Q2 2025 Kraft Heinz Co Earnings Call
Anne-Marie Megela: Greetings and welcome to the Kraft Heinz Company second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Anne-Marie Megela, Global Head of IR.
Greetings and welcome to the Kraft. Heinz company second quarter 2025 earnings call. At this time. All participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce and Marie miguela Global head of ir.
Anne-Marie Megela: Thank you and hello everyone. Welcome to the Q&A session for our second 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. 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 10K, 10Q, and 8K 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.
Thank you and hello everyone. Welcome to the Q&A session for second 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 plan and expectations strategy, efforts and investments in related timing and expected impacts
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 low as our most recent 10K, 10q and AK filings. For more information regarding these risk and uncertainties.
Anne-Marie Megela: 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.
Additionally, we may refer to non-gaap financial measures which exclude certain items from our financial results, reported in a g accordance with gaap.
Please refer to today's earnings release and the non-GAAP information available on our website at KraftHeinzCompany.com.
Carlos Abrams-Rivera: Well, thank you, Anne-Marie, and thank you everyone for joining us today. Listen, I am pleased to report that our second quarter results came in line with our expectations, with an improvement in year-over-year top-line performance. Our investments in product superiority, manufacturing capabilities, and key areas of our business are starting to pay off. It is driving momentum and giving us confidence to reiterate our 2025 full-year outlook. While we do not have any new news to report today in our consideration of strategic transactions, I do want to assure you that we are actively progressing on our evaluation with a focus on unlocking long-term shareholder value. With that, I have Andrew Lazar joining me, so let us open the call for the Q&A.
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.
Well, thank you Marie and thank you everyone for joining us today.
In line with our expectations, with an improvement in year-over-year. Topline performance
Our investments in Pro superiority, manufacturing capabilities and key. Areas of our business are starting to pay off its driving momentum and giving us confidence to reiterate our 2025 full year outlook.
And what we do not have any new news to report today and our consideration, strategic transactions.
I do want to assure you that we are actively progressing on our evaluation with a focus on unlocking, long-term shareholder value.
With that, I have answered joining me. So let's open the call for the Q&A.
Anne-Marie Megela: Will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Andrew Lazar with Barclays.
We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment and may be necessary to pick up the handset before pressing the star keys.
One moment, please, while we pull for questions.
Our first question is from Andrew Lazar with Barclays.
Andrew Lazar: Great, thanks so much. Good morning. I am Carlos. During the quarter, Kraft Heinz put out a release that the company was considering various strategic transactions to create value. As there is nothing specific from the company yet, perhaps we can talk a little bit more in generalities. There was obviously a report from The Wall Street Journal about potential business separation. I know you cannot comment on specifics, but I guess how would you respond to investors that would say such actions oftentimes can be nothing more than financial engineering moves that come with higher costs and dyssynergies, rather than unlocking value. I am really just trying to provide maybe a forum where you can talk a little bit about these sorts of things, maybe more in general, as Kraft looks at a lot of different possibilities, right, to try and unlock value.
Great, thanks so much. Um, good morning. Um, Carlos, you know during the quarter
Kraft, Heinz put out a release that the company was considering, you know, various strategic transactions to create value. Um, as there's nothing specific from the company yet, Perhaps, maybe we can talk a little bit more in generalities, and there was obviously a report from The Wall Street Journal about potential business separation. I know you can't comment on specifics, but I guess, how would you respond to investors? That would say, you know, such actions often times can be, um, nothing more than financial engineering moves that, you know, come with higher costs and just synergies, you know, rather than sort of unlocking value. I'm really just trying to provide, maybe a forum where you can talk a little bit about these sorts of things, maybe more in general. Um, as as craft looks at a lot of different, uh, possibilities right to to try and unlock value.
Carlos Abrams-Rivera: Well, thank you, Andrew. Always great to hear from you. As I said, our board is working with urgency on an evaluation of those strategic options to unlock, as you said, long-term strategic value creation. What I will say also, and I will remind our investors, is that we will operate with the same financial discipline you have come to expect from us. So any actions, if any, will be consistent with that goal of unlocking that long-term shareholder value. That is essentially all I can say at this time. But thank you for your question.
Well, thank you, Andrew, always great to hear from you. As I, you know, our board is working with urgency when I go evaluation of those strategic options.
To unlock that's 2 sets, long term, strategic value creation.
And you know what? I will say also is and I'll remind our investors is that, you know, we will operate with the same Financial discipline you have. Come to expect from us.
and also, any actions, if any, will be consistent with that goal of unlocking that long-term shareholder value.
Andrew Lazar: Yep, gave it a shot. Thank you.
And that's essentially all I can say at this time. But thank you for your question. Yep. Gave it a shot. Thank you.
