The Kraft Heinz Company

Hello, everyone. Welcome to the Q&A session for our third quarter 2025 business update. During today's call, we may make forward-looking statements regarding our expectations for the future, including items related to our business plans and expectations, strategy, efforts and investments, and related timing and expected impacts, as well as statements regarding the proposed separation of Kraft Heinz into two independently traded companies. These statements are based on how we see things today, and actual results may differ materially due to risk and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release, which accompanies this call, as well as our most recent 10-K, 10-Q, and 8-K filings for more information regarding these risks and uncertainties. Additionally, we may refer to non-GAAP financial measures, which exclude certain items from our financial results reported in accordance with GAAP. Please refer to today's earnings release and the non-GAAP information available on our website at ir.KraftHeinzCompany.com under News and Events for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. I will now hand it over to our Chief Executive Officer, Carlos Abrams-Rivera, for opening comments. Over to you.

Well, thank you, Marie. And thank you, everyone, for joining us today. I am encouraged by our progress in the third quarter, recognizing there's more work to do to navigate today's complex environment. We delivered a modest year-over-year recovery in the top-line performance, showing progress versus the first half of the year. That said, the operating environment remains challenging, with worsening consumer sentiment and ongoing inflation influencing buying behavior around the world. To reflect our third quarter results and the expected continuation of these macro trends, we have updated our 2025 outlook. We remain on track to separate into two independent companies in the second half of 2026. And while we manage that transition, our priority is to drive performance today and position both businesses for long-term success. I want to thank our teams for their efforts and our customers, consumers, and shareholders for their support. With that, I have Andrew joining me, so let's open the call for the Q&A.

Thank you. We'll now be conducting the question and answer session. If you'd like to ask a question at this time, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. And our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your questions.

Thanks so much. Good morning, Carlos and Andre. You know, Carlos, in light of the weaker consumer sentiment that you've talked about, we are seeing a number of food companies sort of lean in more aggressively, you know, on investment spend, both pricing related and broader, you know, A and C. I guess I'm curious how much of the 25 profit revision, if any, is due to more aggressive spending behind the brands than initially contemplated versus just the impact of sort of higher costs and volume to leverage. And if there's not significant additional spend, I guess I'm curious why wouldn't more make sense now to help jumpstart volume improvement in a still tough consumer environment, you know, as you think towards next year?

Let me have Andre kind of give you a little bit of context how we think about the updated guidance and kind of fill in some additional information.

Thank you. Thanks for the question, Andre. Morning again. The profit revision is not linked to incremental investments beyond what we had previously communicated. The profit revision is a function of lower expectation on consumption in the U.S., which we can talk more about that. is a function of elongated recovery on taste elevation which has been improving in a meaningful way 70 percent of the revenue now is gaining market share however the recovery still is lower than what anticipated so there is a mixed component to that and we face incremental inflation and meat and coffee and we didn't price certain elements of it into competitive dynamics And we had a few other one-offs affecting our supply chain results in Q3 that should not be expected to repeat too far. However, they stick in the air. Remember, though, that for this year, we are increasing promotional investment around $300 million in the US. We have $80 million-ish of incremental marketing spending, media. We have more R&D investments. And we have incremental headcount in selected areas, mainly commercial-related functions. So we are adding relevant investments on the business. And we don't think that adding more price at this moment will yield results. The investments we have made already allow us to have opening price points in critical categories to the retailers and to the consumers. We have investments in meat and cheese, in frozen potatoes, in mac and cheese, and a few others. We don't believe adding more market at this point. Remember that entire market investment increase is concentrated in the second half of the year. So we don't think going even further beyond that would deliver returns at this point. However, we are open in the future to add more marketing as we continue to go deeper in our brand assessments. But at this point, we don't think it's a method of putting more investment.

The one thing I would add, Andrew, is, you know, we think about this at our company as a very much a consumer-centric brand-driven company. So for us, what's important is that we're building brand for the long term. So when we think about stepping up investments, We are thinking in terms of what Andrea mentioned, in R&D, in marketing, continue to drive the renovation of our products, because I think that is going to be the way for us to be successful over the long term. I think the fact that we have concentrated our effort behind our brand growth system to make sure that we are continuing to bring distinct attributes that consumers value, that's going to be the way we continue to be able to be successful over the long term. And by the way, I think some of the pricing that we have done strategically in terms of promotions have worked. If you look at a back-to-school campaign, we were able to actually be successful in being able to drive, you know, great returns behind the key brands that we focused during the back-to-school campaign, Capri Sun, Launchables, Jell-O. So I think we are going to continue to be tactical in our investments, but really building a brand for the long term. Thanks for the question. Thank you so much.

