Q3 2025 Kraft Heinz Co Earnings Call
Regarding our expectations for the future, including items related to our business plans and expectations strategy efforts in investments and related timing unexpected impacts as well as statements regarding the proposed separation of Kraft Heinz into two independently traded company.
Payments are based on how we see things today actual results may differ materially due to risks and uncertainties.
Please see the cautionary statements and risk factors contained in today's earnings release, which accompanies this call as well as our most recent 10-K 10-Q and 8-K filings for more information regarding these risks and uncertainties.
<unk>, we may refer to non-GAAP financial measures, which exclude which exclude certain items from our financial results reported in accordance with GAAP.
Please refer to today's earnings release, and the non-GAAP information available on our website at IR Dot Kraft Heinz company Dot Com under news and events for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures.
I will now hand, it over to our Chief Executive Officer, Carlos Abrams Rivera for opening comments over to you well. Thank you Murray.
Everyone for joining us today.
I am encouraged by our progress in the third quarter.
Ignite and there's more work to do to navigate today's complex environment, we delivered a modest year over year recovery, the topline performance showing progress versus the first half of the year.
The operating environment remains challenging with worsening consumer sentiment and ongoing inflation influencing buying behavior around the world.
To reflect our third quarter results and the expected continuation of these macro trends we have all the data 2025 outlook.
We remain on track to separate into two independent companies and the second half of 2026.
And while we manage the transition our priority is to drive performance today and position both businesses for long term success.
And to thank our teams for their efforts and our customers consumers and shareholders for their support.
With that I'll have Andrew joining me so lets open the call for Q&A.
Thank you.
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Thank you and our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.
Thanks, So much good morning, Carlos and Andre.
Carlos in light of the weaker consumer sentiment that you've talked about we are seeing a number of food companies sort of lean in more aggressively on investment spend both both pricing related and broader AMC I guess I'm curious how much of the 25 profit revision if any is due to more aggressive spending behind.
And the brands than initially contemplated versus just the impact of sort of higher cost and volume deleverage and if theres not significant additional spend I guess I'm curious why wouldn't more makes sense now to help jumpstart volume improvement and it's still a tough consumer environment as you think towards next year.
Let me kind of give you a little bit of context that we think about it.
<unk> field.
Building some additional information alright. Thank you. Thanks for the question I had three months ago.
The the profit to be vision is not linked to true incremental investments beyond.
As previously communicated.
The profit revisions are function of.
A lower expectation of on consumption in the U S which.
Which we can talk more about that as.
It is a function of elongated recovery on taste utilization, which has been improving in a meaningful way 70% of the rabbit.
Is gaining market share.
Good day recovery is still slower than what we anticipate is what there is a mix component that.
And we face.
Incremental inflation in meat and coffee and we didn't price.
Certain elements of it there's a competitive dynamics.
And we had a few other one offs affecting our supply chain results in Q3 that should not be expected to repeat in Q4. However, they said you can do.
Remember, though that for this year, we are increasing.
Most of these asking with around $300 million.
The U S.
We have $80 million ish incremental marketing spending media.
We have more R&D investments.
And we have incremental head count in selected areas, meaning commercial related function. So we are adding a.
Relevant investments on the business and we don't think that adding more price at this moment.
Results the investments we have made.
Already allow us to have opening price points in critical categories true true.
They listen to the consumers.
The investments, he meat and cheese and frozen potatoes in Mac and cheese.
And a few others, we don't believe that the more markets. Despite the rumor that entire market investment increase is concentrated in the second half of the year.
So we don't seem to go even further beyond that will deliver returns at this point. However, we are open in the future to add more marketing as we continue to go deeper in our brand assessment, but at this point. We don't think is a method of putting more investments.
I think the one thing I would add Andrew is you know I mean listen.
We think about this at our company is very much a consumer centric brand driven company. So for US what's important is that we're building the brand for the long term.
So when we think about stepping up investments we are thinking in terms of the Andrew mentioned in R&D and marketing continues to drive the renovation of our products because I think that is going to be the way for us to be successful over the long term.
The fact that we have concentrated our effort behind our brand grow system to make sure that we are continuing to bring distinct attributes that consumers value that's going to be the way, we continue to be able to be successful, but the long term.
And by the way I think some of the pricing that we have done is strategically in terms of promotions have worked if you look at our back to school campaign, we were able to actually be successfully being able to drive.
A great returns behind key brands that we focused during the back to school campaign Capri song Lunchables Jello. So I think we are going to continue to be tactical on investments really building a brand for the long term. Thanks.
Thanks, So much yes. Thank you.
The next question is from the line of Peter Galbo with Bank of America. Please proceed with your question.
Hey, good morning, Carlos and Andre I wanted to to ask maybe a more conceptual question.
Around around the spin and really if I think about it one of your CPG peers is going through.
Similar dynamic right now and in terms of kind of a split in your ear.
Living kind of parallel lives I guess for lack of a better word.
In the case of your peer right that there there wasn't announcement the market responded the way that it did and there's been a pivot on their behalf not in terms of pursuing the split but in terms of how they're going about it right. There's been an alteration in terms of the path forward I Wonder just as you solicited feedback from investors and us.
<unk> heard from investors since your announcement has there been any thought as to you know a pivot for Kraft Heinz whether that means.
You know the leadership isn't the way that you thought it would would pan out.
<unk> that you announced that at the spin now maybe some of them moved from one to the other just any thoughts again as you've heard feedback that you may potentially pivot versus the initial announcements thanks very much.