Anne-Marie Megela: Our next question is from Peter Galbo with Bank of America.
our next question is from Peter, galbo, with Bank of America,
Peter Galbo: Hey guys, good morning. Thanks for taking the question. Andre, maybe a bit more of a technical one. There was a pretty sizable impairment that was taken in the quarter. I was just hoping to get a little bit more detail. It seemed like it was maybe more at the enterprise level, but I did not know if that flowed down to any of the brands in particular or if it is at all tied to, as you contemplate kind of strategic transactions and you think about moving different pieces like that, the reporting change triggered the impairment. Again, it is relatively sizable, so just hoping to get some more detail there. Thanks very much.
Hey guys. Good morning, thanks. Thanks for taking the question. Um, Andre maybe a bit more of a morning, maybe a bit more of a, of a technical 1. Um, but but there was a pretty sizable, you know, impairment that was taken in in the quarter. Um, and it was just hoping to get a little bit more detail. It, it seemed like it was maybe more at the Enterprise level, but I didn't know if that slowed down to any of the, the brands, um, in particular, or if it's at all tied to, you know, as you as you contemplate kind of strategic transactions and you think about, you know, moving moving different pieces like that, the that the reporting change triggered, the the impairment. And again it's it's it's relatively sizable. So just hoping to get some more detail there. Thanks very much.
Carlos Abrams-Rivera: Thanks for the question, Peter. Look, we recorded a $9.3 billion non-cash impairment charge. The trigger for that was only the fact that we have a sustained decline in the stock price, and that has reduced the carrying value of our intangible assets. We have been monitoring this for some time. We disclosed in our previously filed 10Q the risk that this could happen. It is not really nothing new and nothing beyond that. This does not change the view that we have in the value of the company, including the confidence and direction we have in the strategy.
Sure, thanks for the question Peter. So
Look, we we recorded a 9.3 billion dollar. Non-cash impairment charge.
and the trigger for that was
Uh, only the fact that we have a sustained decline in the stock price, and that has reduced the carrying value of our intangible assets.
Uh, we have been monitoring this for some time. We disclose
In our previous call, we discussed the risk that this could happen. So it's not really, uh, nothing even beyond that. This does not change the view that you have between the $6 value of the company.
Including the confidence and direction we have in the strategy.
Peter Galbo: Okay, thanks very much.
Okay, thanks so much.
Anne-Marie Megela: Our next question is from David Palmer with Evercore ISI.
Our next question is from David Palmer, with evercore isi.
David Palmer: Thanks. I am just wondering how you are thinking about your pricing and promotion levels currently. Where do you see perhaps an opportunity or a challenge to ramp up promotions or narrow price gaps? Where do you feel like you have taken the steps already that you are comfortable where you are versus your nearing competition, even if that is private label? I have a follow-up.
Thanks. I I was just wondering um how you're thinking about uh your pricing and promotion levels. Currently, you know, where do you see perhaps a an opportunity to
And I have a follow-up.
Carlos Abrams-Rivera: Thank you, David. Let me start and then hand it off to Andre Maciel. You want to give additional commentary, but I guess I would just say as context, you know, we are certainly a consumer-centric brand, first of all, which means that we are making sure that our brands are going to continue to build for the long term. What you see from us is that we continue to invest, make investments across the board. Some of that investment is actually in pricing. We are including about 100 bps in pricing year over year. We also are, on top of that, investing another 30 bps in marketing so that we can reach about 4.8% of marketing as a percent of net sales by 2025, by the end of 2025, which will be the highest level in nearly a decade.
Thank you, David. Let me start, and then hand it off to Andre if you want to give additional commentary. But...
I guess I would just say as context, you know, we are we're certainly a consumer Centric brand. First of all,
Which means that we are making sure that our brands are brands that are going to continue to build for the long term.
And what you see from us is that we continue to invest making Investments across the board and that somewhat that investment is actually in pricing, we including about 100 Beeps in price in year-over-year.
Carlos Abrams-Rivera: In terms of pricing, I guess one clarification that I will make is that if you look at pricing in North America, when you exclude the cut inflation, it is actually negative. That gives you a sense that we are also being thoughtful about how to think about pricing. Andre Maciel, anything else you would add?
And we also are on top of that investing in another 30 Beeps, in marketing. So that we can reach about 4.8% of marketing as a percent of net sales by 2025, but at the end of 2025 for to be the highest level in nearly a decade.
So, in terms of pricing, it's 1 to notification that I will make. If you look at pricing in North America,
When you exclude, the cuff inflation is actually negative.
