Q2 2024 Kraft Heinz Co Earnings Call - Q&A

July 31, 2024

Operator: Good day, and thank you for standing by. Welcome to the Kraft Heinz Company's second quarter results conference call. At this time, all participants are in a listen-only mode.

Speaker Change: Good day and thank you for standing by. Welcome to the Kraft Heinz Company second quarter results conference call. At this time, all participants are in a listen-only mode.

Operator: Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: After the speaker's presentation, there will be a question-and-answer session. To ask a question, please press star-one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star-one-one again. I would now like to hand the conference over to your speaker today, Anne-Marie Magella.

Unknown Executive: I would now like to hand the conference over to your speaker today, Anne-Marie Magella. Thank you, and hello everyone. This is Anne-Marie McGillis, Head of Global Investor Relations at the Kraft Heinz Company, and welcome to our Q&A session for our second quarter 2024 business update. During today's call, we may make four or five 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 impact.

Unknown Executive: These statements are based on what we think today, and actual results may differ materially due to risk and uncertainty. 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.

Unknown Executive: Thank you. And hello, everyone. This is Anne-Marie McGillis, Head of Global Investor Relations at the Kraft Heinz Company. And welcome to our Q&A session for our second quarter 2024 business update.

Speaker Change: During today's call, we may make four or five 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.

Unknown Executive: 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 the floor over to our Chief Executive Officer, Carlos Abrams-Rivera, for opening comments. Carlos, it is over to you.

Speaker Change: 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.

Speaker Change: I will now hand it over to our Chief Executive Officer, Carlos Abrams Rivera, for opening comments. Carlos, over to you. Well, thank you, Marie, and thank you, everyone, for joining us today.

Carlos Abrams-Rivera: Thank you, Murray. And thank you everyone for joining us today. Recognizing that it remains a difficult consumer environment, I am proud that we at Kraft Heinz are providing high quality, convenient solutions that are of great value, brands worth paying for. And we will continue to stay focused on renovating and innovating with new benefits, functionality, and accessibility. At the same time, our teams have been relentless in unlocking efficiencies with a mindset of continuous improvement.

Speaker Change: And we will continue to stay focused on renovating and innovating with new benefits, functionality, and accessibility.

Speaker Change: At the same time, our teams have been relentless in unlocking efficiencies with a mindset of continuous improvements, and as a result of great productivity and efficiencies, we have been able to deliver on our promises. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

Carlos Abrams-Rivera: And as a result of great productivity and efficiency, we have been able to hold prices below inflation this year while continuing to invest in innovation, marketing, and R&D and for our stockholders through our dividend and share repurchases. We have returned over $1.5 billion in capital so far. I am very encouraged by how our focus on improving working capital is paying off. We increased free cash flow by nearly 100 million, or approximately 9% compared to last year, and maintained our targeted leverage rate.

Speaker Change: We have been able to hold prices below inflation this year while continuing to invest in innovation, marketing, and R&D.

Speaker Change: And for our stockholders, through our dividends and share repurchases, we have returned over $1.5 billion in capital so far this year.

Unknown Executive: I am very encouraged on how our focus on improving working capital is paying off.

Unknown Executive: We increased free cash flow nearly 100 million, or approximately 9% compared to last year, and maintain our targeted leverage ratio.

Carlos Abrams-Rivera: And finally, it is hard to believe that it has only been four months since my leadership team came together. We're on this journey together, all committed to driving improvements and achieving our company dream. I see the ownership and grit with my direct reports and across the organization. We're all embracing this new operating model and a new way to work. We are only getting stronger and stronger. With that, I have Andre joining me, so let's open the call for Q&A. Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again.

Speaker Change: And finally, it is hard to believe that it has only been four months since my leadership team came together. We are on this journey together, all committed to driving improvements and achieving our company dream.

Unknown Executive: I see the ownership and grit with my direct reports and across the organization.

Speaker Change: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment for questions.

Operator: One moment for questions. Our first question comes from Andrew Lazar with Barclays. He may proceed.

Speaker Change: Our first question comes from Andrew Lazar with Barclays. He may proceed.

Andrew Lazar: Great. Thanks for the question. Good morning, everybody. Good morning, Andrew.

Speaker Change: Great, thanks for the question. Good morning, everybody.

Carlos Abrams-Rivera: Carlos, you mentioned the need for selective promotion and trade spend activity in the second half, just to drive better volume results for, you know, a more value-seeking consumer. I'm curious if there's a way to dimensionalize the portion or the percentage of sales that are sort of in need of some adjustments, and if there are any particular hot spots that require maybe more aggressive pricing actions or sort of a reset of sorts.

Andrew: Morning, Andrew.

Andrew: Carlos, you mentioned the need for selective promotion and trade spend activity in the second half just to drive better volume results.

Unknown Executive: for a more value-seeking consumer.

Andrew Lazar: I'm curious if there's a way to dimensionalize the portion or the percentage of sales that are sort of in need of some adjustments, and if there are any particular hot spots that require maybe...

Carlos Abrams-Rivera: Basically, I'm just trying to get a sense for how broad the price point issue really is across the portfolio, with the understanding that, as you've talked about, promotional prices right now are still below those you saw in 2000. I don't know, why don't you start and I'll complement you.

Speaker Change: More aggressive pricing actions or sort of a reset of sorts. Basically, I'm just trying to get a sense for how broad the price point issue really is across the portfolio. With the understanding that, as you've talked about, promotional right now are still below those you saw in 2019.

Carlos Abrams-Rivera: Morning again, Andrew. Thanks for the question. Look, we, as we said in our guidance, are contemplating a step up in trade investment. You saw that in Q2, we already had a little more trade than we had in the last year, though we're still well below 2019 levels. We believe that looking forward, we should be more focused on those price gaps versus branded competitors and in places where it makes sense for the long term.

Speaker Change: I'm going to let you start and I'll compliment. Sure.

Speaker Change: Look, we, as we said in our guidance, we're contemplating a step up in trade investment level. You saw that in Q2 we already had a little more trade than what we had in the last year, although we're still well below 2019 levels.

Carlos Abrams-Rivera: I think we have been saying all along, and we continue to speak about this, that the way we want to grow the business is not through over-relying on promotions but rather continuing to invest behind the renovation, our renovation, and our market investments. And that's what we have been doing, and we are speaking about that. We are confident about that in the future, but in the short term, we are seeing selected spots where it does make sense to add promotions to close those Yeah, I'm not going to give you like an overly precise number to your question.

Speaker Change: and in places where it makes sense for the long term.

Speaker Change: I think we have been saying all along, and we continue to speak to this, that we believe that the way we want to grow the business is not through...

Carlos Abrams-Rivera: But I estimate in the 30 to 40% of the portfolio where those price gaps require some incremental level of investments in the US, and you are probably really, really helpful. Yeah. And then just a really quick one.

Andrew Lazar: Do you anticipate volume inflecting to positive in the back half? Because I think our method still implies that's the case, even by the new guidance range. And I guess how do you see volume progress playing out specifically in North America in the second half? Thanks again.

Speaker Change: and you probably really, really helpful.

Speaker Change: Yep. And then just a really quick one. Do you anticipate volume inflecting to positive in the back half? Because I think by our math it's still implied that that's the case even by the new guidance range. And I guess, how do you see volume progress playing out specifically in North America in the second half? Thanks again.

Carlos Abrams-Rivera: We do expect revenue and volume to gradually improve throughout the quarter. At the midpoint of our new guidance, we don't need volume to grow for us to achieve our guidance. So our price is expected to be in the around 1% territory for the total portfolio. So if you think about the second half, what's sales declining by 0.5, And so that you can see. Now, it's good.

Speaker Change: In our midpoint of the new guidance, we don't need volume to grow for us to achieve our guidance.