Well, thank you for the questions and listen I think that.
Now, let me give you a little bit of the context of how we ended up with the decision we have been a number of months working with our board of directors to make sure. We felt that we were going to do something that was going to be unlocking shareholder value and we believe in the fact that we create two stronger companies that can be more focused for us to drive that.
That that'll look that shareholder value and if you think about two companies I think we have already shown that we have a playbook that we have focused on in that part of our business that will be part of the global tastes elevation. In fact, if you look at our taste elevation progress into Q3, you are seeing already.
That playbook is working that in fact, we are improving our sales that we are improving.
Our share position and in fact in September we gained share and 70% of the U S States TV business. So the playbook that we have been working on we want to apply it now to both companies with the right amount of resources and support.
Having said that we also have said that.
We are going up.
Continuing to look at opportunities for us to think what is the right way to support this with the right amount of experience capabilities and technical resources. So I think that's something that we'll continue to do as we think about the announcements that we'll have and are ahead of the second half of the year with the rate with the management team.
And the way we can create the right operating model for us to grow so our focus remains on us doing the right thing by our screens as two companies and really in every situation and you picked up particular periods that you had in mind. The reality is that there's many other examples of people who have done this for us what we're trying to do with.
Well, it's right thing to do for both <unk> and our shareholders.
The only thing I'll add is looked at the.
Comments on perimeter and balance sheet on the perimeter fronts.
As we said before we decided this bidding one to allow focus.
Based on growth history and growth potential of this.
Print brands, the margin profile and dis synergies.
So as we go deeper now, but we're doing all the bottom up work, there's a lot of work, including the ones who couldn't imagine if at any moment. We think it is migrate more advantage of shareholders to have some adjustments, we will but at this point with equal.
When we did the right thing because people thought of before that.
Second the balance sheets I know there was initially some.
Maybe misunderstanding about water and ensure that we bought companies and we've tried to fight the fight that's into subsequent forums. So we said we are targeting both competition be investment grade.
We are committed to ensure that we keep the net debt at reasonable levels with even the prepared remarks, we were very clear our capital allocation priorities at all change it in the <unk>.
Second one after organic investments is to maintain the net debt.
At or below three times, and we're committed to do that.
Which should allow both companies to have good balance sheets with optionality.
And clarification when you say once you have company investment great for us.
That is below four times.
And obviously the specifics are gonna be still discussing in the coming months and discussing with the agencies, but we are committed for that as well.
Thank you Peter Thanks very much.
The next questions are from the line of Tom Palmer with Jpmorgan. Please proceed with your question.
Good morning, and thanks for the question I wanted to just ask on emerging markets. It seems like excluding Indonesia trends where were more encouraging I guess, one you did provide some some commentary here on Indonesia from a from a sales overhang, but how big is Indonesia within them.
<unk> markets and then when we think about the fourth quarter.
The mid single digit growth guidance for emerging markets, what does that assume kind of for the business ex Indonesia, and Indonesia in terms of potentially seeing some improvement. Thank you.
Well. Thanks for the question, let me, let me start I guess with the.
Point of the context of emerging markets Youre correct. There is great progress X out of Indonesia, and we have continued to see the not only the success.
In terms of growth, but also the continued improvements in terms of that growth.
I think for me, but it also gives me confidence is the fact that we think about the $1 billion or we have an emerging market that actually is accelerating and is accelerating because of our key brands are kinds, where it continues to show a tremendous amount of growth in fact in emerging market, our highest brand year to date is growing 13%. So I think for.
For us as we continue to see that the value piece of our portfolio and one of our key growth drivers have to think about the future.
In the case of Indonesia top lines about half a billion dollar business.
Frankly, what we have seen is a.
A meaningful decline in consumer sentiment.
Had led them to the softening of demand in fact, I think that the consumer sector in Indonesia.
Year over year is about down almost 10 points in terms of consumer sentiment.
So that has led to the sell out.
Reducing our sellout growth expectations and some of the challenges that we have seen in terms of our distributor a particular distributor in the country.
And also how that have disruptive.
Hello, everyone.
Overall business.
The same time isn't something now we're taking actions to make sure that this is only you know something that we can correct. It for the future. So we are right sizing their inventory to the right levels. We are transitioning to a new distributor and we also making sure that we're reducing the pricing stability that happening in the country. While we continue.
To invest in Indonesia in terms of our marketing of our brand and a B C is the largest brand that we have and we believe that also continued to drive superiority on the brand equity, making sure. We continue to drive. This also penetration in a meaningful way is going to be the best way for us to getting Indonesia back to where we wanted to be.
In terms of contributing to growth to the business.
Yeah, just just to add to that.
Emerging markets aside from Indonesia grew nine 2%. So it did accelerate in a relevant way compared to the first half up there as it has said before.
Anne-Marie Megela: Today's call, we may make forward-looking statements regarding our expectations for the future, including items related to our business plans and expectations, strategy, efforts, and investments, and related timing and expected impacts, as well as statements regarding the proposed separation of Kraft Heinz into two independently traded companies. These statements are based on how we see things today, and actual results may differ materially due to risk and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release, which accompanies this call, as well as our most recent 10-K, 10-Q, and 8-K filings for more information regarding these risks and uncertainties. Additionally, we may refer to non-GAAP financial measures, which exclude certain items from our financial results reported in accordance with GAAP.
Indonesia.
Maybe a little more specific is closer to $300 million revenue. So it's like 12% of the emerging markets the business irrelevant, but not massive.
And we do expect that the recovery in the P&L.