Andre Maciel: As we said before, we have built into the initial plan about $300 million of investments. We have added a little more towards the second half. We have been concentrating the investments mainly on the key windows. You will see more activity now in the third quarter, as we are now at the peak of the summer. There are some investments that you have saved for this moment, as we have a lot of product renovations hitting the market and some core renovations hitting right now. We concentrated the efforts on that so we can have the new product, the extra marketing, and those investments all hitting at the same time to improve the chance of success. I mean beyond that, there is nothing to say.
So that gives you a sense that we'll also be in thoughtful about how to think about pricing and there anything else you would add. Well as as we said before, we have built into the
Initial plan about 300 million dollars of Investments.
we have added, um,
A little more towards the second half, we have been concentrating, the, the Investments, mainly on the the key Windows.
Uh, you see more activity now in the third quarter, as we already know the peak of the summer there, there is some Investments that you have saved.
For this moment, as we have a lot of product, Renovations hitting the market and some core Innovations heating right now. So, we concentrated the efforts on that. So you can have the new product, the extra marketing and those Investments are hitting at the same time to improve
Carlos Abrams-Rivera: The only thing I would add, David, here is that it's important to know that we are pricing well below inflation. In fact, we expect inflation to be about 5% to 7% this year, and we are only passing around 1% of the pricing. So we are, in fact, keeping the consumer in mind as we are taking these actions on pricing. Sounds like you had another question, David.
the the chances of success. So I mean, beyond that, there is nothing to say Carlos. I don't see. Yeah, the only thing I would add David here is, is that
It's important to know that, you know, we are pricing well below inflation. If I we expect the inflation to be about 5 to 7% this year and we're only passing about around 1% of the pricing. So that we are in fact, keeping the consumer in mind that we take in this actions on pricing.
Peter Galbo: Yeah, no, thank you for that. Just, you know, one thing I am thinking about with regard to Kraft Heinz, particularly as you think about strategic actions, you know, presumably there are parts of the business that might garner a higher multiple than the others. Is this problem that we see across food right now where legacy parts of businesses that might be growthier are not doing as well as they might have done over the long term? I am wondering how you are thinking about that with regard to, you know, whether it is accelerate, protect, or balance. We are seeing, on average, declines continuing in those businesses. What is your prospects, I guess, to make your growth parts growthy, you know, in the near term, particularly if you want to shine a good light on those parts of the business as you think about the strategic actions? Thanks.
Sounds like you had another question David? Yeah, no thank you for that. I just uh you know, 1 thing, I'm thinking about with regard to Kraft Heinz particularly, as you think about strategic actions and you know, sort, presumably there's there's uh, parts of the business that might, uh, Garner a higher multiple than the others. Is this problem that we see across food right now where like
Legacy parts of businesses that might be growth year are not doing as well as they might have done over the long term. And I'm wondering how you're thinking about that with regard to, you know, whether it's accelerate, protect or balance. We're seeing, you know, on average declines, continuing in those, in those businesses, you know what, what is your prospects I guess to make your growth Parts growy, uh, you know, in the near term particularly if you want to uh, shine a, a, a good light on on those parts of the business as you uh, think about strategic actions. Thanks.
Carlos Abrams-Rivera: Thank you. Let me go back to our strategy that we have been consistent following for the last 18 months or so, which is we are making investments to make sure that we are growing across emerging markets, North America retail, and away from home. In fact, we are continuing to make investments to drive that growth and return capital to our shareholders. When you look at our pillars, in fact, in emerging markets, you saw we grew our top line by around 8% through both price and volume, at the same time expanding margins substantially. In fact, we now in the emerging market have our highest OI margin ever. If you look at North America retail and accelerate platforms, we are actually investing also to power by the brand growth system, and we are executing through agile ways of working.
Thank you, I guess, let me go back to the our strategy that we have been consistent following for the last 18 months or so, which is, we're making Investments to make sure that we growing across an Emerging Markets, North America retail and away from home.
And in fact, we are continue to make investment to drive that growth and return Capital to a shareholder. And when you look at our pillars, in fact, you know, an Emerging Markets, you saw we grew up Topline by around 8% through both price and volume. At the same time, expanding margins substantially. In fact, we're now in Emerging Market have our highest oi margin ever.
Carlos Abrams-Rivera: Let me just say that if you look at the sales of data, IRI data over the last four weeks, in fact, when you exclude Cold Cuts and Bacon, that drove about 40% of the decline, the rest of the portfolio in total in North America retail actually is improving substantially. In fact, in the latest four weeks, Cold Cuts and Bacon, we are down 2.7% year to date with down 4%. So you are seeing that the actions we are taking in North America retail are also helping us drive the kind of improvements that we wanted to see in the business. Finally, in away from home, we are also expanding into footprints with distribution and driving new innovation into the marketplace.