Speaker Change: So, our price expected to be in the around 1% territory for the total portfolio. So if you think about the second half, what's in pilot guidance is sales declining 0.5.

Carlos Abrams-Rivera: The good thing is volumes in emerging markets. [inaudible] I think what I would say to that is, you know, what also gives me confidence to think about that trajectory, improving in the second half is that, you know, we are very much focused on driving that value very much in a sustainable way. So it cannot just be value for the sake of value but delivering value in a sustainable way through innovation, renovation, and marketing for families that we know are spending more time cooking at home.

Speaker Change: and so that you can see. Now it's good the good thing is volumes in emerging markets

Speaker Change: Despite some headwinds in Brazil and China continue to be positive. They were positive in the second quarter, they continue to be so year to go. And in the U.S., we expect to have volume continue to improve.

Speaker Change: But again, in our midpoint, we don't need the volumes to turn to positive for us to achieve it.

Speaker Change: I think what I would say to that is, you know, what also gives me confidence to think about that trajectory improving in the second half is that

Speaker Change: You know, we are very much focused on driving that value in very much in a sustainable way. So it cannot just be value for the sake of value, but delivering value in a sustainable way through innovation, renovation, and marketing.

Carlos Abrams-Rivera: So when you see some of our innovation around things like mac and cheese, where we're bringing new shapes, new flavors, new pack sizes to consumers at a different price, or when you see us bringing new Mexican solutions with Taco Bell and Deli Max, that allows us to, again, bring families solutions for their home when they're spending more time together. That is part of us kind of bringing new ideas and ways in which we can bring value to families at this particular time.

Speaker Change: for frankly families that we know are spending more time cooking at home. So when you see some of our innovation around things like mac and cheese, where we're bringing new shapes, new flavors, new pack size to consumers at different price points.

Speaker Change: When you see us bringing new Mexican solutions with Taco Bell and Delimex that allows us to, again, bring families solutions for their home when they're spending more time together.

Speaker Change: That is part of us kind of bringing new ideas.

Carlos Abrams-Rivera: And we're seeing that also in the away from home business, where we continue to see improvements in the momentum of the business. We are seeing improvements as we are now servicing better and going into Q3. We are also getting new customers in the away from home business, which again, helps us make sure that we're building on the success we've had in the past. And, as Andre said, we are being selective in our investments in trade.

Speaker Change: and ways in which we can bring value to families at this particular time.

Speaker Change: And we're seeing that also in away from home business, where we continue to see the improvements.

Speaker Change: On the momentum of the business, we are seeing the improvements that we are now servicing better going into Q3. We are also getting new customers in away from home business that again help us make sure that we're building on the success we've had in the past.

Speaker Change: And as Andre said, we are being selective in our investments in trade.

Carlos Abrams-Rivera: But we're also committed to a disciplined approach to the RGM tools that we have used in the past. And we know that it will help us make sure that we continue to strike a balance on the profitability of how we spend in a smart way. And thank you, Andrew. Thanks. Thanks very much.

Carlos Abrams-Rivera: Just a final comment. I think our updated guidance also reflects this philosophy and this approach. You know, because we have adjusted our net sales guidance down, but we largely kept our EBIT growth and we fully kept our EPS growth. So that's what we are sticking for.

Speaker Change: And thank you, Andrew. Thanks very much. And just a final comment. Just a final comment is I think our updated guidance also reflects this philosophy and this approach. You know, because you see, we have adjusted our net sales guidance down, but we largely kept...

Speaker Change: We have been very disciplined in being very thoughtful about the type of investments we make and what are the long-term implications of that, and we are going to continue to do so.

Operator: You know, we have been very disciplined in being very thoughtful about the type of investments we make and what are the long-term implications of that. And we are going to continue to do so. Thank you. Our next question comes from Ken Goldman with JPMorgan. You may proceed.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Ken Goldman with J.P. Morgan. You may proceed.

Kenneth B. Goldman: Just sticking on the subject of the back half, you provided a number of reasons for optimism. I think you cited more innovation, renovation, and marketing. You've talked about expanded distribution in certain parts of the business and then, of course, those targeted promotions. Just as we think about these drivers, you know, plus the absence of the plant maintenance headwind, which are you counting on as being the most important and meaningful to hitting your updated outlook? Do the promos have to work?

Kenneth B. Goldman: Hi, just sticking on the subject of the back half, you provided a number of reasons for optimism.

Speaker Change: I think you've cited more innovation, renovation, and marketing. You've talked about

Speaker Change: Expanded distribution in certain parts of the business, and then, of course, those targeted promotions.

Speaker Change: Just as we think about these drivers, you know, plus the absence of the plant maintenance headwind.

Speaker Change: You know, which are you counting on as being the most important and meaningful to hitting your updated outlook? Do the promos have to work? Is it really about innovation striking a note with consumers? I just want to get a better idea of kind of your visibility and reliance on the factors you're talking about. Thank you.

Carlos Abrams-Rivera: Is it really about innovation striking a note with consumers? I just want to get a better idea of your visibility and reliance on the factors you're talking about. Thank you. Thank you for your question, Ken. I think, frankly, it depends a little bit on the region of the world.

Speaker Change: Thank you for your question, Ken. You know, I think, frankly, it's a...

Carlos Abrams-Rivera: I think if you think about our emerging markets, as Andrew pointed out, we have been growing volume. We continue to see improvements as we go into the second half of the year, and already we exited June in a much better way than we did for the whole quarter.

Speaker Change: It depends a little bit on the region of the world. I think if you think about our emerging markets as...

Speaker Change: Andrew pointed out, we have been growing volume. We continue to see improvements as we go into the second half of the year. And already we exited June in a much better way than we had for the whole quarter.

Carlos Abrams-Rivera: So we are seeing that in that case, the distribution gains that we have seen as we have invested in our go-to-market strategy, emerging marketing is working, and we continue to build on success we've had in the past. In an away-from-home business, it really is us continuing to drive the improvements in our service, given our plan closure that we had in Q2. And those continue to start winning, winning some customers that we, in fact, already have qualified for us in the second half of the year, both globally in the US and outside the US.

Speaker Change: So we are seeing that in that case, distribution gains that we have invested in our go-to-market strategy in emerging markets is working, and we continue to build on the success we've had in the past.

Speaker Change: In an away-from-home business, it really is us continue to drive the improvements on our service, given our planned closure that we had in Q2.

Speaker Change: and those continue to start winning some customers that we in fact already have qualified for us in the second half of the year. And that is both globally in the US and outside the US.

Carlos Abrams-Rivera: So we are not expecting, initially, a big improvement in the overall situation away from home in the U.S., but what we do expect is that we will, in fact, continue to see progress in our distribution gains as we go forward. And in the U.S. and North America overall, it's really driven by this balance between us driving this innovation, renovation of our brands, truly being more thoughtful about the value that we're creating with consumers in terms of the better products, the better ideas that we're bringing to market, as well as being thoughtful about how we are going to spend on our revenue management tools, and spread our revenue management tools in order for us to make sure that we are having the So that should give you a little bit of a sense of how we're thinking about the overall portfolio. Andrew, anything you wanted to add? No, I think it's straightforward.

Speaker Change: So we are not expecting initially a big improvement in the overall situation away from home in the U.S.

Speaker Change: But what we do expect is that we, in fact, continue to see the progress in our distribution gains as we go forward.

Speaker Change: And in the U.S. and North America for all, it's really driven by this balance between us driving this innovation, renovation of our brands, truly be more thoughtful about the value that we're creating with consumers in terms of the better products.

Speaker Change: The better ideas that we bring into market as well as being thoughtful on how we are going to spend on our revenue management tools

Speaker Change: spread our red environment tools in order for us to make sure that we're having the right price gaps in the intended fashion against the branded competitors.

