Thank you. And hello, everyone. This is Chris Jakubik, Head of Global Investor Relations at the Kraft Heinz Company and welcomes you to our Q&A session for our second quarter of 2021 business update. During our remarks today, we will make some forward-looking statements that are based on how we see things today. Actual results may differ due to risks and uncertainties. And these are discussed in our earnings release and our filings with the SEC. We will also discuss some non-GAAP financial measures today during the call and these non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results. And you can find the GAAP to non-GAAP reconciliations within our earnings release and the supplemental materials posted at ir.kraftheinzcompany.com. Before we begin, I'm going to hand it over to our CEO, Miguel Patricio, for a few quick opening comments. Miguel?

Thank you, Chris, and thank you, everyone. I just like to add or summarize and tell you that we are very optimistic about how we're progressing in our transformation at Kraft Heinz. We've been taking advantage of the scale that we have, and we've been building the agility that we need to build a better business for the future. We posted sustainable top-line and bottom-line gains versus 2019, and we are encouraged because the strongest growth comes from priority platforms and markets—what we call the growth platforms: taste elevation, and in emerging markets. And we continue seeing retail very strong, and we are coming back with food service. It's recovering fast. Transforming Kraft Heinz is what we all have in mind. And we want to do that while maintaining industry-leading profitability. We are investing more in our brands and building a much more creative Company. We are also on track to deliver the $400 million of gross efficiencies in 2021 and effectively manage inflation. At the same time, we continued strengthening our portfolio and improving financial flexibility. We're adding capacity to our products to drive, grow, and energize platforms, and in emerging markets. We, as you know, closed the Nuts divestiture, and we expect to close the Cheese divestiture in the second half of this year. Recently, we acquired Assan Foods in Turkey. It's a very small operation, but it's a very important step in our strategy because it accelerates taste elevation and is in emerging markets. And we continue to pay down debt and improve our net leverage. We continue to expect to have a very good 2021, actually to deliver a stronger 2021 than we projected when we provided our initial outlook in February, and that speaks to the strength and potential of our ongoing business. Thank you. We are now ready for your questions.

Please standby while we compile the Q&A roster. Our first question comes from Chris Growe from Stifel. You may begin.

Hi, good morning. I just had a quick question for you, if I could please, in relation to pricing, and I was just curious if you could maybe give a little more color around the price realization and how you expect that to build through the second half of the year. And just as a backdrop, as I look across your categories, in some cases Kraft's pricing is above your category, some a little below, but all-in-all, like the IRI data in the U.S. would say, you are pricing at a slightly slower rate than what the categories are overall. So I'm just curious if that's strategic in helping drive your share gains or if that's just timing and there's more pricing coming in the second half of the year. Thank you.

And thank you for your question. Let me start and then maybe Carlos and Paulo can give you more color on that. As I mentioned on the call, we believe that inflation in our business remains manageable. And even with inflation, we expect to deliver a stronger 2021 than we projected before. We continue to invest in our brands at the anticipated levels to drive our transformation, and we will continue to monitor things and take further action if of course, it is necessary, but Carlos, maybe you can give more color on it and maybe Paulo as well.

Sure, Miguel. Thanks for the question. But first, I think I will say is in the U.S. we have said in the past that we are proactively managing against the incremental inflation we see. And actually, we feel good about our ability to implement those actions when and where we see the need. So, if you look at the inflation we saw in Q2, it is mainly coming from ingredients, things like soybeans, edible oils, packaging, and some transportation as well. And it is very similar to what we saw in the first quarter. And most recently, we also saw some increases, too, driven by rising costs and some higher transportation rates. Now, from a pricing perspective, as I mentioned on the call, we are restoring key promotional activations to drive the business versus the pandemic-induced pullbacks that we had in 2020. Now, as we have mentioned earlier in the year, our goal continues to be to connect with consumers that now have discovered or rediscovered our brands and drive the repeat rate among those households. So in that context and versus inflation, again we feel good about our ability to achieve the net pricing we need to offset inflation and maintain a strong household and repeat rate. Given that we are renovating our portfolio to drive better value for consumers, improving the creative content of our marketing, and strengthening and diversifying our media impressions. What I will also add is that we're doing this primarily through four key revenue management initiatives. First, we are optimizing the frequency and depth of our promotion while restoring retail activation levels that I discussed in the call. Second, we're doing broad-based pricing actions, which we have announced across our portfolio. Third, we're continuing to manage key commodity pricing. And lastly, we're using all other revenue management levers, including price pack architecture and managing category price ladders. If you look at our revenue management initiatives, they are guiding our smart trade investments so we can optimize returns on those investments and manage through the current inflationary environment. Now, in the near term, the timing of cost inflation versus price realization may lead to some degree of margin pressure, but this is reflected in an outlook, and we see net pricing and costs coming into balance as we exit the year. And then with that, let me pass it over to Paulo. Any other comments you want to add, Paulo?