If you look at North America retail and accelerate platforms, we actually invest in also to power powered by the brand growth system and we are executing through agile ways of working. And let me just say that if you look at the at the Neilson data irri data, over the last 4 weeks, in fact, when you exclude cold cuts and bacon, that drove about 40% of the decline, the rest of the portfolio in total in North America, retail actually is improving substantially. In fact in the latest 4 week, X, cold cuts and bacon, we are down 2.7% year to date with down 4%. So you are seeing that the actions we're taking in North America. Retail are also helping us drive the kind of improvements that we wanted to have see in the business.
Carlos Abrams-Rivera: The last thing I will say is that we are not done. We are going to continue to invest in the business because we are confident in the strategy. We are making sure we continue to invest in marketing, like I said earlier. We continue to stamp our investment in e-commerce, which is helping us also drive our improvements in North America. Frankly, we also have a solid balance sheet that allows us to, and a strong cash flow that allows us to continue to make these investments. So we feel very good that when you look deeply into our growth pillars, all those actions that investors are making are, in fact, taking shape in order for us to be able to continue to drive the company towards long-term success.
And finally, in away from home, we are also expanding into Footprints to distribution and driving new innovation into the marketplace.
Andre Maciel: Beyond that, we have, as I said before, a lot of product renovations hitting the market right now. We have Mac and Cheese, Lunchables, Mayo, just to name those three. We have a 20% market increase year over year expected in the second half. The vast majority of all the meat increases are all happening now in the second semester. We have, as we said, stepped up some investments on price towards the key windows that are still to come. There is a lot more happening that we should, and you should continue to see the accelerated part of the portfolio in North America improving gradually throughout the remaining quarters.
We're making sure we spend continuous investing marketing. Like I said earlier, we continue to step our investment in e-commerce, which is helping us also Drive our improvements in North America. And frankly, we also have a solid balance sheet that allows to ensure cash flow that allows us to continue to make that Investments. So we feel very good that when you look deeply into our growth pillars, all those actions and Investments. We're making are, in fact, taking shape in order for us to be able to continue to drive the company towards long-term success. I think beyond that we have, as I said before, I have a lot of product renovation here in the market right now, behind, mac and cheese learnable Mayo, just your name. Those 3 we have, uh, to 20% Market, increase your very expected to the second half. So the vast majority of all the, the meat increases are all happening. Now, in the second semester, we have, as we said the step up some Investments.
Uh, on price.
Carlos Abrams-Rivera: Thank you, David.
Uh, towards the key windows that are still to come. So there is a lot more happening that we should, and you should continue to see the accelerate part of the portfolio of America, including gradually throughout the remaining quarters.
Andre Maciel: Thank you.
Thank you, David. Thank you.
Anne-Marie Megela: Our next question is from Leah Jordan with Goldman Sachs.
Our next question is from Leah Jordan with Goldman Sachs.
Leah Jordan: Thank you. Good morning. I was just seeing if you could provide more detail on your sales trends across emerging markets. I know there's a big opportunity for distribution gains and away from home in the region. So I was just curious how those gains have tracked versus your expectations so far this year, and how should we think about the pace of those gains in the back half versus the front half, and really what's giving you the confidence in that double-digit exit rate for this year?
Thank you. Good morning. Um, just seeing if you could provide more detail on your sales Trends across Emerging Markets. I I know there's a big opportunity for distribution gains and away from home in the region. So it's just curious how those gains have tracked versus your expectations so far this year. And how should we think about the pace of those gains in the back, half versus the front half and, and really, what's giving you the confidence in that double digit exit rate for this year.
Carlos Abrams-Rivera: Great question. Thank you, Leah. Listen, I mentioned that we, in fact, were very pleased to see that the top line now grew about 8%. I think what is behind those numbers, though, is the fact that the growth is coming from both volume and price. The fact that we are doing that while actually increasing our margins at the same time gives us quite a bit of confidence that as we look at the end of this year, we should be able to be hitting our long-term algorithm of double-digit growth. For us, we continue to see investment in our business, and it is not going to stop. Today already, it represents about $2.5 billion business of our business overall.
Great question. Thank you, Leah.
Listen, I mean, I mentioned that we in fact were very pleased to see that the top line. Now grew about 8%, I think. What behind those numbers though, is the fact that the growth coming from both volume and price
And the fact that we are doing that well actually increasing our our margins at the same time, give us quite a bit of confidence. That as we look at the end of this year, we should be able to be hitting a long time ago algorithm with double digit growth.