Speaker Change: So, that should give you a little bit of a sense of how we're thinking about the overall portfolio. Andrew, anything you wanted to add?

Andrew Lazar: No, I think I think you're forward. Thank you, Ken.

Andrew Lazar: Thank you.

Operator: Thank you, Ken. Thank you. Our next question comes from Steve Powers with Deutsche Bank. You may proceed.

Speaker Change: Our next question comes from Steve Powers with Deutsche Bank. You may proceed.

Stephen Robert R. Powers: Great. Thank you. Thank you. Good morning.

Operator: You called out a couple of overseas markets, specifically the UK, China, and Brazil, different dynamics in each of those markets, but obviously a lot of work going on as you try to correct trade gaps, or sorry, price gaps in the UK and fight through Consumer Demand Softness in China and Brazil. Could you start, you know, expanding on what you're seeing in those markets and, and maybe a bit more color on what your expectations are for the back half in Yeah, sure.

Stephen Robert R. Powers: Great. Thank you. Thank you. Good morning.

Speaker Change: You called out a couple of overseas markets, specifically the UK, China, and Brazil, different dynamics in each of those markets.

Speaker Change: Obviously, a lot of work going on as you try to correct trade gaps, or sorry, price gaps in the UK and fight through.

Shannon Bazile: Consumer Demand Softness, and Shannon Bazile. I guess, could you just expand on what you're seeing in those markets and maybe a bit more color on what your expectations are for the back half in terms of any kinds of sequential improvement?

Operator: So I think maybe starting with the UK, we, as we said last year in earnings, suffer a significant amount of inflation, probably even less, even more than other developed markets, and Private Label in that particular market starts to get a lot of traction. And we decided in Q3 last year to start to step up investments to protect the volume. We do have some factories in the UK that also need to be mindful about the utilization of those factories and protect the volume for some of the strong brands we have over there.

Shannon Bazile: Sure. So, I think maybe starting with the UK, we...

Speaker Change: As we said last year in earnings, this is a place that's...

Speaker Change: a significant amount of inflation, probably even more than other developed markets.

Speaker Change: and Private Label in that particular market.

Speaker Change: I start to get a lot of traction and we decided in Q3 last year to start to step up investments to protect the volume. We do have some factories in the UK that's also going to be mindful about the utilization of those sectors.

Operator: We have put that in place since now, almost a year ago, and we have seen the returns happening on the volume share side. So I think we're moving in the right direction, and we are able to mostly protect even gross margin because of the amount of efficiency that we have generated there. So UK, I think, is moving in the right direction.

Speaker Change: and protect the volume for some of the strong brands we have over there. We have put that in place since now almost a year ago and we have seen

Speaker Change: The return is happening on the volume share side, so I think we're moving in the right direction. We were able to mostly protect even gross margin because of the amount of efficiency that we have generated there.

Carlos Abrams-Rivera: When it comes to China, similar to what we have heard from others, the industry continues to be soft versus the expectations that we have about a country like China. So we continue to gain market share in modern trade. So that's a good thing, but the industry is just not working, and I think we have to reset our expectations moving forward, at least for the short term, about Chinese industry growth in Brazil.

Speaker Change: So the UK is moving in the right direction.

Carlos Abrams-Rivera: We, the good thing is you continue to gain market share. So that's been very consistent, and I feel good about that. However, the consumer has been demonstrating, similar to other parts of the world, fatigue and has been showing loss of vulnerability.

Speaker Change: The good thing is you continue to gain market share. So that's been very consistent and feel good about that Consumer it has been demonstrating similar to other parts of the world

Carlos Abrams-Rivera: So we saw some price gaps to branded players for private label that was negligible also coming down. So we had to invest. But we face a situation where the customers. I just said that inventory is down. You have to understand that in emerging markets, retailers tend to carry more inventory than in developed markets. So in a country like Brazil, if you see inventories at the 45, 50 days level compared to the US, where you see 20 days, 25 days, so it's very different.

Speaker Change: are just getting inventories now. We have to be, understand that these emerging markets, retailers tend to carry more inventory than in developed markets. So in a country like Brazil, if you see inventory at the 45, 50 days level compared to the rest where you see 20 days, 25 days, so it's very different.

Carlos Abrams-Rivera: What we have seen in a situation like we are right now, with high interest rates, and consumer tightness, is that retailers start to adjust their inventories down. Honestly, we weren't expecting that, and that created a challenge for us in Brazil in the first half of the year. We believe that inventories, we believe right now that they should be at the appropriate level, which should allow us to improve the situation. But yeah, that's a little bit of a snapshot.

Speaker Change: And what we have seen in a situation like we are right now, high interest rates, consumer tightness, is retailers start to adjust their inventories now. And honestly, we are not expecting that. And that created a...

Speaker Change: allow us to improve the situation. But yeah, that's a little bit of snapshot.

Operator: Thank you. Our next question comes from John Baumgartner with Missoula Securities. Please proceed. Good morning, thanks for the question. I wanted to come back to North America, you know, your portfolio in a lot of your categories, you're not the highest priced product. And you'd think there should be some benefit from trading down into your brands. But with the focus on managing price gaps to other brands, it also seems like the equation is still very pricey.

Speaker Change: Good morning, thanks for the question.

Operator: So at this point, how do you feel about the ability to redefine your portfolio through innovation and marketing, where you can better compete on non-price factors? Because it feels like there's already been a lot of work done with ingredient reformulations and so on. What do you think about non-price factors?

Speaker Change: So, you know, at this point, how do you feel about the ability to redefine your portfolio through, you know, innovation, marketing, where you can better compete on non-price factors? Because it feels like there's already been a lot of work done with ingredient reformulations and so on. How do you think about the non-price competition?

John Joseph Baumgartner: Yeah, well, first of all, thank you for the question. And as you pointed out, we have, you know, a series of iconic brands across our portfolio in North America that we feel great about. And you've seen that already.

Carlos Abrams-Rivera: I mean, you've seen brands from Philadelphia to or either where you are seeing the growth as we have continued to renovate those businesses, and the success that we've had with a brand like Jell-O where we have continued to renovate. So we have a playbook on how we continue to renovate our businesses, our brands, to make sure they, in fact, continue to be responding with consumers today and for the future. I think in places where we are seeing that consumers are making choices as they are trying to manage the cash flow of the family, we also have to be aware that we have to provide consumers with options at different price points so they can be part of their own basket size of the cash flow that they have available to them.

Speaker Change: where you are seeing the growth as we have continued to renovate those businesses, or the success that we've had in a brand like Jell-O where we have continued to renovate. So we have a playbook on how we continue to renovate our business, our brands.

Speaker Change: to make sure they, in fact, continue to be resonating with consumers today and for the future.

Speaker Change: I think in places where we are seeing that consumers are...

Speaker Change: Making choices as they are trying to manage the cash flow of the family, we also have to be aware that we have to provide consumers options at different price points so they can be part of their own basket size of the cash flow that they have available to them.

Carlos Abrams-Rivera: That's why, in a business like Mac and Cheese, while it's certainly something that can fit the entire family, we want to make sure we have different price points at which we can come in to consumers and allow them to make sure they continue to enjoy our products.

Speaker Change: That's why in a business like mac and cheese, well it's certainly something that can fit the entire family. We want to make sure we have different price points in which we can come in to consumers and allow them to make sure they continue to enjoy our products.

Carlos Abrams-Rivera: And it's also about us being able to be accessible in new ways. One of the things we find right now is that consumers are actually increasing the number of trips and locations in which they shop. So for us, it's important that we continue to expand where consumers are going to find our brands, and why we have been so focused on driving our improvements in terms of distribution in the dollar channel, whether that is with our Oscar Mayer businesses and making sure that we have the product they're looking for at that particular venue.

