Kraft Heinz Co ($KHC) Q2 2025 Earnings Call

Well, thank you Marie and thank you everyone for joining us today. Listen, I'm pleased to report that our second quarter results came in line with our expectations with an improvement in year-over-year topline performance. Our investments in product superiority, manufacturing capabilities, and key areas of our business are starting to pay off. It's driving momentum and giving us confidence to reiterate our 2025 full-year outlook. And while we do not have any new news to report today in our consideration and 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 joining me. So, let's open the call for the Q&A.

Well, thank you Andrew. Always great to hear from you. You know, as I said, you know, our board is working with urgency on an evaluation of those strategic options to unlock, as Sue said, 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. You know, so any actions, if any, will be consistent with that goal of unlocking that long-term shareholder value. And that's essentially all I can say at this time, but thank you for your question.

Thank you David. Let me start and then I hand it off to Andre. 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 brands that going to continue to build for the long term. And what you see from us is that we continue to invest, make investments across the board. And that some of that investment is actually in pricing. We including about 100 basis points in pricing year-over-year and we also are on top of that investing another 30 basis points in marketing so that we can reach about 4.8% of marketing as a percent of net sales by the end of 2025 which will be the highest level in nearly a decade. So and in terms of pricing, guess one clarification that I would make is that if you look at pricing in North America when you exclude the cold cuts, inflation is actually negative. So that gives you a sense that we're also being thoughtful about how to think about pricing. Andre, anything else you would add?

Yeah. 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're expecting 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 as we taking this actions on pricing. Sounds like you had another question David.

Thank you. I guess 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're growing across emerging markets, North America retail, and away from home. And in fact we are continuing to make investment to drive that growth and return capital to our shareholder. And 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 emerging market have our highest operating income margin ever. If you look at North America retail and accelerate platforms, we actually investing also to power it by the brand growth system and we executing through agile ways of working. And let me just say that if you look at the 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 North America retail actually is improving substantially. In fact, in the latest four weeks excluding cold cuts and bacon, we are down 2.7%. Year to date, we're down 4%. So, you are seeing that the actions we're taking North America retail are also helping us drive the kind of improvements that we wanted to see in the business. And finally, in away from home, we're also expanding into footprints to distribution and driving new innovation into the marketplace. The last thing I will say is that we're not done. We're going to continue to invest in the business because we are confident in the strategy. We're making sure we continue to invest in 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 and a strong cash flow that allows us to continue to make the 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.

Thank you, David. Thank you.

Great questions. 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 while actually increasing 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-term algorithm of double digit growth. And for us we continue to see investment in our business and it's not going to stop. You know, today it already represents about two and a half billion dollar business of our business overall. And I think what other thing that it gives me confidence is the fact that when you look at step-backs and you look at emerging market it's really a more simple portfolio. It is focused on taste elevation in particular in our Heinz brand and we have a strong go-to-market model. So when you look at the double click of Heinz in emerging markets, you know, it actually grew about 18% year-over-year. So it is building on the strength of our key brand in a simple 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. And I think for us we continue to believe that this is a place where we have tremendous amount of opportunity for now and for the long term.

Sorry, Leah, you got cut off at the beginning of the question. If you can repeat it.

Thank you. You know, for me what I would say is and if you go back to kind of the strategy was fueling our growth and the improvements in North America performance it is all the fact that we had now invested in through our brand growth system back in our products. So we're investing in our product superiority. We're investing in better marketing, investing in better tools with e-commerce investments that we have made over the last six months. And that is giving us the confidence that we continue to see that now play into the marketplace. We ended last year with brand growth system impacting about 10% of our business. By the end of this year will be about 40% of our business disproportionately focused in North America accelerate platforms. And you can see how when we are applying 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 invested back in the business. We improve the marketing. We improve the products. We make sure that we highlighted the benefits that it have with parents and kids that has 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 bringing new ideas into marketplace like at Capri Sun with new promotional limited edition products whether that is we bringing new beginning to new channels whether it's club whether it's 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. So that along with the fact that we continue to step up our marketing as I mentioned earlier about 30 basis points to get us about 4.8% by the end of the year. You know, that combination of the way we are investing, the fact that we're investing more and that we're 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 American retail business.

Thank you for the question.

Operator, we have time for one more question.

Morning.

Thank you Alexia for your question. Let me just give you a little bit of context which is you know for us it's important that when we define 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 and 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 as you pointed out I think that if we go back to 2022 I think that number on innovation was around 1.6% of our sales. By the end of the last year, it was about 3% of our sales. So, we're going to continue to drive on that investment from innovation to contribute a larger part of our business we go forward. But I would say it also is already paying off. So 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're growing the business double digit and now we're expanding to Canada. I mentioned earlier Capri Sun bottle that we are now bringing into club, we're bringing into single serve and now it's achieving high levels of velocities too wherever we have taken that product outside of the pouch. And we're also making sure that we continue to drive innovation in our highest business whether that is looking at how do we take it into pasta sauce which is happening across many of our business across both Europe and Latin America but it's 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. So while you're 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 we are actually bringing innovation to market that has the long-term opportunity to be here for many many years. And I'm pleased with what I'm seeing. I also think that there's more for us to do. The last thing I will say is it's important to recognize and when we talk about the brand growth system, it also creates and highlights opportunities for us to go after new innovation. So you're going to continue to see us come 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. More to come. Thank you, Alexia.