Carlos Abrams-Rivera: I think one other thing that gives me confidence is the fact that when you look at step backs and you look at an emerging market, it is really a more simple portfolio. It is focused on pace to elevation, in particular in our Heinz brand, and we have a strong go-to-market model. When you look at the double click of Heinz in emerging markets, it actually grew about 18% year over year. So it is building on the strengths of our key brand in a business that we know how to operate with a model that we now have been able to replicate across markets.
And for us we continue to see, you know, investing in our business and it's not going to stop, you know, today already it represents about 2 and a half billion dollar business of of our business overall.
And I think what other things that it gives me confidence is the fact that when you look at step back and you look at Emerging Markets, it's really a more simple portfolio. It is focused on taste elevation in particular in our highest brand and we have a strong go to market model. So when you look at the double click of Hinds in Emerging Markets, you know we actually grew about 18% year-over-year.
So it is building on the strengths of our key brand.
Carlos Abrams-Rivera: So it is something that now we have been building on the success that we have in the past historically, and now we are expanding to make sure that we are growing in LatAm, we are growing in our Middle East, Asia, and Middle East, Africa, and Asia. I think for us, we continue to believe that this is a place where we have tremendous opportunity for now and for the long term.
In a simple in a business that we know how to operate with a model that we now have been able to replicate across markets.
so it's something that now we have been building on the success that we have in the past historically and now we're expanding to make sure that we're growing in latam, we're growing in our Middle East, Asia, and Middle East, Africa, and Asia,
Andre Maciel: Thank you, Leah.
And I think for us, we continue to believe that this is a place where we have a tremendous amount of opportunity for now and for the long term.
Thank you, Leah.
Leah Jordan: Thank you. I just want to add to inflation and promotions that were pushed into the third quarter. Any color on the magnitude of that impact and what drove the timing shift and how you view those cost pressures around inflation today?
Thank you. And I
No inflation and promotions that were pushed into the third quarter. You know, any color on the magnitude of that impact and how, uh, what drove the timing shift, and how you view kind of those cost pressures around inflation today?
Carlos Abrams-Rivera: Sorry, Leah, you got cut off at the beginning of the question. If you can repeat it.
Sorry, Leah, you got cut off at the beginning of the question, if you can repeat it.
Leah Jordan: You had called out incremental inflation and promotions that were pushed from Q2 into Q3. Just any color on the magnitude of that impact we should think about on a quarterly cadence basis? What was the driver of that timing shift for those two items? How are you thinking about inflationary cost pressures today?
Oh, sure. You had called out incremental inflation and promotions. That were pushed from 2q into 3 Q. Just any color on the magnitude of that impact. We should think about on a quarterly Cadence basis. And then what was the driver of that timing shift for those 2 items? Um, and how are you thinking about inflationary cost pressures today?
Andre Maciel: Look, magnitude is in the range of 34 bps. Yeah, 34 bps. Nothing special. It is mostly the recognition based on the inventory positions and the throughput that how those inventories got recognized in the P&L. So that is why it shifted Q2 or Q3. But nothing really beyond that.
Me magnitude is in the range of
3040 bits.
Um,
34 bits. We it's it's not nothing special, it's mostly the recognition like the on the B, on the inventory positions and the throughputs. That's how this inventory is about. Recognizing the pnl.
So that's why shifted Q2 Q3 so that nothing really beyond that.
Leah Jordan: Great. Thank you.
Great. Thank you. Thank you.
Andre Maciel: Thank you, Leah.
Anne-Marie Megela: Our next question is from Megan Klab with Morgan Stanley.
Our next question is from Megan cloud with Morgan Stanley.
Leah Jordan: Hi, good morning. Thanks so much. I wanted maybe a follow-up just on the organic sales growth in North America retail. There was a comment in the prepared remarks that you expect gradual long-term improvement in top-line trends. Clearly, it seems like just based on your comment around exit rates on emerging markets and food service that the gating factor here continues to be North America retail. Maybe you can just update us on how you are thinking about timing of getting back to just maybe stabilization first and foremost in North America retail. Thank you.
Hi, good morning, thanks so much. I wanted maybe a follow-up just on the organic sales growth in North America. Retail, you know, there was a comment and they're prepared remarks that you expect, gradual long-term Improvement in Topline Trends, and, and clearly, it seems like just based on your comment around Exit rate on emerging markets, and, and food service that the gating Factor here continues to be North America retail. So maybe you know, you can just update us on how you're thinking about timing of of getting back to just maybe stabilization first and foremost in North America. Retail thank you.
Carlos Abrams-Rivera: Thank you. For me, what I would say is, if you go back to the strategy that was fueling our growth and the improvements in North America performance, it is all the fact that we have now invested in through our brand growth system back in our products. So we are investing in our product superiority. We are investing in better marketing, investing in better tools with e-commerce investments that we have made over the last six months. That is giving us the confidence that we continue to see that now play into the marketplace. We ended last year with the brand growth system impacting about 10% of our business. By the end of this year, it will be about 40% of our business disproportionately focused in North America accelerated platforms. You can see how when we are applying that methodology, that actually is driving our improvement in performance.