Speaker Change: One of the things we find right now is that consumers are actually increasing the number of trips and locations in which they shop.

Speaker Change: So, for us, it's important that we continue to expand where consumers are going to find our brands and why we have been so much focused on driving our improvements.

Speaker Change: In terms of distribution in the Dollar Channel, whether that is with our Oscar Mayer businesses and making sure that we have the product they're looking for at that particular venue. But it's also us expanding our distribution in places like Club, where we know consumers are also looking for different ways in which we can find value for the family.

Carlos Abrams-Rivera: But it's also about us expanding our distribution in places like Club, where we know consumers are also looking for different ways in which we can find value for their families. So for us, it's applying the playbook that we have from renovating and innovating and, at the same time, making sure we provide access to families as they shop in new spaces, whether they're going from a dollar store to a grocery store to a club, and our brands continue to be there. Those are all things that you'll see us continue to add as we go forward into the second half of the year. Thank you, Carlos.

Speaker Change: So for us it's applying the playbook that we have from renovating and innovating and at the same time making sure we have

Speaker Change: providing the access to families as they're shopping in new spaces, whether they're going from a dollar store, to grocery, to club, and our brands continue to be there. Those are all things that you'll see us continue to add as we go forward into the second half of the year.

Speaker Change: Thank you for the question.

Operator: Thank you. Our next question comes from Michael Lavery with Piper Sandler. You may proceed. Thank you. Good morning. I just was wondering away from home about two things.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Michael Lavery with Piper Sandler. You may proceed.

Michael Scott Lavery: You called out that it had a 2.1% decline globally. Obviously, you had plant closures and some discontinuations. Can you unpack maybe the components there and give a sense of how much the slower foot traffic was a headwind or what the growth rate was excluding those kind of one-time things and maybe how much was from slower foot traffic? Also, you've given an update in the past on the remix launch in Vertify, the test, and I'm just curious how that's progressing. Andrew, do you want to start?

Michael Scott Lavery: I just was wondering in Away From Home, maybe two things. You called out that it had the 2.1% decline globally. Obviously you had the

Speaker Change: The plant closure and some discontinuations.

Speaker Change: What the, what the run, what the, um...

Speaker Change: growth rate was excluding those kind of one-time things, and maybe how much was from slower foot traffic. And then also you've given an update in the past on the remix launch in BurgerFi, the test, and I'm just curious how that's progressing there.

Andre Maciel: Sure. But our global away from home business declined 2.1% in the quarter. And the impact from the plant closure is about 200 bps, meaning that we will be flat without that effect. That will put us in a situation of similar performance to Q1 if you remove the plant closure effect. The planned exits that we had at the end of last year had an impact on the quarter of roughly 150 people. So we'll be then growing 1.5.

Andre Maciel: So we're still gapped versus a long-term model. We have been gaining sustaining share. Again, if you remove the effect of the plant closure, what we saw in Q2 in the industry, this category is where we play, the industry was worse in Q2 than in Q1, which I think we were not really expecting that. So in the U.S., about 100 beats softer in Q2 versus Q1.

Speaker Change: This in the category is that in where we play is that industry was worse in Q2 than in Q1.

Speaker Change: which which I think we were not really expecting that so to in the US about 100 bits software in Q2 versus Q1. So I think that the performance on our side helped to offset part of that headwind that happened in Q2.

Carlos Abrams-Rivera: So I think that the performance on our side helped to offset part of that headwind that happened in Q2. Yeah, and then to your question about our equipment strategies, they are pretty comprehensive in terms of how we think about bringing innovation but also solving pain points for the operators in a way from home. So, the Heinz Remix, today we have that already in the market.

Speaker Change: So, the HydroMix.

Carlos Abrams-Rivera: And the way I think about it is that this is really a moment for us to do the trial, making sure we get the learning from that so that we can scale that in a meaningful way in 2025. And so far, we're hearing great feedback from operators. We're collecting a lot of data from consumers, and we're seeing how that actually allows us to even improve as we think about how we are going to deploy this further in 2025.

Speaker Change: Today, we have that already in market, and the way I think about it is, it is really a moment for us to do the

Speaker Change: The trial, making sure we get the learnings from that so that we can scale that in a meaningful way in 2025. And so far, we're hearing great feedback from operators. We're collecting a number of data from consumers. And we're seeing how that actually allows us to even improve as we think about how we are going to deploy this.

Carlos Abrams-Rivera: The interesting thing, too, is that, you know, initially, we thought this would be something that people would be using most in their burgers. We are actually seeing them using other foods as well when they see this in their different QSRs.

Carlos Abrams-Rivera: Now, beyond the Heinz remix, we have also been focusing on bringing new dispensers, tabs, and bending into the pipeline. And again, it's part of us thinking more comprehensively about how we solve those pain points for operators. So our dispensers, for example, are much easier for operators to clean, and it allows us to actually make sure that they reduce the amount of labor involved in the collecting and exchanging of the dispensers.

Speaker Change: Now, beyond the Heinz Remix,

Speaker Change: We also have been focusing on bringing new dispensers, taps, and bending into the pipeline.

Speaker Change: And again, it's part of us thinking about more comprehensive, about how do we solve this pain point for operators.

Speaker Change: So, our dispensers, for example, that are much easier for operators to clean.

Speaker Change: and it allows us to actually make sure that they reduce the amount of labor involved in the collecting and changing of the dispensers. They began shipping to customers now in Q2, and we believe that actually it's going to continue to improve the distribution as we go into the second half of the year.

Carlos Abrams-Rivera: They began shipping to customers now in Q2, and we believe that actually it's gonna continue to improve distribution as we go into the second half of the year. And they are already beginning to get much, much distribution that we had originally expected. So you'll see us continue to now drive some of the learning that we began in the US globally, as well as we continue to bring more of those tabs and vending ideas into the marketplace. And thanks for the question. Thanks so much.

Speaker Change: and already beginning to get much, much distribution that we had originally expected.

Speaker Change: So, you'll see us continue to now drive some of the learning that we began in the U.S. globally, as well as we continue to then bring more of those tabs and vending ideas into the marketplace.

Speaker Change: And thanks for the question.

Speaker Change: Thanks so much.

Operator: Thank you. Our next question comes from David Palmer with Evercore. You may proceed. Thanks. Good morning.

Speaker Change: Thank you.

Speaker Change: Our next question comes from David Palmer with Evercore. You may proceed.

David Sterling Palmer: Good morning. Looking ahead in U.S. retail,

David Sterling Palmer: Just looking, looking ahead. Good morning. Looking ahead in U.S. retail, you're looking to stabilize things there. And thanks for the commentary earlier on volume and price. How are you thinking about improvement across the portfolio and what we're going to be seeing in the scanner data? called out Capri Sun and launchables as two areas that might improve, that are, you know, turnaround situations. Those are down. Let me start, and then what I will say is.

David Sterling Palmer: And you're looking to stabilize things there, and thanks for the commentary earlier on volume and pricing.

David Sterling Palmer: How are you thinking about improvement across the portfolio and what we're going to be seeing in the scanner data? You've called out Capri Sun and launchables as two areas.

Speaker Change: You know, certainly the most, but that doesn't necessarily mean those are the biggest areas of improvement that you're anticipating. How are you thinking about which brands and which categories will improve the most in the second half?

Carlos Abrams-Rivera: We called those out because they were a meaningful headwind for us in our second quarter, and I think it's something that the teams have done an amazing job of making sure that we have the right plans as we go forward. I mean, meaningful to the point that in the case of Lunchables, we saw from a low point of, I would say, down 17 percent, the worst week in the second quarter, where we have actually seen a steady recovery since that particular point, and we're building with that improvement.

Speaker Change: Let me start, and then what I will say is...