It will happen in the second half of next year, because we still have adjustments to do into Q4 and Q1 there is.
It's just that important for another reason because there's an attitude that business, though which will affect Q1. So we really had into Q3 and a Q2 Q3, we're going to see the recovery there.
Yes.
I think what youre supposed to leave after the orphan disease isn't the best two or three years, there was a lot of market the vasculature.
We see brand, which is the leading brands several categories in a very good spots. So a market share standpoint things are doing well, but we have to make that judgment on the distribution network.
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. Over to you.
Thanks for the question. Thank.
Thank you.
Yeah.
Our next question is from the line of Steve Powers with Deutsche Bank. Please proceed with your question.
Great. Thanks, so much and good morning.
I don't Carlos I don't believe I saw it anywhere this morning, and apologies if I missed the relevant disclosure, but are you able to frame maybe pro forma you know the performance of global taste elevation co versus North American grocery co. You know in the third quarter and then also update us on how you see those businesses.
Andre Maciel: Thank you, Anne-Marie, and thank you, everyone, for joining us today. I am encouraged by our progress in the third quarter, recognizing there's more work to do to navigate today's complex environment. You know, we delivered a modest year-over-year recovery in the top-line performance, showing progress versus the first half of the year. That said, the operating environment remains challenging, with worsening consumer sentiment and ongoing inflation influencing buying behavior around the world. To reflect our third-quarter results and the expected continuation of these macro trends, we have updated our 2025 outlook. We remain on track to separate into two independent companies in the second half of 2026. While we manage that transition, our priority is to drive performance today and position both businesses for long-term success. I want to thank our teams for their efforts and our customers, consumers, and shareholders for their support.
Into the fourth quarter, just so we can better assess momentum.
26, an eventual separation and maybe alongside that Andre I don't know, if if you where your where your.
Sort of where you are in this process, but as you think ahead towards separation I'm. Just curious if you have a more formal estimate around any one time restructuring costs are cash costs. The kraft Heinz is likely to incur.
Separation for the split just just because I'm just trying to see how we should handicap those dynamics over the next three or four quarters. Thank you.
Sure. Thanks for the question good money.
Look the both companies.
Both both to be accompanies.
Andre Maciel: With that, I have Andre joining me, so let's open the call for the Q&A.
Pro forma decline low single digits.
Operator: Thank you. We'll now be conducting the question and answer session. If you'd like to ask a question at this time, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your questions.
In the quarter.
We see the global taste realization directory.
Roofing and in the very low single digit territory at this point, we and expectations for Q4.
That should continue.
Our main priority lipstick on consolidation back to growth into it in 2026 as he has grown for several of the last 15 years and so that's the priority number one show us their north American grocery company.
[Analyst 1]: Thanks so much. Good morning, Carlos and Andre. Carlos, in light of the weaker consumer sentiment that you've talked about, we are seeing a number of food companies lean in more aggressively on investment spend, both pricing-related and broader, A and C. I guess I'm curious how much of the 2025 profit revision, if any, is due to more aggressive spending behind the brands than initially contemplated versus just the impact of higher costs and volume to leverage. If there's not significant additional spend, I guess I'm curious why wouldn't more make sense now to help jumpstart volume improvement in a still tough consumer environment as you think towards next year?
That's a significant improvement in trends.
Third quarter compared to the first.
Half, but also declining low single digits, though more than likely the global distillate additional company.
But it is the priority number one for the North American grocery company now is to be sure that you have stable cash flows into 26 and <unk>.
In parallel we're working hard to make sure that that just won't but he also has the prospects of growing low single digits into the future.
In terms of one off costs I think is what I should talk about that there is a lot of work in motion right. Now we are committed to be very very disciplined with the use of cash like that'd be so you can see our results. Despite the the EBITDA decline or cash flow is up year over year. In spite of continued to be the case you should go so count on us should be.
Andre Maciel: Let me have Andre kind of give you a little bit of context how we think about the updated guidance, and then kind of fill in some additional information.
[Analyst 1]: Okay, thank you.
Andre Maciel: Thanks for the question, Andrew. Morning again. The profit revision is not linked to incremental investments beyond what we had previously communicated. The profit revision is a function of lower expectations on consumption in the U.S., which we can talk more about. It is a function of elongated recovery on taste delivery, which has been improving in a meaningful way. 70% of the revenue now is gaining market share. However, the recovery still is lower than what's anticipated, so there is a mixed component to that. We face incremental inflation in meat and coffee, and we didn't price certain elements of it due to competitive dynamics. We had a few other one-offs affecting our supply chain results in Q3 that should not be expected to repeat in Q4. However, they stick in the year.
Better discipline and do the right type of investments that are needed to put those two companies.
Set up for success.
Let me just add then.
Particularly as we think about the North America grocery company I think that you know if you look at our history. We have proven that we can be in the fishing operator.
Think about our separation you know we're going to have the same level of efficiency as we think about how do we actually drive both of those companies and I think that beyond that we also have been a great and are confident the company in terms of delivering strong cash flow for our shareholders.
Now I would also point out the fact that I mentioned earlier that we have a playbook that has worked some of that playbook, we actually already have deployed to some of the key brands that would be part of North America grocery. So if you think back to Q3 and our results on Lunchables and Capri Sun. Those are brands that now in the future will be part of our North America grocery and.