Thank you. You know for me what I would say is and
If you go back to kind of the strategy that was fueling our growth in North America, it's all about the fact that we can now invest in our brand growth system and back in our products. So, we are investing in our brokerage priority, and we're investing in better marketing.
Creating investing in better tool with e-commerce Investments that we have made over the last 6 months.
And that is giving us the company that we continue to see that. Now, play into the marketplace, we end the last year with brand growth system, impacting about 10% of our business. But at the end of this year, it will be about 40% of our business. This proportionally focused in North America accelerated platforms.
Carlos Abrams-Rivera: Let me give you an example of Capri Sun, which is a business that we renovated. We invested back in the business. We improved the marketing. We improved the products. We made sure that we highlighted the benefit that you have with parents and kids that have no artificial flavors, that we have superior taste, that we have better qualities in terms of things that kids love to have, that we have better promotions partnering with places like Nintendo, that we bring in new ideas into the marketplace like a Capri Sun with new promotional limited edition products, whether that is we bring in new channels, whether it is club, whether it is convenient. So you see how when we apply the brand growth system at a brand like Capri Sun that is comprehensive, the investments we make, the improvement that it yields in our business.
And you can see how, when we are applying that that methodology that actually is driving our Improvement in performance. In fact, Let me Give an example of Capri Sun, which is a business that we renovated. We invest in back in the business, we improve the marketing, we improve the products. We make sure that we highlighted, the benefits that we have with key parents and kids, that has no artificial flavors that we have to peer taste. That's what we have better quality. In terms of things that kids love to have that. We have better promotions partnering with places like Nintendo that we bring in new ideas into Marketplace like at Capri Sun, under with new, um, promotional during promotional limited edition products. Whether that is we bring in new bringing into new channels, whether it's Club whether it's convenient. So, you see how when we apply the brand grow system at a brand, like Capri Sun, that is comprehensive the Investments.
Carlos Abrams-Rivera: That, along with the fact that we continue to step up our marketing, as I mentioned earlier, about 30 bps to get us about 4.8% by the end of the year, that combination of the way we are investing, the fact that we are investing more, and that we are using agile ways of working to then take those learnings and apply it to the portfolio is a combination that we believe is the right tools in order to drive continued improvements in our North America retail business.
We make the Improvement that it yields in our business. So that along with the fact that we continue to step up our marketing, as I mentioned earlier about 30 beats to get us about 4.8% by the end of the year.
You know, that, that combination of the way we are investing.
The fact that we invest in more and that we're using agile way to working to then take that learning and apply it to the portfolio. Is a combination that we believe is the right, the right Tools. In order to drive complete continue Pro improvements in our North America, retail business,
Leah Jordan: Okay, thanks for that.
Carlos Abrams-Rivera: Thank you for the question.
Leah Jordan: Thank you. Then maybe just a quick follow-up for Andre Maciel on the gross margin outlook. Inflation, I think, overall looks to be unchanged for the year at that 5% to 7%, obviously a wide range. But would you be able to just update us on what base input cost inflation is versus tariffs if that's changed at all? Then how should we be thinking about what carries into 2026, just what looks to be given a kind of lower exit rate on gross margin in the back half relative to the first half? Thank you.
Thank you for your question.
Follow up for Andre on on the gross margin Outlook. Um inflation I think overall looks to be on on change for the year that 5 to 7% obviously a wide range, but to be able to just update us on on what base input cost inflation is relative verse tariffs, if, if that's changed at all. And then, how should we be thinking about, you know, what, what carries into 2026 just what looks to be a given a kind of lower exit rate on, on gross margin and, and the back half relative to the first half. Thank you.
Andre Maciel: Yeah, so in terms of inflation before tariffs, we have the peak of the commodities hitting in Q2, but some of that, in terms of P&L recognition, got pushed into Q3. We should start to expect some sort of relief starting in Q4, so it should start to reach the inflection point. We still have pockets of high commodity inflation, particularly on meat and coffee. Regarding the tariffs, the current expectation, based on the latest, is an impact of approximately 100 bps this year linked to the tariffs. If the tariffs remain as they are right now, it will create a full year annualized impact of approximately 180 bps. There will be some carryover into that effect in 2026.
yeah, so in terms of inflation before tariffs, uh, we have the big
Optical Commodities heating, uh, in Q2, but some of that there must not be another recognition, got pushed into Q3 and we should not expect that, um, some sort of relief starting in Q4. So if you start to reach the inflection points,
Uh, we still have pockets of high, commodity inflation, particularly on.