Thank you. The next question is from the line of Peter Galbo with Bank of America. Please proceed with your question.

Hey, good morning, Carlos and Andre. I wanted to ask maybe a more conceptual question around the spin. And really, if I think about it, one of your CPG peers is going through a similar dynamic right now in terms of kind of a split in your living kind of parallel lives, I guess, for lack of a better word. In the case of your peer, there was an announcement, the market responded the way that it did, and there's been a pivot on their behalf, not in terms of pursuing the split, but in terms of how they're going about it. There's been an alteration in terms of the path forward. I wonder just as you solicited feedback from investors, and as you've heard from investors since your announcement, Has there been any thought as to a pivot for Kraft Heinz, whether that means the leadership isn't the way that you thought it would pan out, the brands that you announced at the spin now, maybe some of them move from one to the other. Just any thoughts, again, as you've heard feedback, that you may potentially pivot versus the initial announcement. Thanks very much.

Well, thank you for the questions. And listen, I think that, let me give you a little bit of the context of how we ended up with the decision. You know, we have spent a number of months working with our board of directors to make sure we felt that we were going to do something that was going to be unlocking shareholder value. And we believe in the fact that we can create two stronger companies that can be more focused for us to drive that, that unlock the shareholder value. And if you think about two companies, I think we have already shown that we have a playbook that we have focused on in a part of our business that will be part of the global taste elevation. In fact, if you look at our taste elevation progress in the Q3, you are seeing already that that playbook is working, that in fact, we are improving our dollar sales, that we are improving our share position. And in fact, in September, we gained share in 70% of the U.S. taste elevation business. So the playbook that we have have been working and we want to apply it now to both companies with the right amount of resources and support. Having said that, we also have said that, you know, we are going to continue to look at opportunities for us to think what is the right way to support this with the right amount of experience, capabilities, and technical resources. So I think that's something that we'll continue to do as we think about the announcements that we'll have ahead of the second half of the year with the management teams and the way we're going to create the right operating model for us to grow. So our focus remains on us doing the right thing by us creating these two companies and really in every situation, and you picked a particular period that you had in mind, the reality is that there's many other examples of people who have done this you know, for us, what we're trying to do is, well, it's the right thing to do for both craft finds and our shareholders.

Another thing I'll add is, look, the comments on perimeter and balance sheet on the perimeter front. We, as we said before, we decide this perimeter, one, to allow focus, two, based on growth history and growth potential of different brands, the margin profile, and the synergies. So as we go deeper now, We're doing all the bottom-up work. There's a lot of work going on, as you can imagine. If at any moment we think it might create more value to shareholders to have some adjustments, we will. But at this point, we think we did the right thing because we put a lot of thought before that. The second, the balance sheet. I know there was initially some maybe misunderstanding about what we're going to do with both companies, and we tried to clarify that in the subsequent forums. So we said we are targeting both companies should be investment grade. We are committed to ensure that we keep the net debt at reasonable levels. We put even the prepared remarks were very clear. Our capital allocation have not changed it. And the second one after organic investments is to maintain the net debt at or close to three times. And we're committed to do that, which should allow both companies to have good balance sheets with optionality. And our clarification, when you say we want to have company investment grade, for us, that is below four times. And obviously, the specifics we're going to be still discussing in the upcoming months and discussing great agencies, but we are committed for that as well.

Thank you, Peter. Thanks very much.

The next questions are from the line of Tom Palmer with JP Morgan. Please just use your question.

Good morning, and thanks for the question. I wanted to just ask on emerging markets. It seemed like excluding Indonesia trends were more encouraging. I guess one, and you did provide some commentary here on Indonesia from a sales overhang, but how big is Indonesia within emerging markets? And then when we think about the fourth quarter, the mid-single-digit growth guidance for emerging markets, what does that assume kind of for the business ex-Indonesia and Indonesia in terms of potentially seeing some improvement? Thank you.