Andre Maciel: Remember, though, that for this year, we are increasing promotional investment around $300 million in the U.S. We have $80 million-ish of incremental marketing spend in media. We have more R&D investments, and we have incremental headcount in selected areas, mainly commercial-related functions. We are adding relevant investments on the business, and we don't think that adding more price at this moment will yield results. The investments we have made already allow us to have opening price points in critical categories to the retailers and to the consumers. We have investments in meat and cheese, in frozen potatoes, in mac and cheese, and a few others. We don't believe adding more marketing at this point. Remember that the entire marketing investment increase is concentrated in the second half of the year. We don't think going even further beyond that would deliver returns at this point.
We were able to return to growth.
What will happen as we go into two separate companies and we can create two more focused companies. We can then put the right level of attention and resources to allow both of those companies to fit and to fulfill their potential.
I think you know.
As we go into the forward going forward you know the attention of management remains and us making sure that we continue to see that progress as a company because that will support both companies as we exit into the second half of 2026.
And thanks for the question.
The next question is from the line of David Palmer with Evercore ISI. Please proceed with your question.
Great. Thanks.
Thanks, and good morning, Carlos and Andre and your in your Slide presentation. You noted several of those key categories, where you are clearly improving in terms of market share.
Your guidance for the fourth quarter doesn't imply.
Much improvement in yeah, I just wanted to get your thoughts about maybe offsets is that is there are categories that you're in or are they slowing maybe some offsetting brands, where you're seeing a little bit of deterioration and then separately. There's that story of the promotion spending that you're there was investment.
Andre Maciel: However, we are open in the future to add more marketing as we continue to go deeper in our brand assessments. At this point, we don't think it's a matter of putting more investment. I think.
Carlos Abrams-Rivera: The one thing I would add, Andrew, is, you know, we think about this as our company as very much a consumer-centric, brand-driven company. For us, what is important is that we're building brands for the long term. When we think about stepping up investments, we are thinking in terms of what Andrew mentioned, in R&D, in marketing, continue to drive the renovation of our products because I think that is going to be the way for us to be successful over the long term. I think the fact that we have concentrated our effort behind our brand growth system to make sure that we are continuing to bring distinct attributes that consumers value, that's going to be the way we continue to be able to be successful over the long term.
With $280 million that you're making that's maybe 2% of North America retail sales when we track in the scanner data I know these are audited numbers, but it only shows like that your volume on promotion is only up.
It was only down I'm, sorry, a 1%.
Basically unchanged.
Just wondering what is going on with your promotions, maybe you could tell us better than what the data is showing us which doesn't show as much in terms of what activity you are doing thanks.
Alright, well thanks, Thanks for the question so.
Carlos Abrams-Rivera: By the way, I think some of the pricing that we have done strategically in terms of promotions have worked. If you look at our back-to-school campaign, we were able to actually be successful in being able to drive great returns behind the key brands that we focused during the back-to-school campaign: Capri Sun, Lunchables, Jell-O. I think we are going to continue to be tactical in our investments, but really building our brand for the long term. Thanks for the question.
Regarding Q4, you are right the.
The outlook implies revenue in Q4.
Yeah.
Worse than the revenue in Q3.
100, 110 20 basis points.
We have.
Even thought it phasing in especially in North America, especially in the U S.
So we do expect that this headwind of even thought it should be north of 100 bps for the total company.
Andre Maciel: Thanks so much.
[Analyst 1]: Thank you.
Operator: The next question is from the line of Peter Galbo with Bank of America. Please proceed with your question.
It's a combination of inventories phasing Q4 last year to Janet They gave us some timing of promotion and some September October.
[Analyst 2]: Hey, good morning, Carlos and Andre. I wanted to ask maybe a more conceptual question around the spin. If I think about it, one of your CPG peers is going through a similar dynamic right now in terms of kind of a split and you're living kind of parallel lives, I guess, for lack of a better word. In the case of your peer, there was an announcement, the market responded the way that it did, and there's been a pivot on their behalf, not in terms of pursuing the split, but in terms of how they're going about it, right? There's been an alteration in terms of the path forward.
We also do expect lower consumption in Q4.
And that's so that even though it has been in our auto book.
There's nothing new that the different aspects of that also was one of the reasons why our adjusted EBITDA expectation for sales don't you have to go to the softness in consumption. So we saw throughout Q3 the industry decelerating further in the U S.
In October aside from Hurricane noise. It's also.
Sorry, that's soft.
So we do expect that the market share to continue to improve especially.
They celebration.
[Analyst 2]: I wonder, just as you've solicited feedback from investors and as you've heard from investors since your announcement, has there been any thought as to a pivot for Kraft Heinz, whether that means the leadership isn't the way that you thought it would pan out, the brands that you announced at the spin, now maybe some of them moved from one to the other. Just any thoughts, as you've heard feedback, that you may potentially pivot versus the initial announcement? Thanks very much.
But we should expect share to improve what they expect the industry to get worse. So that the results in the consumption of it on the U S should be relatively flat to Q3.
But that was the thing's been thought it then.
Headwinds impacting us.
The second part of your question the motions of the promotions so.
We concentrated promotion most about the the key holidays.
So our highest market share in the year, historically isn't Thanksgiving and Christmas. So we do have a lot more promotional activity around this upcoming holiday.
Andre Maciel: Thank you for the questions. I think that let me give you a little bit of the context of how we ended up with the decision. You know, we have spent a number of months working with our Board of Directors to make sure we felt that we were going to do something that was going to be unlocking shareholder value. We believe in the fact that we create two stronger companies that can be more focused for us to drive that unlock that shareholder value. If you think about two companies, I think we have already shown that we have a playbook that we have focused on in a part of our business that will be part of the Global Taste Elevation Co.