The.
East and coffee.
Regarding the terrorists, the current expectation based on the latest is an impact of approximately 100 beeps this year link to to the tariffs. And if the tariffs remain as they are right now,
Andre Maciel: As I said before, there are a lot of actions in place for procurement teams and also for commercial teams to mitigate as much as we can, being mindful about their current consumer situation. But some pricing is required, and that's what we are doing.
Uh, it will create a a full year analyze impact of approximately 10080 beeps. So there will be some carryover uh into that uh affecting 2026.
As you said before, there are a lot of actions in place with, for procurement teams, and also for commercial teams to mitigate as much as we can being mindful about the the current consumer situation.
But but uh some pricey is is is required and and that's what we are doing.
Leah Jordan: Okay, great. Thank you.
Andre Maciel: Thank you.
Thank you.
Anne-Marie Megela: Our next question is from Max Gumfort with BNP Paribas.
Our next question is from Max Gump with BNP paribus.
Peter Galbo: Hey, thanks for the question. Centers to our peers that have recently established their off-calendar FY26 outlooks have embedded some pretty meaningful margin pressure over the coming quarters from substantial reinvestment. I recognize, you know, with your marketing going to at least 4.8% of sales and media spending going up at least 20% year over year, you are also reinvesting, but it still feels a bit less sizable than what we are seeing from some of these peers. Particularly in light of the continued volume declines, I just want to get a better sense for what's giving you the confidence that your investment plans for this year are appropriate. Thanks.
Hey, thanks for the question.
Centers store appears to have recently established their their off calendar fee. 26, outlooks have embedded, some pretty meaningful margin pressure over the coming, quarters from substantial, reinvestment.
I recognize, you know, with your marketing going to at least 4.8% of sales and media spending going up at least 20% year-over-year. Um, you are also reinvesting but is this still feels a bit less sizable than what we are seeing from some of these peers. So particularly in light of the continued volume declines,
Just want to get a better sense for what's giving you the confidence that your investment plans for this year are appropriate. Thanks.
Andre Maciel: Thanks for the question. Look, we, as everything we do, we are always very disciplined in our investments. We like to test investments before scaling them up. So we feel good about the actions that we are doing for this year. I think those are the right ones, and the magnitude are appropriate as well. As we said in the last earnings, if we see the results we expect from them, we will not hesitate to step up. Keep in mind as well that we are actively expanding the brand growth system to more brands as we speak. This is part of the reason as well why we decided to step up investments a little more beyond what we initially said last quarter. As opportunities show up as part of this assessment, we will continue to step up investments.
Thanks for the question.
Look, we, as everything we do, we are always very disciplined in our investments. And you like to test
Investments before you scaling them up. Um, so we feel good about the actions that we are doing for this year at in. Those are the right ones at the magnitude are appropriate as well. And as we said in the last earnings, if we
We see.
The the results expect from them, we will not hesitate to step back. Keep in mind as well that we act. We are actively expanding the the brand growth system to more Brands as we speak.
Andre Maciel: At this point, we are really trying to grow the business in a way that we think is the healthy, like not through price, but through really stronger products and stronger attributes, stronger marketing, which takes more time, but it is the right thing to do. We are going to step up investments if we deem appropriate. That is for sure.
so in the start of the reason as well, when we decided to step up Investments a little more beyond, what we initially said, less quarter, and as opportunities uh show up as part of this assessment, we will we will continue to step up in that, you know, at this point, we really trying to grow the business in a way that we think is, is the healthy, like, not through price, but through really stronger, products, and stronger attributes, stronger marketing,
Which takes more time, but what's the right thing to do? But we, we are going to step up Investments. If, if it's, if, if we deem appropriate,
For sure.
Carlos Abrams-Rivera: Thank you.
Peter Galbo: Okay, I will leave it there. Thanks very much.
Thank you. Okay, I'll leave it there. Thanks very much.
Anne-Marie Megela: Operator, we have time for one more question.
Operator. We have time for 1 more question.
Anne-Marie Megela: Our last question is from Alexia Howard with Bernstein.
Our last question is from Alexia Howard with Bernstein research.
Alexia Howard: Good morning, everyone.
Good morning, everyone.
Carlos Abrams-Rivera: Morning.
Alexia Howard: Can I ask about the pace of innovation? If I remember correctly, you were pretty low on the innovation front for much of the pandemic and the global supply chain disruptions, but it sounded as though you exited 2024 at a somewhat higher rate, probably still quite a lot lower than peers. Can you talk about where you are today as a percentage of sales, where you would like to get to over time, and how quickly you could get there? Just so we can get a sense for how quickly that might be ramping up. Thank you. I will pass it on.