Well, thanks for the question. Let me start, I guess, with the point of the context of emerging markets. You're correct. You know, there is great progress out of Indonesia, and we have continued to see the not only the success in terms of growth, but also the continuing improvement in terms of that growth. And I think for me, what it also gives me confidence is the fact that we think about the $1 billion that we have in the emerging market, that actually is accelerating. And it's accelerating because of our key brands like Heinz, where it continues to show a tremendous amount of growth. In fact, in emerging market, our Heinz brand here today is growing 13%. So I think for us is, we continue to see that the value piece of our portfolio and one of our key growth drivers have to think about the future. In the case of Indonesia, you know, top line is about half a billion dollar business. And, you know, frankly, what we have seen is a meaningful decline in consumer sentiment that had led them to the softening of demand. In fact, I think that the consumer sentiment in Indonesia year over year is about down almost 10 points in terms of consumer sentiment. So that has led to the sellout, you know, reducing the sellout growth expectations and some of the challenges we have seen in terms of our distributor, particular distributor in the country, and also how that has disrupted the overall, you know, our own business. At the same time, this is something now we're taking actions to make sure that this is only, you know, something that we can correct into the future. So we are right-sizing the inventory to the right levels. We are transitioning to a new distributor. And we're also making sure that we're reducing the price instability that have been in the country while we continue to invest in Indonesia in terms of our marketing of our brand. And ABC is the largest brand that we have. And we believe that us continue to drive superiority on the brand equity, making sure we continue to drive also penetration in a meaningful way is going to be the best way for us to getting Indonesia back to where we want it to be in terms of continuing to grow to the business.

Just to add to that, emerging markets, aside from Indonesia, grew 9.2%. So it did accelerate in a relevant way compared to the first half of the year, as we have said before. Indonesia, just maybe a little more specific, is close to $300 million revenue. So it's like 12% of the emerging markets business. So still relevant, but not massive. And we do expect that the recovery They are now only to happen in the second half of next year because we still have adjustments to do into Q4. In Q1, there is Ramadan, which is very important for Indoreel. So, which will affect Q1. So, we're really heading to Q3, end of Q2, Q3. We're going to see the recovery there. Yeah, but I think what is good is we invested a lot in this business in the past two, three years. There was a lot of marketing investment to put the ABC brand, which is the leading brand, in several categories in a very good spot. So market share standpoint, things are doing well. But we have to make adjustments on the distribution network.

Thanks for the question.

Thank you. We have questions from the line of Steve Powers with Deutsche Bank. Please, you have three questions.

Great. Thanks so much, and good morning. Carlos, I don't believe I saw it anywhere this morning, and apologies if I missed the relevant disclosure, but are you able to frame maybe pro forma the performance of Global Taste Elevation Co. versus North American Grocery Co. in the third quarter, and then also update us on how you see those businesses progressing into the fourth quarter just so we can better assess momentum into 26 and eventual separation? And maybe alongside that, Andre, I don't know where you are in this process, but as you think ahead towards separation, I'm just curious if you have a more formal estimate around any one-time restructuring costs or cash costs that Kraft Heinz is likely to incur in preparation for the split. I'm just trying to see how we should handicap those dynamics over the next three or four quarters. Thank you.

Sure. Thanks for the question. Good morning. Look, both companies, both two big companies, perform a decline, low single digits in the quarter. We see the global test elevation trajectory improving and in the very low single digit territory at this point. And the expectation is for Q4 that to continue. Our main priority is to put the global tax elevation back to growth in 2026, as it has grown for several of the last 15 years. And so that's the priority number one to us. The North American grocery company had a significant improvement in trends in the third quarter compared to the first half, but also declining low single digits, though more than the global tax elevation company. But the priority number one for the North American grocery company now is to ensure that you have stable cash flows heading into 26. But in parallel, working hard to make sure that this company also has the prospects of growing those single digits into the future. In terms of runoff costs, I think Zora should talk about that. There is a lot of work in motion right now. We are committed to be very, very disciplined with the use of cash, like we have been. So you can see our results, despite the EBITDA wide decline, our cash flow is up year over year, and it's going to continue to be the case year to go. So count on us to be very disciplined and do the right type of investments that are needed to put those two companies set up for success.