Part of the investments we have made.
They want to secure incremental distribution. So that's part of joint business plans that they do every year with the theaters and we would've validation or in some cases to ensure that that you could expand a distribution, which we're happy generally getting and in some other cases, we did invest deeper than.
Then what we would normally do during back to school to ensure that we can accelerate that consumers trying to have innovative products. So we focus a lot on trying to drive units to have those household penetration is coming in.
Andre Maciel: In fact, if you look at our taste elevation progress in Q3, you are seeing already that playbook is working, that, in fact, we are improving our dollar sales, that we are improving our share position. In fact, in September, we gained share in 70% of the U.S. taste elevation business. The playbook that we have has been working, and we want to apply it now to both companies with the right amount of resources and support. Having said that, we also have said that we are going to continue to look at opportunities for us to think what is the right way to support this with the right amount of experience, capabilities, and technical resources.
Spectation that these events and it generates a repeat purchases, which will help with the sales in the future remember, we said that in the last quarter that we will try to do different ethics choice at the rates of these bespoke schumer dry up the new products. So we see that they would otherwise have those are no good to be honest the lifts are low and maybe that's why when you look at the syndicate.
Other than that you have the perception.
But I don't think let me add a couple of things I think first of all you know we talked quite a bit about the U S. Because if you think about our total company.
To use that.
Well, we're seeing some pressure in Europe in terms of the consumer, particularly in the U K, we actually are holding our share in the in the car in a moment in which the U K consumer also has seen some challenges.
Andre Maciel: I think that's something that we will continue to do as we think about the announcements that we'll have ahead of the second half of the year with the right management teams and the way we're going to create the right operating model for us to grow. Our focus remains on us doing the right thing by us creating these two companies. Really, in every situation, and you picked a particular peer that you had in mind, the reality is that there's many other examples of people who have done this. For us, what we're trying to do is, well, it's the right thing to do for both Kraft Heinz and our shareholders.
I mentioned earlier emerging market, what we've seen actually strong growth, whether it's in Brazil. The recovery in Mexico that we feel great about the stability in China, and releasing Indonesia aspect that has been kind of holding us back in terms of getting to the double digit growth that we can see in emerging markets into the future. So I think from that perspective, it's why we spend quite a.
A bit of time talking about the U S and if I do a double click on what some of the things Andrew mentioned.
The reality is that we are seeing some inventory pull back from customers and I think that's a respond to what they're seeing in terms of the consumer sentiment.
Carlos Abrams-Rivera: Another thing I'll add is, look, the comments on perimeter and balance sheet. On the perimeter front, we, as we said before, we decide this perimeter, one, to allow focus, two, based on growth history and growth potential of the different brands, the margin profile, and the synergies. As we go deeper now, we're doing all the bottom-up work. There's a lot of working going on, as you can imagine. If at any moment we think it might create more value to shareholders to have some adjustments, we will. At this point, we think we did the right thing because we put a lot of thought before that. The second, the balance sheet, I know there was initially some maybe misunderstanding about what we're intending to do with both companies, and we tried to clarify that in the subsequent forums. We said we are targeting both companies with investment grade.
So the fact that we have now you know one of the worst consumer sentiments, we have seen in decades.
We go into even a holiday season, we've already seen how customers are pulling back on inventory and that's reflected in our guidance as well too. So it is a unique moment right now in which this is getting the consumer.
Nick activity in the sense diminished extended longer than we had originally expected.
We are seeing already on top of that the customers that also adjusting their own level of inventory to accommodate for that.
Yeah.
Thanks for the question.
Okay.
The next question is from the line of John Baumgartner with Mizuho Securities. Please proceed with your question.
Good morning, Thanks for the question.
Carlos Abrams-Rivera: We are committed to ensure that we keep the net debt at reasonable levels. We put even the prepared remarks were very clear. Our capital allocation priorities have not changed. The second one, after organic investments, is to maintain the net debt at or close to three times, and we're committed to do that, which should allow both companies to have good balance sheets with optionality. I clarify, when you say we want to have company investment grade, for us, net debt is below four times. You know, and obviously, the specifics are going to be still discussed in the upcoming months and discussed with the agencies, but we are committed for that as well. Thank you, Peter.
Just.
Just sticking with the promotional.
Promotional environment in U S retail.
The joint programming with retailers that you mentioned Andre and the larger investment dollars and the improving analytics week promo lifts seem to be a theme right now across the center of the store and Carlos you mentioned some success with your lips around back to school, but lifts have also been weaker than other parts of your portfolio as well. So I'm curious what you're finding is.
Working differently in the areas of the lifts are stronger is there a distinction there and then what changes are you, making if any to your promo approach into 26, given the consumer environment.
Yeah.
I think there were about three different questions in there.
Andre Maciel: Thanks, Andrew. Thanks very much.
And we can take what are they.
I think there's a part of it you were getting at is you know some of the success we've seen in back to school and for US I think.
Operator: The next questions are from the line of Tom Palmer with JPMorgan. Please proceed with your questions.
[Analyst 2]: Good morning, and thanks for the question. I wanted to just ask on emerging markets. It seemed like excluding Indonesia, trends were more encouraging. I guess one, and you did provide some commentary here on Indonesia from a sales overhang, but how big is Indonesia within emerging markets? When we think about the fourth quarter, the mid-single-digit growth guidance for emerging markets, what does that assume kind of for the business ex-Indonesia and Indonesia in terms of potentially seeing some improvement? Thank you.