Morning can I can I ask about the uh, the pace of innovation. Uh, if I remember correctly, you were pretty low on the Innovation front, uh, for much of the pandemic and the global supply chain disruptions. But it sounded as though you exited 2024 at a somewhat higher rate, but probably still quite a lot lower than peers. Um, can you talk about where you're at today? Um, as a percentage of sales um where you'd like to get get to over time and how quickly uh you could get there. Um just so we can get a sense for how quickly that might be ramping up. Thank you, and I'll pass it on.
Carlos Abrams-Rivera: Thank you, Alexia, for your question. Let me just give you a little bit of context, which is, for us, it is important that when we define innovation, we are also thinking through what are the places that we can, in fact, renovate many of our key products. When we talk about our brand growth system, the fact that it allows us to focus on us, making sure we bring the attributes to consumers they care about in our core business, that is actually a key part of also thinking through how do we maintain innovation within our business. I have to say, as you pointed out, I think that if we go back to 2022, I think the number on innovation was around 1.6% of our sales. By the end of the last year, it was about 3% of our sales.
Thank you, Alexa, for your question. I guess let me just give you a little bit of context, which is
You know, for us, it's important that when we do find Innovation, we're also thinking through what are the places that we can, in fact renovate? Many of our key products. So when we talk about our brand growth system, when the fact that allows us to focus on us, making sure we bring the attributes to Consumers, they care about in our Core Business, that is actually a key. Part of also, thinking through how do we maintain Innovation within our business,
and I have to say, uh, as you pointed out, I think that if you go back to
Carlos Abrams-Rivera: We are going to continue to drive from that investment, from innovation, to contribute a larger part of our business as we go forward. It also is already paying off. If you think about the innovation that we have brought in, like the experience of bringing the Taco Bell restaurant experience to home, it is now the second year in which we are growing that business double digit, and now we are expanding to Canada. I mentioned earlier Capri Sun bottle that we are now bringing into club. We are bringing it into single serve, and now it is achieving high levels of velocities too, wherever we have taken that product outside of the pouch. We are also making sure that we continue to drive innovation in our Heinz business.
In 2022, I think the number on innovation was around 1.6% of our sales. By the end of last year, it was about 3% of our sales.
So we're going to continue to dive into that investment and innovation to contribute a larger part of our business as we go forward.
But I would say it also is already paying us. So if you think about, you know, the Innovation that we have brought in like the experience of bringing the Taco Bell restaurant experience to home
It is now the second year in which we're growing the business double-digit. And now we're expanding to Canada. I mentioned earlier the Capri Sun bottle that we are now bringing into club. We are bringing it into single serve, and now it's achieving high levels of velocities, too, whatever we have taken that product outside of the pouch.
Carlos Abrams-Rivera: Whether that is looking at how do we take it into Heinz Pasta Sauce, which is happening across many of our businesses across both Europe and Latin America, but it is also making sure that we continue to expand on the importance of our Heinz major business across our international portfolio and continue to expand into new countries as we go into 2026. While you are right that we continue to see opportunities for innovation, our focus continues to be making sure we have the right core products with the right renovation in those businesses, and at the same time, being thoughtful about how do we actually bring innovation to markets that have the long-term opportunity to be here for many, many years. I am pleased with what I am seeing. I also think that there is more for us to do.
Across our International portfolio and continue to expand into new countries as we go into 20 into 2026.
Carlos Abrams-Rivera: The last thing I will say is it is important to recognize that when we talk about the brand growth system, it also creates and highlights opportunities for us to go after new innovation. So you are going to continue to see us go to the marketplace, whether that is with the kind of focus on not only line extension and new exciting flavors, but ways in which we can actually continue to make sure our brands are relevant for now and for the future. More to come. Thank you, Alexia.
So when you write that we continue to see opportunities for Innovation, our Focus continues to be making sure we have the right core products with the right renovation in those businesses. And at the same time being thoughtful about how do we are actually are bringing Innovation to Market Market. That has the long-term opportunity to be here for many many years and I'm I'm pleased to what I'm seeing. I also think that there's more for us to do
The last thing I will say, yes, is important to recognize. And when we talk about the brand growth system, it also creates and highlights opportunity for us to go after new innovation. So you're going to continue to see us.
To Marketplace whether that is with the kind of focus on not only line extension and new exciting flavors. But ways in which we can actually continue to make sure our brands are relevant for now and for the future.
Alexia Howard: Thank you.
More to come. Thank you Alexia.
Thank you.
Anne-Marie Megela: Thank you. This concludes today's conference call. We thank you for your participation. You may now disconnect your lines.
Thank you. This concludes today's conference call.
We thank you for your participation. You may now disconnect your lines.