Yeah. Let me just add then, you know, particularly I have to think about the North American grocery company. I think, you know, If you look at our history, we have proven that we can be an efficient operator. So as we think about our separation, you know, we're going to have the same level of efficiency as we think about how do we actually drive both of those companies. And I think that beyond that, we also have been a great and a confident company in terms of delivering strong cash flow for our shareholders. Now, I would also point out the fact that I mentioned earlier that we have a playbook that has worked. Some of that playbook we actually already have deployed to some of the key brands that will be part of North America Grocery. So if you think back to Q3 and our results on Lunchables, on Capri Sun, those are brands that now in the future will be part of North America Grocery and we were able to return to growth. What will happen as we go into these two separate companies and we can create two more focus companies, we can then put the right level of attention and resources to allow both of those companies to fit and to fulfill their true potential. So I think, you know, as we go into the forward, going forward, you know, the attention of management remains in us making sure that we continue to see the progress of the company because that will support both companies as we exit into the second half of 2026. And thanks for the question.

The next question is from the line of David Palmer with Evercore ISI. Please proceed with your questions.

Great, thanks and good morning, Carlos and Andre. In your slide presentation, you noted several of those key categories where you're clearly improving in terms of market share. Your guidance for the fourth quarter doesn't imply much improvement and I just wanted to get your thoughts about maybe offsets, are categories that you're in, are they slowing? Maybe there's some offsetting brands where you're seeing a little bit of deterioration. And then separately, there's that story of the promotion spending, those investments of $280 million that you're making. That's maybe 2% of North America retail sales. When we track it in scanner data, I know these are audited numbers, but it only shows that your volume of promotion is only down 1%. you know, basically unchanged. I'm just wondering what is going on with your promotions. Maybe you could tell us better than what the data is showing us, which doesn't show us much in terms of what activity you are doing. Thanks.

Thanks for the question. So first, regarding Q4, you are right. The outlook implies revenue Q4 worse than revenue in q3 about 100 120 basis points we have inventory phasing in especially in north america but especially in the us so we do expect this headwind of inventory to be north of 100 pips for the total company it's a combination of inventory phasing q4 last year to january given some timing of promotion and some september october We also do expect lower consumption in Q4. So the inventory has been in our outlook for a while. There's nothing new. The different aspects that also was one of the reasons why we adjusted the expectation for sales down year to go is related to the softness in consumption. So we saw throughout Q3 the industry decelerating further in the U.S. In October, aside from hurricane noise, it also started soft. So we do expect the market share to continue to improve, especially in taste elevation. But we should expect share to improve, but we expect the industry to get worse. So that results in the consumption overall in the U.S. to be relatively flat to Q3. But the inventory then... had wind impacted us. The second part of your question, the promotions. So we concentrate the promotion most about the key holidays. So our highest market share in the year historically is in Thanksgiving and Christmas. So we do have a lot more promotion activity around this upcoming holiday. Part of the investments we have made, They were to secure incremental distribution. So that's part of joint business plans that we do every year with the retailers. And we were very intentional in some cases to ensure that the secure expanded distribution, which we have been generally getting. And in some other cases, we did invest deeper than what we would normally do during back to school to ensure that we can accelerate the consumers trying the renovated products. So we focus a lot on trying to drive units to have those household penetrations coming in, in the expectation that these eventually generate repeat purchases, which will help with the sales in the future. Remember we said that in the last quarter that we will try to do different tactics to accelerate this consumer trial of the new products. So we see that the ROIs of those are not good, to be honest. The lifts are low, and maybe that's why when you look at the syndicated data, you have this perception.

Let me add a couple of things. I think first of all, we talked quite a bit about the U.S. because if you think about a total company, the reality is that while we're seeing some pressure in Europe in terms of the consumer, particularly in the U.K., we actually are holding our share in a moment in which the U.K. consumer is also seeing some challenges. And I mentioned earlier emerging markets where we're seeing actually strong growth, whether it's in Brazil, the recovery in Mexico that we feel great about, the stability in China. and really is an Indonesia aspect that has been kind of holding us back in terms of getting to the double digit growth that we can see in emerging markets into the future. So I think from that perspective is why we spend quite a bit of time talking about the U.S. And if I do a double click on what some of the things Andrew mentioned, you know, the reality is that we are seeing some inventory pull back from customers. And I think that's a response to what they're seeing in terms of the consumer sentiment. So the fact that we have now, you know, one of the worst consumer sentiments we have seen in decades, as we go into, you know, even a holiday season, we've already seen how customers are pulling back on inventory. And that's reflected in our guidance as well, too. So it is a unique moment right now in which this is getting the consumer negativity and the sentiment is extended longer than we had originally expected. And we are seeing already, on top of that, that customers are also adjusting their own level of inventory to accommodate for that.