One of the things that we were playing in back to school and I think we do that effectively is how do we make sure. We are winning in those key moments in which consumers are going to disproportionately to our stores. So back to school was actually one of our first pilot in which we kind of created a whole more execution on the approach of how we levered entire.
Brands together during that particular moment. So what you saw is an improved funding towards display.
And increased investment both in marketing, but also in the promotional aspects inside of the retail environment.
And that actually helped us make sure that we have a cross selling where brands.
Andre Maciel: Thanks for the question. Let me start with the point of the context of emerging markets. You're correct. There is great progress ex out of Indonesia, and we have continued to see not only the success in terms of growth, but also the continued improvement in terms of that growth. I think for me, what it also gives me confidence is the fact that we think about the $1 billion that we have in the emerging market, that actually is accelerating, and it's accelerating because of our key brand like Heinz, where it continues to show a tremendous amount of growth. In fact, in the emerging market, our Heinz brand year to date is growing 13%. I think for us is we continue to see that as a value piece of our portfolio and one of our key growth drivers as we think about the future.
Shopping purpose purchase improved by 60 bps.
We also saw that in <unk>.
Proving in baseband losses as a result of the investments that we make in back to school. So that when consumers were going to the store I mentioned, the fact that we have brands like Lunchables, our Capri Sun. So when they go to a back to school time period. They were actually experiencing a product that we have now renovated and both lunchables and Capri Sun.
So that actually helps us for us through the long term to make sure. We continue to build a stronger base volume as we go into the future.
I think those are key learnings that will take as we go into the holidays as we go into key also moments into the future I think that was one of your questions. Andrea I think if you want to address some of the other pieces.
Andre Maciel: In the case of Indonesia, top line is about a half a billion dollar business. Frankly, what we have seen is a meaningful decline in consumer sentiment that has led then to the softening of demand. In fact, I think that the consumer sentiment in Indonesia year over year is down almost 10 points in terms of consumer sentiment. That has led to the sell-out, reducing the sell-out growth expectations and some of the challenges that we have seen in terms of our particular distributor in the country and also how that has disrupted the overall, our own business. At the same time, this is something now we're taking actions to make sure that this is only something that we can correct into the future. We are right-sizing the inventory to the right levels.
Just as a complement so what you have seen working better generally is more on higher frequency than deeper.
Discounts.
So.
And we see overall lift is coming down you're aware the rois that are lower than they were last year generally in part because of higher overall equipment activity, which dilutes the lift across different players, but also in our case as I mentioned before because we're going deeper in certain.
And should drive household penetration.
As we head into next year, we have allowed a lot of that's running a selected places to see different apps that expect would work well, including some case.
Merchandising and bundling products.
14, adding more events e-commerce.
Andre Maciel: We are transitioning to a new distributor, and we're also making sure that we're reducing the pricing stability that has been in the country while we continue to invest in Indonesia in terms of our marketing of our brand. ABC is the largest brand that we have. We believe that us continuing to drive superiority on the brand equity, making sure we continue to drive also penetration in a meaningful way is going to be the best way for us to get Indonesia back to where we want it to be, in terms of continuing the growth to the business.
I'm trying to maybe go less deep and less focus on key holidays, and maybe spread that these resources are one on.
One its way throughout the year.
So they're not they are set up differently that the teams are currently assessing to make sure that they can improve those returns into next year again.
Yes, the one thing just to complete them.
They saw it in your question is no.
I think right now we're also seeing some challenges with the consumer but I think the.
But we are looking to do in the game that we're playing for the long term here is to make sure. We continue to invest behind our brands to drive superiority from a consumer experience perspective, I do think that right now the challenges we're facing a more cyclical in nature.
Carlos Abrams-Rivera: Yeah, just to add to that, we emerging markets, aside from Indonesia, grew 9.2%. It did accelerate in a relevant way compared to the first half of the year, as we have said before. Indonesia, just maybe a little more specific, is close to $300 million revenue. It's like 12% of the emerging markets business, so still relevant, but not massive. We do expect the recovery in the P&L only to happen in the second half of next year because we still have adjustments to do into Q4. In Q1, there is Ramadan, which is very important for Indonesia because of everything that business, which will affect Q1. We really head into Q3, end of Q2, Q3, we're going to see the recovery there. It's what I think what is good is we invested a lot in this business in the past two or three years.
So for US it's important that as we.
Get out of this particular era in which consumers are stealing a feeling with the down sentiment that we come out of it with a much stronger portfolio with stronger brands. So I do think that we are preparing ourselves not to just be.
Victims of the moment, but actually stronger building a stronger company for the long term.
Thank you thanks, Carlos Thanks, Andre very helpful.
Our next question is from the line of Robert Moskow with TD Cowen. Please proceed with your questions.
Hi, Thanks for the question I wanted to drill in a little bit on the commoditized categories, Carlos like coffee and needs.
Carlos Abrams-Rivera: There was a lot of marketing investment to put ABC multipurpose peanut sauce, which is the leading brand, in several categories in a very good spot. From a market share standpoint, things are doing well, but we have to make these adjustments on the distribution network.
And I guess she has to some extent.
These three categories are going to be like 40% of the sales of North America grocery and as you can see any results here sliced meats and coffee have become really problematic.
Andre Maciel: Thanks for the question.
[Analyst 2]: Thank you.
Operator: Our next question is from the line of Steve Powers with Deutsche Bank. Please proceed with your questions.