Speaker Change: We called those out because they were, you know, a meaningful headwind for us and in our second quarter.

Speaker Change: And I think it's something that the teams have done an amazing job of making sure that we have the right plans as we go forward.

Speaker Change: I mean, it was meaningful to the point that in the case of Lunchables, we saw from a low point of...

Speaker Change: I would say down 17%, the worst week in the second quarter, where we have actually seen a steady recovery since that particular point, and we're building that improvement.

Carlos Abrams-Rivera: And the teams are getting ready, both in terms of renovating, innovating, doubling the marketing spend, improving the media mix, improving the targeting strategies, and increasing the value equation for the consumers as we go forward. And that includes innovation. Some of it we included in some of the slides that you saw.

Speaker Change: And the teams are getting ready, both in terms of renovating, innovating, doubling the marketing spend, improving the media mix.

Speaker Change: Improving the targeting strategies and increasing the value equation for the consumers as we go forward.

Speaker Change: And that includes innovations, some of it we included already in some of the slides that you saw. But also we have other innovations that for competitive reasons we're not including yet, but they will be coming in the second half of the year as well.

Carlos Abrams-Rivera: But also, we have other innovations that, for competitive reasons, we're not including yet, but they will be coming in the second half of the year as well. Plus, we continue to expand the launch of what we flew in partnership with Del Monte in the second half of the year. So there is a meaningful amount of program that is supported by our launchables.

Speaker Change: Plus, we continue to expand in the launch of what we flew in partnership with Del Monte in the second half of the year.

Speaker Change: So.

Speaker Change: There is a

Carlos Abrams-Rivera: And you see that from, and you begin to see that really come into fruition in our Back to School program, when we're steaming up with the Transformer movie as something that, frankly, we have been successful in the past at doing movie tie-ins as we have done with the Heinz brand. And we did point out as well Capri Sun, because again, it was a meaningful headwind for us in the second quarter. Again, the teams have been very much focused on driving a change in trajectory as we go to the second half of the year.

Speaker Change: A meaningful amount of program they support in their launchables.

Speaker Change: And you see that from, and you begin to see that really come into fruition in our, in our Back to School program.

Speaker Change: when we steam it up with the Transformer movie.

Speaker Change: as something that, you know, frankly, we have been successful in the past of doing movie tie-ins that we have done with the Heinz brand.

Speaker Change: And, you know, we did point out as well Capri Sun, because again, it was a meaningful headwind for us in the second quarter. That again, the teams have been very much focused on driving a change on trajectory as we go to the second half of the year.

Carlos Abrams-Rivera: They have renovated the original Capri Sun to better align with the consumer taste preference, invested twice in marketing as we go into 2023, virtual 2023. We have secured strong back-to-school displays with customers. We have invested in the right promotional events, and we have expanded into new channels with the club. So again, in both places, what we have seen for meaningful headwinds in Q2 now we also have just as meaningful a reaction in terms of improving that trajectory as we go forward.

Speaker Change: They have renovated the original Capri Sun to better align with the consumer taste preference. Invested twice the marketing as we go into 2023, virtual 2023.

Speaker Change: We have secured strong back-to-school displays with customers. We have invested in the right promotional events, and we have expanded into new channels with clubs.

Speaker Change: So again, in both places, what we have seen some meaningful headway in the Q2 that we now have, I think, also just a meaningful reaction in terms of improving that trajectory.

Carlos Abrams-Rivera: And that will continue with the other things that are working for us. We do have some positive momentum in parts of our accelerated platform. I mentioned Orida, which is gaining almost a share point. Our Mexican business is also gaining 80 bits. The cream chip business has sustained growth through the entire first half of the year.

Speaker Change: And that will continue with the other things that are working for us. We do have some positive momentum as part of our accelerated platform.

Speaker Change: I mentioned Llorida, which is gaining almost a share point. Our Mexican business is also gaining 80 bits.

Speaker Change: Cringy business that sustained growth through the entire first half of the year. So those are business that we'll continue to see gain that momentum as we go into the into the second half of the year.

Carlos Abrams-Rivera: So those are businesses that we'll continue to see gain that momentum as we go into the second half of the year. Thanks for that. I think we should expect mac and cheese as well; there is a lot going on in the mac and cheese business in the second half. That might be a word.

Speaker Change: Thanks for that. I think we should expect the mac and cheese as well, there is a lot going on in the mac and cheese in the second half, that might be a word. You know, I think about how do I round up the items in an accelerated platform.

Carlos Abrams-Rivera: Yeah. Yeah. You know, I think that if I think about how do I round up the items in an accelerated platform.

Carlos Abrams-Rivera: You know, there are probably two areas in which we feel like, you know, we also have to be focused on. And we are. One is our spoonable business, in which we are, in fact, making sure that we are having the right brand price gaps against our branded competitors. So we are investing in new flavors and making sure we have renovated the package design on our Spoonable business. And in Mac and Cheese, as you saw from our slides, we saw us making sure that we brought in, again, new innovation, new shapes, new flavors, tie in now with Super Mario Brothers.

Speaker Change: You know, there's probably two areas in which we feel like, you know, we also have to be focused on. And we are. One is in our spoonable business in which we are, in fact, making sure that we are having the right brand price gaps against our branded competitors.

Speaker Change: So we are investing in new flavors.

Speaker Change: and making sure we have renovated the package design on a spoonable business.

Speaker Change: Any mac and cheese, as you saw from our slides.

Speaker Change: You saw us making sure that we bring in, again, new innovation, new shapes, new flavors.

Carlos Abrams-Rivera: So that idea of us being able to bring innovation and excitement into the Mac and Cheese business is part of us continuing to see us improve the momentum of that business. We go into the second half of the year, which we know is a product that families really care about in moments when they're looking for value to feed their entire family. Great, I was going to follow up and ask you about condiments and sauces, particularly the Spoonables area, as you discussed.

Speaker Change: tie-in now with the Bermuda Brothers.

Speaker Change: So that idea of us being able to bring innovation and excitement into the mac and cheese business.

Speaker Change: is part of us, continue to see us improving the momentum of that business as we go into the second half of the year, which we know is a product that families really care about in moments in which they're looking for value to feed their entire family.

Speaker Change: Great. I was going to follow up and ask you about condiments and sauces and in particular the spoonables area like you discussed it but you you covered it. I'll pass it on. Thanks so much.

David Sterling Palmer: We covered that. I'll pass it on. Thank you. Operator, we have time for one more question. Thank you. And our last question comes from Robert Moskow with TD Cowen. You may proceed. Hi, thanks for the question.

Speaker Change: Thank you. Operator, we have time for one more question.

Speaker Change: Thank you.

Speaker Change: And our last question comes from Robert Moskow with T.D. Cowan. You may proceed.

Robert Bain Moskow: Andre and Carlos, I think one of the concerns with Kraft Heinz stock is that all this great progress you've made on gross margin recovery might come under pressure over the next 12 months because you have to make some of these price investments and because volume has been weak. So maybe to address those, can you talk about what gross margin would have been in 2Q excluding? Some of these one-time issues, like, you know, the plant closure and the other elements that maybe are more transitory, could this have been an even higher number?

Robert Bain Moskow: Hi, thanks for the question. Andre and Carlos, I think one of the concerns on Kraft Heinz stock is that all this great progress you've made on gross margin recovery might come under pressure over the next 12 months

Speaker Change: Because you have to make some of these price investments and because volume has been weak.

Speaker Change: So, maybe to address those, can you talk to, what would gross margin have been in 2Q excluding

Speaker Change: Some of these one-time issues like, you know, the plant closure and the The other elements that maybe are more transitory could this have been an even higher number

Speaker Change: and and would that kind of give us confidence therefore that you know there's more room for gross margin expansion into 2025

Andre Maciel: And would that kind of give us confidence, therefore, that, you know, there's more room for gross margin expansion into 2025? Hi, Rob. Thanks for the question. Look, in both Q1 and Q2, we did have a few situations that negatively impacted gross margin, very once in a lifetime in nature. I'll be reluctant to give you a precise percentage point, but we did have quite a few substantial events in Q1 and Q2.