Thank you for the question.

Thank you. The next question is from the line of John Baumgartner with Mizuho Securities. Please just use your questions.

Good morning. Thanks for the question. Just sticking with the promotional environment in US retail, despite the joint programming with retailers that you mentioned, Andre, and the larger investment dollars and the improving analytics Weak promo lips seem to be a theme right now across the center of the store. And Carlos, you mentioned some success with your lips around back to school, but lips have also been weaker in other parts of your portfolio as well. So I'm curious what you're finding that's working differently in the areas where the lips are stronger. Is there a distinction there? And then what changes are you making, if any, to your promo approach into 26, given the consumer environment?

I think there were about three different questions in there. So let me take one. I think there's a part of it you were getting at is, you know, some of the success we're seeing in back to school. And, you know, for us, I think, you know, one of the things that we were playing in back to school, and I think we did that effectively, is how do we make sure we are winning in those key moments in which consumers are going disproportionately to stores? So back to school was actually one of our first pilot in which we kind of created a whole more executional approach of how we leverage entire brands together during that particular moment. So what you saw is an improved store display, an increased investment both in marketing but also in the promotional aspects inside of the retail environment. And that actually helped us make sure that we have a cross-selling where brands cross-shopping purchase improved by 60 bps. We also saw that improving in base velocity as a result of the investments that we make in back to school. So that when consumers were going to the store, I mentioned the fact that we have brands like Lunchables and Capri Sun. So when they go to back to school time period, they were actually experiencing a product that we had now renovated in both Lunchables and Capri Sun. So that actually helps us for us to the long term to make sure we continue to build a stronger base volume as we go into the future. And I think those are key learnings that we'll take as we go into the holidays, as we go into key also moments into the future. I think that was one of your questions. Andrea, I think you want to address some of the other pieces.

Yeah, maybe just a compliment. So what we have seen working better generally is more on higher frequency than deeper discounts. So and we see overall coming down. They are lower than they were last year. generally in part because of higher overall incremental activity, which dilutes the lift across different players, but also in our case, as I mentioned before, because we're going deeper in certain occasions, should drive household penetration. As we head into next year, we have a lot of tests running in selected places to see different type of tactics that could work well, including some case across merchandising and bundling products, adding more events in e-commerce, trying to maybe go less deep and less focused on key holidays and maybe spread these resources around in a more harmonic way throughout the year. So there are a set of different things that the teams are currently assessing to make sure that they can improve those returns into next year again.

Yeah, the one thing just to complete the thought of your question is, I think right now we're also seeing some challenges with the consumer. But I think what we are looking to do and the game that we're playing for the long term here is to make sure we continue to invest behind our brands to drive superiority from a consumer experience perspective. I do think that right now the challenges we're facing are more cyclical in nature. So for us, it's important that as we you know, get out of this particular era in which consumers are feeling with a down sentiment, that we come out of it with a much stronger portfolio with stronger brands. So I do think that we are preparing ourselves not to just be victims of the moment, but actually stronger, building a stronger company for the long term. Thank you.

Thanks, Carlos. Thanks, Andre. Very helpful. Our next question is from the line of Robert Moscow with TD Cowen. Please receive their questions.

Hi, thanks for the question. I wanted to drill in a little bit on the commoditized categories, Carlos, like coffee and meats. And I guess cheese to some extent. These three categories are going to be like 40% of the sales of North America grocery. And as you can see in your results here, sliced meats and coffee have become really problematic. I guess I wanted to know, have you started rolling out the brand growth system to these categories? Is it harder to implement it in these than it is in the others? In your Cagney presentation, you know, you yourself said that you have a much lower right to win in coffee and meats. And as a result, does that make it harder to get traction with brand growth system than the others? Thanks.