers are going and how we can win. Our productivity initiatives are progressing and strong free cash flow is further improving our financial profile. All these things are coming through in what we will cover today in our business updates, Where we will talk about how we are adapting to consumer needs, to Q2 results that were much stronger than expected due to continued momentum and strong consumer demand for our brands, as well as better than anticipated costs and supply chain performance. And the fact that our solid execution is keeping us cautiously optimistic for the rest of the year. Carlos and I will begin today with how our business has responded so far and our current thoughts about the path forward before Paulo discusses the financials. And then we'll take your questions. The first chart I wanted to share is our underlying year-on-year sales growth by geography in both retail and food service channels. It shows the progression from Q1 to the April spike to the May-June settling out period. There are three important points to take away from this chart. First, it's the tremendous and abrupt shifts in consumer behavior that we are witnessing. These are sales of food and beverage products, not micro-shifts. So to describe the magnitude of this channel shift as unprecedented, Feels like an understatement. Second, the numbers in the chart are Kraft Heinz sales, not the broader market, not the broader categories where we play. And it's important to recognize that our supply chain capabilities are largely split between capacity to produce and service retail sales and producing and servicing food service sales. There is little overlap in terms of production lines So, what this chart reflects is that, during this period, we have been able to successfully adapt to such an abrupt, unprecedented change in consumer behavior, keep every one of our plants around the world up and running, producing at industry-leading quality and safety levels, and therefore enable us Thank you very much. and ultimately delivering roughly twice the organic growth we expected in April. Which brings me to the third point, the source of Q2 upside versus our previous expectations. The decline we saw in food service sales on a global basis was largely consistent with what we had forecasted. Somewhat better in the U.S., and at the softer end of the range in our international business. At the same time, our retail performance was much better than anticipated. In the United States, which Carlos will speak to, in our international zone, where in condiments and sauces we grew double digits and in several markets achieved record market share. And in Canada, where we had double digit growth and gained share in 80% of our retail categories as the team invested to strengthen brand relevancy in areas like peanut butter, pasta sauce and craft dinners. In addition, what is not shown on this chart but we will discuss later is the extraordinary retail sales growth came with favorable category and product mix. Together, The combination of favorable channel, category, and product mix resulted in better than expected EBITDA margins versus what we originally expected, most notable in our United States business. At the same time, and the second part of the business update, it's important to reiterate that we remain at the beginning stages of our turnaround. and are still not where we want to be on several fronts, which we will talk about in great detail in September. We have done a lot to adapt to the pandemic, but we are also implementing a new operating model to improve our performance on a sustainable basis. We are making significant changes to how we work, how we are organizing our business, How we are developing our capabilities and how we are reinvesting in the business. Our actions have been broad-based with the intent to create sustainable competitive advantage across our value chain. For instance, we have continued to work urgently and diligently to ensure the health and safety of our employees. Taking on additional costs for personal protective equipment in our plants as well as to accommodate working from home. At the same time, during the second quarter, we rolled out our new company purpose, vision, values, and leadership principles. We are redefining for our employees for the long term our true north and how we are going to win by working as a team, Inspiring excellence and navigate our future. I want to specifically mention one of our company values. We demand diversity. We live in a world where systemic racism and inequality exists. And righting these wrongs requires an equally systemic response from everyone, including global corporations like ours. Thank you for joining us. and Expanded Talent Recruitment Partnerships, to supplier training programs for minority and women-owned businesses, and the creation of a cross-functional inclusion council, we are proactive and hold ourselves and our company accountable for bringing about the positive change. Changing times demand fresh, new approaches for consumers We are actively modeling multiple growth scenarios and defining new initiatives to adapt to each scenario. At the same time, we have now reorganized our business units around new consumer-led platforms so we can better address our consumers with our customers and in marketing on improving communications today, but also improving How we deploy our resources to drive growth going forward. With customers specifically, collaboration has been key as we are creatively addressing immediate customer needs on one hand while simultaneously trying to set plans for the coming year. In supply chain, the difference a year has made is simply incredible. We are finding efficiency to mitigate incremental COVID costs while taking actions to optimize and ensure production. At the same time, we continue to implement continuous improvement processes and programs for sustainable savings for the years to come. In many ways, we are leveraging our intentional strategic changes to better respond to an environment with significant uncertainty. As a result, I'm confident that we'll emerge a stronger Kraft Heinz, and the strategic direction we have set is the right one, and one that we look forward to discussing in detail with you on September 15. I will close my opening comments here by summarizing a few points. We have stronger than expected Q2 results, reflecting continued momentum and strong consumer demand for our brands. We are implementing our new enterprise-wide strategy at the same time we are adapting to the pandemic. After a year as CEO, I can see our business transformation well underway with strong employee morale, a well-defined strategy and a team in place working together with speed to bring agility with scale. and our work to date has only confirmed that we are on the right path. To bring this more to life, I'm going to ask Carlos to provide more color on how our U.S. business is performing in the marketplace and how he sees the path forward.