Speaker Change: Hi, Rob. Thanks for the question. Look, in both Q1 and Q2, we did have a few situations that

Speaker Change: Negative Impact, Ross Margin, like very one time in nature. I'll be reluctant to give you a precise percentage point, but we did have...

Andre Maciel: And despite that, we were able to expand the way that we did. As you head into the second half, last year, we had a big step up in gross margin in the second half. So you're going to see a more muted year-over-year impact from gross margin. But that's part of the plan from the beginning, so we're not really worried about that.

Speaker Change: Quite a few substantial events in Cuba and Nicaragua too.

Speaker Change: And despite that, we were able to expand the way that we did. As you head into the second half, last year we had a big step up in gross margin in the second half. So you're going to see a more muted year-over-year impact from gross margin.

Speaker Change: But that's part of the plan since the beginning, so we're not really worried about that. As we head into 2025, I'm not going to give guidance, obviously, but if you remember our long-term algorithm, we do contemplate continuous gross margin expansion.

Andre Maciel: As we head into Q5, I'm not going to give guidance, obviously, but if you remember our long-term algorithm, we do contemplate continuous gross margin expansion, not to the level that you're seeing right now, but to the 2575 beats ish. But as a consequence of the very strong efficiency that they have, I think we were able to fix the supply chain. Now, a few years ago, and we have now had four consecutive years of very strong delivery coming from the thing we have, we feel very good about the pipeline that we have.

Speaker Change: Not in the levels that we are seeing right now, but in the 25, 75-ish.

Speaker Change: But as a consequence of the very strong efficiency that they have, I think we were able to fix the supply chain now a few years ago, and we have now for four consecutive years seen very strong delivery coming from the team. We feel very good about the pipeline that we have.

Andre Maciel: We have been able this year to not only remember that we had 3% inflation this year, but we're only pricing 1%, and we were able to offset that with efficiencies and still expand growth margin to invest in the business. So we do expect that this equation might continue to work into the future. We should expect a more gradual, but continuous growth margin expansion. The only thing I would build Rob is

Speaker Change: We have been able to see a

Speaker Change: to not only remember we had a three percent inflation this year we're only pricing one percent and we are able to offset that with efficiencies and still expand gross margin to invest in the business so we do expect that this equation might continue to work into the future so we should expect

Speaker Change: A more gradual, but continuous cross-margin expansion.

Carlos Abrams-Rivera: This idea of really changing the rewiring of the company, where we are all focused on driving efficiency because it's the fuel for us to drive profitable growth has now been embedded across the company. You see it with procurement, you see it in operations, but you also see it in marketing and us being able to have more efficiency in how we go to market, improving the return on investment. You see, in trade, on how we apply AI to have better tools on how we actually have better investments and profitable ways in which we can invest our trade as we go into the marketplace. So it is not a one and done deal.

Speaker Change: The only thing I would build, Rob, is...

Rob: This idea of us...

Rob: really changing the rewiring of the company. Where we are all focused on driving efficiency because it's the fuel for us to drive profitable growth, has now been embedded across the company.

Rob: You see that with procurement, you see it in operation, but you also see it in marketing, not being able to have...

Rob: More efficiencies of how we go to market.

Rob: Improving the return on investment, you see that in trade on how we apply AI to have better tools on how we actually have profit, better investments and profitable ways in which we can invest our trade as we go into the marketplace.

Carlos Abrams-Rivera: It is something that we believe can be a sustainable strength for us as a company. And personally, I believe that having a healthy growth margin is truly the key component of having a virtual cycle of growth. And that is a big part of why we are so strong believers in a long-term algorithm for the company. The changes in operating model that we did a couple years ago to really reintegrate commercial and supply chain, I think are really paying off.

Rob: So it is not a it is not a a one-and-done. It is something that we believe can be a sustainable strength for us as a company

Speaker Change: And personally, I believe that having healthy growth margin is truly the key component of having a virtual cycle of growth, and that is a big part of why we are so strong believers on a long-term algorithm for the company. The changes in operating model that we have done a couple of years ago to really reintegrate commercial and supply chain, I think is really paying off big time.

Carlos Abrams-Rivera: The incentive alignment that you have done, we mentioned this before, like everyone in the company has two KPIs in common, market share and gross margin, because we want people to grow profitably. So I think that also contributes to that.

Speaker Change: The incentive alignments that you have done, we mentioned this before, everyone in the company has two KPIs in common, which is market share and gross margin, because we want people to grow profitably. So I think that also contributes to that.

Operator: Okay. Thank you, everyone. Thank you for your interest in Kraft Heinz. Thank you. This concludes the conference. Thank you for your participation. You may now disconnect. [inaudible] ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? Good day and thank you for standing by. Welcome to the Kraft Heinz Company second quarter results conference call. At this time, all participants are in a listen-only mode.

Operator: Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.

Speaker Change: Okay. Thank you, everyone. Thank you.

Speaker Change: Thank you for your interest in Kraft Heinz.

Unknown Executive: I would now like to hand the conference over to your speaker today, Anne-Marie Magella. Thank you, and hello everyone. This is Anne-Marie McGillis, Head of Global Investor Relations at the Kraft Heinz Company, and welcome to our Q&A session for our second quarter 2024 business update. During today's call, we could make four mistakes regarding our expectations for the future, including items related to our business plans and expectations, strategy, efforts, and investments, and related timing and expected impact.

Speaker Change: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Speaker Change: www.TheBusinessProfessor.com

Carlos Abrams-Rivera: 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. Carlos, over to you.

Speaker Change: ?? ?? ?? ?? ??

Speaker Change: [inaudible]

Carlos Abrams-Rivera: Thank you, Marie. And thank you, everyone, for joining us today. Recognizing that it remains a difficult consumer environment, I am proud that we at Kraft Heinz are providing high-quality, convenient solutions that are of great value, brands worth paying for. And we will continue to stay focused on renovating and innovating with new benefits, functionality, and accessibility. At the same time, our teams have been relentless in unlocking efficiencies with a mindset of continuous improvement.

Speaker Change #108: Good day and thank you for standing by. Welcome to the Kraft Heinz Company second quarter results conference call.

Speaker Change: At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. I would now like to hand the conference over to your speaker today, Anne-Marie Magella.

Speaker Change: Thank you and hello everyone. This is Anne-Marie Magella, Head of Global Investor Relations at the Kraft Heinz Company, and welcome to our Q&A session for our second quarter 2024 business update.

Speaker Change: 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.

Speaker Change: These statements are based on how we think today, and actual results may differ materially due to risk and uncertainties.

Speaker Change: 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.

Speaker Change: Additionally, we may refer to non-GAAP financial measures, which exclude certain items from our financial results reported in accordance with GAAP.

Speaker Change: Please refer to today's earnings release and the non-GAAP information available on our website at ir.kraftheinzcompany.com under News & Events.

Speaker Change: for discussion of our non-GAAP financial measures and reconciliations.

Carlos Abrams-Rivera: to the Comparable GAAP financial Measures. I will now hand it over to our Chief Executive Officer, Carlos Abrams-Rivera, for opening comments. Carlos, over to you. Well, thank you, Marie, and thank you, everyone, for joining us today.

Carlos Abrams-Rivera: Recognizing that it remains a difficult consumer environment, I am proud that we at Kraft Heinz are providing high quality, convenient solutions that are great value, brand worth paying for.

Carlos Abrams-Rivera: And we will continue to stay focused on renovating and innovating with new benefits, functionality, and accessibility.