[Analyst 1]: Great. Thanks so much and good morning. Carlos, I don't believe I saw it anywhere this morning, and apologies if I missed the relevant disclosure. Are you able to frame maybe pro forma, you know, the performance of Global Taste Elevation Co. versus North American Grocery Co., you know, in the third quarter? Also, update us on how you see those businesses progressing into the fourth quarter just so we can better assess momentum into 2026 and eventual separation. Maybe alongside that, Andre, I don't know where you are in this process, but as you think ahead towards separation, I'm just curious if you have a more formal estimate around any one-time restructuring costs or cash costs that Kraft Heinz is likely to incur in preparation for the split. I'm just trying to see how we should handicap those dynamics over the next three or four quarters. Thank you.
I guess I wanted to know have you started rolling out the brand growth system to these categories.
Is it harder to implement it in these than it is in the others.
In your Cagny presentation, you yourself said that you have a much lower right to win in coffee and meats.
And as a result does that make it harder to get traction with brand growth.
System than the others.
Andre Maciel: Sure. No, thanks for the question. Good morning. Look, both companies, or both, both two big companies, performed a decline in low single digits in the quarter. We see the Global Taste Elevation trajectory improving and in the very low single-digit territory at this point. The expectation is for Q4 that to continue. Our main priority is to put the Global Taste Elevation back to growth in 2026, as it has grown for several of the last 15 years. That's a priority number one to us. The North American Grocery Company had a significant improvement in trends in the third quarter compared to the first half, but also declining low single digits, though more than the Global Taste Elevation Company. The priority number one for the North American Grocery Company now is to ensure that we have stable cash flows heading into 2026.
Andre Maciel: In parallel, we're working hard to make sure that this company also has the prospects of growing those single digits into the future. In terms of one-off costs, I think it's very early to talk about that. There is a lot of work in motion right now. We are committed to be very, very disciplined with the use of cash like we have been. You can see our results despite the EBITDA-wide decline. Our cash flow is up year over year, and it's going to continue to be the case year to go. Count on us to be very disciplined and do the right type of investments that are needed to put those two companies set up for success.
Carlos Abrams-Rivera: Yeah. Let me just add, particularly as we think about the North American Grocery Co. I think if you look at our history, we have proven that we can be an efficient operator. As we think about our separation, we're going to have the same level of efficiency as we think about how do we actually drive both of those companies. I think that beyond that, we also have been a great and a confident company in terms of delivering strong cash flow for our shareholders. I would also point out the fact that I mentioned earlier that we have a playbook that has worked. Some of that playbook, we actually already have deployed to some of the key brands that will be part of North American Grocery Co.
Carlos Abrams-Rivera: If you think back to Q3 and our results on Lunchables, on Capri Sun, those are brands that now in the future will be part of North American Grocery Co., and we were able to return to growth. What will happen as we go into these two separate companies, and we can create two more focused companies, we can then put the right level of attention and resources to allow both of those companies to fit and to fulfill their true potential. I think, as we go forward, the attention of management remains in us making sure that we continue to see the progress in the company because that will support both companies as we exit into the second half of 2026. Thanks for the question.
Operator: The next question is from the line of David Palmer with Evercore ISI. Please proceed with your questions.
[Analyst 2]: Great. Thanks. Good morning, Carlos and Andre. In your slide presentation, you noted several of those key categories where you're clearly improving in terms of market share. Your guidance for the fourth quarter doesn't imply much improvement, and I just wanted to get your thoughts about maybe offsets. Are categories that you're in slowing? Maybe there's some offsetting brands where you're seeing a little bit of deterioration. Separately, there's that story of the promotion spending, those investments, the $280 million that you're making, that's maybe 2% of North America retail sales. When we track it in scanner data, I know these are audited numbers, but it only shows that your volume on promotion is only down, I'm sorry, 1%, basically unchanged. I'm just wondering what is going on with your promotions.
[Analyst 2]: Maybe you could tell us better than what the data is showing us, which doesn't show us much in terms of what activity you are doing. Thanks.
Andre Maciel: Sure. Thanks for the question. First, regarding Q4, you are right. The outlook implies revenue in Q4 worse than revenue in Q3, about 100-120 basis points. We have inventory phasing in, especially in North America, but especially in the U.S. We do expect this headwind of inventory to be north of 100 bps for the total company. It's a combination of inventory phasing Q4 last year to January, given some timing of promotion and some September, October. We also do expect lower consumption in Q4. The inventory has been in our outlook for a while. That's nothing new. The different aspect that also was one of the reasons why we adjusted the expectation for sales down year to go is related to the softness in consumption. We saw throughout Q3 the industry decelerating further in the U.S. In October, aside from hurricane noise, it also started soft.
Andre Maciel: We do expect the market share to continue to improve, especially in taste elevation. We should expect share to improve, but we expect the industry to get worse. That results in the consumption overall in the U.S. to be relatively flat to Q3, but with the inventory headwind impacting us. The second part of your question, promotions. Of the promotions, we concentrate the promotion mostly about the key holidays. Our highest market share in the year historically is in Thanksgiving and Christmas. We do have a lot more promotion activity around this upcoming holiday. Part of the investments we have made were to secure incremental distribution. That's part of joint business plans that we do every year with the retailers. We were very intentional in some cases to ensure that the secure expanded distribution, which we have been generally getting.