Carlos Abrams-Rivera: At the same time, our teams have been relentless in unlocking efficiencies with a mindset of continuous improvements, and as a result of great productivity and efficiencies, we have been able to deliver on our promises.

Carlos Abrams-Rivera: We have been able to hold prices below inflation this year while continuing to invest in innovation, marketing, and R&D.

Carlos Abrams-Rivera: And for our stockholders, through our dividends and share repurchases, we have returned over $1.5 billion in capital so far this year.

Carlos Abrams-Rivera: I am very encouraged by how our focus on improving working capital is paying off. We increased free cash flow by nearly 100 million, we're approximately 9% compared to last year, and we maintain our targeted leverage rate. And finally, it is hard to believe that it has only been four months since my leadership team came together.

Carlos Abrams-Rivera: I am very encouraged on how our focus on improving working capital is paying off.

Carlos Abrams-Rivera: We increased free cash flow nearly 100 million, or approximately 9% compared to last year, and maintain our targeted leverage ratio.

Carlos Abrams-Rivera: We're on this journey together, all committed to driving improvements and achieving our company dream. I see the ownership and grit with my direct reports and across the organization. We're all embracing this new operating model and a new way to work. We are only getting stronger and stronger.

Speaker Change: I see the ownership and grit with my direct reports and across the organization.

Speaker Change: We are all embracing this new operating model and ways of working, and we are only getting stronger and stronger.

Carlos Abrams-Rivera: With that, I have Andre joining me, so let's open the call for Q&A. Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Speaker Change: With that, I have Andre joining me, so let's open the call for Q&A.

Andre: Thank you. As a reminder to ask a question please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 1 again. One moment for questions.

Operator: One moment for questions. Our first question comes from Andrew Lazar with Barclays. He may proceed.

Speaker Change: Our first question comes from Andrew Lazar with Barclays, he may proceed.

Andrew Lazar: Great. Thanks for the question. Good morning, everybody. Good morning, Andrew.

Carlos Abrams-Rivera: Carlos, you mentioned the need for selective promotion and trade spend activity in the second half just to drive better volume results for you know, a more value-seeking consumer. I'm curious if there's a way to dimensionalize the portion of the percentage of sales that are sort of in need of some adjustments and if there are any particular hotspots that require maybe more aggressive pricing actions or sort of a reset of sorts. Basically, I'm just trying to get a sense for how broad the price point issue really is across the portfolio with the understanding that, as you've talked about, promotional right now are still below those you saw in. I've been a real use for it, and I'll compliment you. Good morning again, Andrew.

Speaker Change #103: Great. Thanks for the question. Good morning, everybody.

Andrew Lazar: Morning, Andrew.

Carlos Abrams-Rivera: Carlos, you mentioned the need for selective promotion and trade spend activity in the second half just to drive better volume results.

Carlos Abrams-Rivera: for, you know, a more value-seeking consumer.

Andrew Lazar: I'm curious if there's a way to dimensionalize the portion of the percentage of sales that are sort of in need of some adjustments and if there are any particular hot spots that require maybe more aggressive pricing actions or sort of a reset of sorts.

Speaker Change: Basically, I'm just trying to get a sense for how broad the price point issue really is across the portfolio, with the understanding that, as you've talked about, promotions right now are still below those you saw in 2019.

Speaker Change #100: I'm going to let you respond and I'll compliment. Sure.

Carlos Abrams-Rivera: Thanks for the question. Look, we, as we said in our guidance, are contemplating a step up in trade investment. You saw that in Q2, we already had a little more trade than we had in the last year, though we're still well below 2019 levels. We believe that looking forward, we are more focused on those price gaps versus branded competitors and in places where it makes sense for the long term.

Andrew Lazar: Morning again, Andrew. Thanks for your question.

Carlos Abrams-Rivera: We believe that looking forward we are more focused on those price gaps versus branded competitors.

Carlos Abrams-Rivera: I think we have been saying all along, and we continue to speak about this, that the way they want to grow their business is not through over-relying on promotions but rather continuing to invest behind the renovation, our renovation, and our market investments. And that's what we have been doing, and we are speaking about that. We are confident about that in the future, but in the short term, we are seeing selected spots where it does make sense to add promotions to close those Yeah, I'm not going to give you like an overly precise number to your question.

Carlos Abrams-Rivera: and in places where it makes sense for the long term.

Carlos Abrams-Rivera: I think we have been saying all along, and we continue to speak to this, that we believe that the way we want to grow the business is not through...

Carlos Abrams-Rivera: Over relying on promotions and rather continue to invest behind the renovation or renovation and our market investments and that's what we have been doing and we're speaking to that we are confident about that into the future but in the short term we are seeing selected spots where it does make sense to add promotions to close those gaps.

Carlos Abrams-Rivera: But I estimate in the 30 to 40% of the portfolio where those price gaps require some incremental level of investments in the US. Really, really helpful. Yeah. And then just a really quick one.

Carlos Abrams-Rivera: I'm not going to give you an overly precise number to your question, but I estimate in the 30 to 40% of the portfolio where those price gaps require some incremental level of investment in the US.

Andrew Lazar: Do you anticipate volume inflecting to positive in the back half? Because I think by our math, it's still implied that that's the case, even by the new guidance range. And I guess, how do you see volume progress playing out specifically in North America in the second half? Thanks again.

Carlos Abrams-Rivera: in the U.S. Really, really helpful.

Speaker Change: Yep, and then just a really quick one, do you anticipate volume inflecting to positive in the back half? Because I think by our math, it's still implied that that's the case even by the new guidance range. And I guess, how do you see volume progress playing out specifically in North America in the second half? Thanks again.

Carlos Abrams-Rivera: We do expect revenue and volume to gradually improve throughout the quarter. At the midpoint of our new guidance, we don't need volume to grow for us to achieve our guidance. So our price is expected to be in the around 1% territory for the total portfolio. So if you think about the second half, what's in part of the guidance? sales declining by 0.5. And so that you can see. Now, it's good.

Speaker Change: We do expect revenue and volume to gradually improve throughout the quarters.

Speaker Change: In our midpoint of the new guidance, we don't need volume to grow for us to achieve our guidance.

Speaker Change: So, our price is expected to be...

Speaker Change #101: in the around 1% territory for the total portfolio. So if you think about the second half, what's in pilot guidance is sales declining 0.5.

Carlos Abrams-Rivera: The good thing is volumes in emerging markets, despite some headwinds in Brazil and China, continue to be positive, positive in the second quarter, and they continue to be so year to go. And in the U.S., we expect to have volume continue to improve. But, again, at our midpoint, we don't need the volumes to turn positive for us to achieve this.

Carlos Abrams-Rivera: and so that you can see. Now it's good, the good thing is volumes in emerging markets.

Carlos Abrams-Rivera: Despite some headwinds in Brazil and China continue to be positive. They were positive in the second quarter, they continue to be so year to go.

Carlos Abrams-Rivera: And in the U.S., we expect to have volume continue to improve. But again, in our midpoint, we don't need the volumes to turn to positive for us to achieve it.

Carlos Abrams-Rivera: I think what I would say to that is, you know, what also gives me confidence to think about that trajectory improving in the second half is that, you know, we are very much focused on driving that value in very much in a sustainable way. So it cannot just be value for the sake of value but delivering value in a sustainable way through innovation, renovation, and marketing, because, frankly, families that we know are spending more time cooking at home.

Carlos Abrams-Rivera: I think what I would say to that is, you know, what also gives me confidence to think about that trajectory improving in the second half is that

Carlos Abrams-Rivera: You know, we are very much focused on driving that value in very much in a sustainable way. So it cannot just be value for the sake of value, but delivering value in a sustainable way through innovation, renovation, and marketing.