Andre Maciel: In some other cases, we did invest deeper than what we would normally do during back-to-school to ensure that we can accelerate the consumers trying the renovated products. We focus a lot on trying to drive units to have those household penetrations coming in, in the expectation that these events generate repeat purchases, which will help with the sales in the future. Remember, we said at the beginning in the last quarter that we will try to do different tactics to accelerate this consumer trial of the new products. We see that the ROIs of those are not good, to be honest. The lifts are low. Maybe that's why when you look at the syndicated data, you have this perception.
Carlos Abrams-Rivera: Let me add a couple of things. First of all, we talk quite a bit about the U.S. because if you think about a total company, the reality is that while we're seeing some pressure in Europe in terms of the consumer, particularly in the UK, we actually are holding our share in a moment in which the UK consumer also is seeing some challenges. I mentioned earlier, emerging markets where we've seen actually strong growth, whether it's in Brazil, the recovery in Mexico that we feel great about, the stability in China, and really it is an Indonesia aspect that has been kind of holding us back in terms of getting to the double-digit growth that we can see in emerging markets into the future. From that perspective, it's why we spend quite a bit of time talking about the U.S.
Carlos Abrams-Rivera: If I do a double-click on what some of the things Andre mentioned, the reality is that we are seeing some inventory pullback from customers. I think that's a response to what they're seeing in terms of the consumer sentiment. The fact that we have now one of the worst consumer sentiments we have seen in decades, as we go into even our holiday season, we already see how customers are pulling back on inventory. That's reflected in our guidance as well, too. It is a kind of unique moment right now in which this is getting the consumer, negativity and the sentiment is expanding longer than we had originally expected. We are seeing already on top of that, the customers are also adjusting their own level of inventory to accommodate for that. Thanks for the question.
Operator: Thank you. The next questions are from the line of John Baumgartner with Mizuho Securities. Please proceed with your questions.
[Analyst 2]: Good morning. Thanks for the question. Just sticking with the promotional environment in U.S. retail, you know, despite the joint programming with retailers that you mentioned, Andre, and the larger investment dollars and the improving analytics, weak promo lifts seem to be a theme right now across the center of the store. Carlos, you mentioned some success with your lifts around back-to-school, but lifts have also been weaker in other parts of your portfolio as well. I'm curious what you're finding that's working differently in the areas where the lifts are stronger. Is there a distinction there? What changes are you making, if any, to your promo approach into 2026, given the consumer environment?
Andre Maciel: I think there were about three different questions in there. Let me see which one. Let me take one. I think there's a part of it that you were getting at is, you know, some of the success in back-to-school. For us, I think one of the things that we were playing in back-to-school, and I think we did that effectively, is how do we make sure we are winning in those key moments in which consumers are going disproportionately to stores? Back-to-school was actually one of our first pilots in which we kind of created a whole more executional approach of how we leverage entire, you know, brands together during that particular moment. What you saw is an improvement in store display and an increased investment both in marketing, but also in the promotional aspects inside of the retail environment.
Andre Maciel: That actually helped us make sure that we have a cross-selling where brands' cross-shopping purchase improved by 60 bps. We also saw that improving in base velocity as a result of the investments that we make in back-to-school so that when consumers were going to the store, I mentioned the fact that we have brands like Lunchables and Capri Sun. When they go to a back-to-school time period, they were actually experiencing a product that we had now renovated in both Lunchables and Capri Sun. That actually helps us for us to the long term to make sure we continue to build a stronger base volume as we go into the future. I think those are key learnings that we'll take as we go into the holidays, as we go into key also moments into the future. I think that was one of your questions, Andre.
Andre Maciel: I think you want to address some of the other pieces. Yeah.
Carlos Abrams-Rivera: Maybe just to complement. What we have seen working better generally is more on higher frequency than deeper discounts, and we see overall lifts coming down. The ROIs are lower than they were last year, generally, in part because of higher overall incremental activity, which dilutes the lift across different players. Also, in our case, as I mentioned before, we're going deeper in certain occasions to drive household penetration. As we head into next year, we have allowed a lot of tests running in selected places to see different types of tactics that could work well, including in some cases, cross-merchandising and bundling products, adding more events in e-commerce, trying to maybe go less deep and less focused on key holidays and maybe spread these resources around in a more harmonic way throughout the year.
Carlos Abrams-Rivera: There are a set of different things that the teams are currently assessing to make sure that we can improve those returns into next year again.
Andre Maciel: Yeah. The one thing just to complete the thought on your question is, I think right now we're also seeing some challenges with the consumer. I think what we are looking to do and the game that we're playing for the long term here is to make sure we continue to invest behind our brands to drive superiority from a consumer experience perspective. I do think that right now the challenges we're facing are more cyclical in nature. For us, it's important that as we get out of this particular era in which consumers are feeling with a down sentiment, we come out of it with a much stronger portfolio with stronger brands. I do think that we are preparing ourselves not to just be victims of the moment, but actually building a stronger company for the long term. Thank you.
[Analyst 1]: Thanks, Carlos. Thanks, Andre. Very helpful.
Operator: Our next question is from the line of Robert Moskow with TD Cowen. Please proceed with your questions.
[Analyst 2]: Hi. Thanks for the question. I wanted to drill in a little bit on the commoditized categories, Carlos, like coffee and meats, and I guess cheese to some extent. You know, these three categories are going to be like 40% of the sales of North American Grocery. As you can see in your results here, sliced meats and coffee have become really problematic. I wanted to know, have you started rolling out the brand growth system to these categories? Is it harder to implement it in these than it is in the others? In your CAGNY presentation, you yourself said that you have a much lower right to win in coffee and meats. As a result, does that make it harder to get traction with the brand growth system than the others?