Carlos Abrams-Rivera: For, frankly, families that we know are spending more time cooking at home. So when you see some of our innovation around things like mac and cheese, where we're bringing new shapes, new flavors, new pack size to consumers at different price points.

Carlos Abrams-Rivera: When you see us bringing new Mexican solutions with Taco Bell and Deli Max, that allows us to, again, bring families solutions for their home when they're spending more time together.

Carlos Abrams-Rivera: That is part of us kind of bringing new ideas.

Carlos Abrams-Rivera: And we're seeing that also in the away from home business, where we continue to see improvements in the momentum of the business; we are seeing improvements as we are now servicing better and going into Q3. We are also getting new customers in the away from home business, which again helps us make sure that we're building on the success we've had in the past. And, as Andre said, we are being selective in our investments in trade.

Carlos Abrams-Rivera: and ways in which we can bring value to families at this particular time.

Carlos Abrams-Rivera: And we're seeing that also in away from home business, where we continue to see the improvements.

Carlos Abrams-Rivera: On the momentum of the business, we are seeing the improvements as we are now servicing better and going into Q3. We are also getting new customers in away from home business that again help us make sure that we're building on the success we've had in the past.

Carlos Abrams-Rivera: And as Andre said, we are being selective in our investments in trade.

Carlos Abrams-Rivera: But we're also committed to a disciplined approach to the RGM tools that we have used in the past, and we know that it helped us make sure that we continue to strike a balance on the profitability of how we spend in a smart way. And thank you, Andrew. Thanks. Thanks very much.

Andre: But we're also committed to a discipline approach to the RGM tools that we have used in the past. And we know that it will help us make sure that we continue to make a balance on the profitability and how we spend in a smart way.

Carlos Abrams-Rivera: Just a final comment. I think our updated guidance also reflects this philosophy and this approach. You know, because you see, we have adjusted our net sales guidance down, but we largely kept our EBIT growth and we fully kept our EPS growth. So that's what we are sticking to. You know, we have been very disciplined in being very thoughtful about the type of investments we make and what the long-term implications of that are.

Andrew Lazar: And thank you, Andrew.

Speaker Change: Thanks very much. Just a final comment. Just a final comment is, I think our updated guidance also reflects this philosophy and this approach. You know, because you see, we have adjusted our net sales guidance down, but we largely kept...

Speaker Change #109: Thank you.

Carlos Abrams-Rivera: And we are going to continue to do so. Thank you. Our next question comes from Ken Goldman with JPMorgan. You may proceed.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Ken Goldman with J.P. Morgan. You may proceed.

Kenneth B. Goldman: Hi, just sticking on the subject of the back half, you provided a number of reasons for optimism.

Speaker Change: I think you've cited more innovation, renovation, and marketing. You've talked about

Speaker Change: Expanded distribution in certain parts of the business and then of course those targeted promotions.

Speaker Change #112: Just as we think about these drivers, you know, plus the absence of the plant maintenance headwind.

Speaker Change #104: You know, which are you counting on as being the most important and meaningful to hitting your updated outlook? Do the promos have to work? Is it really about innovation striking a note with consumers? I just want to get a better idea of kind of your visibility and reliance on the factors you're talking about. Thank you.

Speaker Change #104: Thank you for your question, Ken. You know, I think, frankly, is a...

Speaker Change: It depends a little bit on the region of the world. I think if you think about our emerging markets as...

Carlos Abrams-Rivera: Andrew pointed out, we have been growing volume. We continue to see improvements as we go into the second half of the year. And already we exited June in a much better way than we had for the whole quarter.

Carlos Abrams-Rivera: So we are seeing that in that case, distribution gains that we have been making as we have invested in our go-to-market strategy, emerging marketing is working, and we continue to build on success we've had in the past, in and away from home business. It really is us continuing to drive the improvements in our service, given our plan closure that we had in q2. And they continue to start winning and winning some customers that we, in fact, already have qualified for us in the second half of the year.

Speaker Change #111: So we are seeing that in that case, distribution gains that we have invested in our go-to-market strategy in emerging marketing is working, and we continue to build on the success we've had in the past.

Speaker Change #102: In an away-from-home business, it really is us continuing to drive the improvements on our service, given our planned closure that we had in Q2.

Speaker Change #102: and most continue to start winning some customers that we in fact already have qualified for us in the second half of the year. And that is both globally in the US and outside the US.

Carlos Abrams-Rivera: And that is both globally in the US and outside the US. So we are not expecting, initially, a big improvement in the overall situation away from home in the U.S., but what we do expect is that we, in fact, continue to see the progress in our distribution gains as we go forward. And in the U.S. and North America overall, it's really driven by this balance between us driving this innovation, renovation of our brands, truly being more thoughtful about the value that we're creating with consumers in terms of the better products, the better ideas that we're bringing to market, as well as being thoughtful on how we are going to spend on our revenue management tools, spread our revenue management tools, in order for us to make sure that we are having the right price gaps in the intended fashion against the brand-to-brand competition.

Speaker Change #102: So we are not expecting initially a big improvement in the overall situation away from home in the U.S.

Speaker Change #102: But what we do expect is that we, in fact, continue to see the progress in our distribution gains as we go forward.

Carlos Abrams-Rivera: And in the U.S. and North America for all, it's really driven by this balance between us driving this innovation, renovation of our brands, truly be more thoughtful about the value that we're creating with consumers in terms of the better products.

Carlos Abrams-Rivera: The better ideas that we bring into market as well as being thoughtful on how we are going to spend on our revenue management tools

Carlos Abrams-Rivera: spread our red environment tools in order for us to make sure that we're having the right price gaps in the intended fashion against the branded competitors.

Carlos Abrams-Rivera: So that should give you a little bit of a sense of how we're thinking about the overall portfolio. Andrew, anything you wanted to add? No, I think I can take over.

Carlos Abrams-Rivera: So, that should give you a little bit of a sense of how we're thinking about the overall portfolio. Andrew, anything you wanted to add?

Andrew Lazar: No, I think you're good. I think you're forward. Thank you, Ken.

Kenneth B. Goldman: Thank you, Ken. Thank you. Our next question comes from Steve Powers with Deutsche Bank. You may proceed. Great. Thank you. Thank you. Good morning. Um, you called out a couple of overseas markets, specifically the UK, China and Brazil, different dynamics in each of those markets, but obviously a lot of work going on as you try to correct trade gaps, or sorry, price gaps in the UK and fight through, and consumer demand softness and China and Brazil, I guess, could you start, you know, expand on what you're seeing in those markets and, and maybe a bit more color on what your expectations are for the back half in terms of any, any kinds of sequential improvement?

Speaker Change #110: Our next question comes from Steve Powers with Deutsche Bank. You may proceed.

Stephen Robert R. Powers: Great. Thank you. Thank you. Good morning.

Speaker Change #106: You called out a couple of overseas markets, specifically the UK, China, and Brazil, different dynamics in each of those markets.

Speaker Change #105: Obviously, a lot of work going on as you try to correct trade gaps, or sorry, price gaps in the UK and fight through.

Speaker Change: Consumer Demand Softness in China and Brazil. I guess, could you just expand on what you're seeing in those markets and maybe a bit more color on what your expectations are for the back half in terms of any kinds of sequential improvement?

Kenneth B. Goldman: Yeah, sure. So I think maybe starting with the UK, we, as we said last year in earnings, is up next at, suffer a significant amount of inflation, probably even less, even more than other developed markets and private label in that particular market structure.

Speaker Change #107: So I think maybe starting with the UK, we

Speaker Change #107: As we said last year in yearnings,

Speaker Change #107: have a significant amount of inflation of even less, even more than other developed markets.

Q2 2024 Kraft Heinz Co Earnings Call - Q&A

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