Sure, Carlos. I think if you want to explain inflation and pricing from a total company perspective, so break it down first on inflation. We're going to recall that in April we said that you're expecting inflation in the mid-single-digit range as a percent of cost of goods sold, but at the lower end of that range. Since April, our costs have continued to move higher. Now, we're expecting inflation still in the mid-single-digit range for the full year, but now slightly above the midpoint of the mid-single-digit range. Regarding pricing, as we are mentioning and Carlos has just said, we are using multiple revenue management levers including price actions to manage inflation, but I think it's important for us to keep in mind that we are going to be facing an unusually difficult pricing comparison in the second half of last year. Just to remind you, last year, in the second half, our price was more than 4% higher than the prior year as we pulled back promotion to better protect customer service. In terms of the timing and the pricing realization, while we expect the timing of the cost inflation versus price realization to soften, our margin percentage is expected to lower than the run rate levels in the short term. I think it's important to note that all of those impacts are already considered in the outlook that we have for the year. And again, as we mentioned in the beginning, we're still expecting even stronger EBITDA dollars than we anticipated before.

Thank you for the color.

The next question comes from Alexia Howard from Bernstein. You may begin.

Good morning, everyone.

Good morning.

Thank you. Can I ask about the gross margin? I know that it doesn't really appear anywhere except in the formal numbers in the press release, but it looks as though it's down about 150 basis points year on year. I imagine that some of that might not be adjusted gross margin. But in a situation of such intense commodity cost pressures as we're going through now, I am just wondering how you're expecting that to shape out in the back half of the year, possibly out into 2022. Any commentary would be much appreciated. Thank you.

Alexia, I can start here with this answer. I think yes, there are some adjustments to make in the gross margin. But when you think about year-over-year, I think we need to remember that we’re lapping in Q2 a big quarter last year with the all-pantry loading that happened in the quarter. Our overall margins of the business are very healthy in this Q2. I think in the second quarter, we were able to price, and we had enough pricing to offset, pricing plus our efficiencies were more than enough to offset our inflation that we had, but we worked compared to a very heavy mix that we had in the last quarter.

Great. And going forward, how do you expect it to change in the second half?

Going forward what is exactly, I think the key components that we are going to see in the back half is that we are going to start to have—and that's already embedded in our outlook. We're going to start to have the restoration of some promotions that Carlos mentioned. Also, the mix impacts that we're going to see as the year goes on. And also, this timing between pricing and pricing realization and inflation will impact our gross profit, but all those impacts are already inside the outlook that we disclosed.

Great. Thank you very much. I'll pass it on.

Our next question comes from the line of Andrew Lazar from Barclays. You may begin.

Great. Good morning and thanks for the question. I guess obviously it's way too early to talk specifics around 2022 as we know much can still change, but I wanted to go back to the slide presented at the Investor Day in September of last year, and from that presentation on the base business, so excluding divestiture impacts, it looks like EBITDA was expected to be roughly flattish in '22 versus '21. And I guess I'm just trying to get a sense of, at this stage, would that still be the expectation such that we just have to strip out divestitures to get a sense of it or maybe has the inflation environment and longer-tail to at-home eating benefits shifted this thinking at all? Thanks so much.

Let me answer, and then maybe Paulo, you can bring more precise numbers to Andrew. We are expecting 2022 to be better than the strategic plan that we presented to you. And why is that? I think our transformation is ahead of our plan. We've been beating our plans and our budgets, and we are optimistic and continue investing toward the future. I think it is still too early for us to be talking or to give you guidance about 2022. With all the volatility in the market, I think it's prudent not to go further on that.

Andrew, just to complement here, I think as the year progresses, as Miguel mentioned, late in the year, we will be providing more clarity about how we're seeing 2022. We're not discussing this today, but we can say that we see inflation as a consistent theme for us and the industry ahead of '22, and all those initiatives and actions that we are doing in terms of revenue management initiatives to manage the inflation, we're seeing based on expectations that inflation will continue into the next year. I think those initiatives together with our savings program, the $2 billion savings program, will be sufficient that together with investments that we're making to improve the relevance of our brands. So again, we are very confident around our ability to manage the inflation and support the investments behind our turnaround as we exit '21 and entering '22.

Thanks, everyone.

Our next question comes from Bryan Spillane from Bank of America. You may begin.

Hi. Thanks, Operator. Good morning, everyone. So I've got a question, I guess for both Carlos and for Rafa if you could both comment on this. In the quarter or even year-to-date, currently, we're seeing basically all channels are up. I think that's been one of the surprises as we move through '21 is that, as away from home and food service channels have improved, the at-home consumption has also stayed relatively elevated. So I guess my question for both of you is just simply, how long do you expect this to continue and I guess, as things normalize, would you expect the foodservice piece of it to really begin to accelerate more and somewhat offset the at-home consumption? So just trying to get a sense of how you're thinking about those two channels, especially since right now they're both up.

Listen, first of all, thanks for the question. I think it's very fair. Let me start and then Rafael can give a perspective on international. I think from an industry perspective, you're right. Channel trends are still normalizing. But I have also to say it's too early to tell how the share of dynamics between away-from-home and at-home ultimately is going to hold out. Now recently, it does seem like all channels are growing, but that's probably not likely to remain the case, and that's not built into our expectations. Now, in terms of our business, what we see is we are optimistic about our plans that we can actually drive sustainable growth in both the retail and the foodservice. And I think it's fair to say that we also have big ambition from the away-from-home business. We believe food service is a generation of insights and innovation that can actually help in the retail side of the business. And is also capable of driving outsized growth because we have actually put a reduced focus on culinary distribution and channel expansion. And some of those channel trends, while still normalizing, it's still a little bit early to predict exactly whether it's all going to happen now. But I do say that I do believe we're going to be stronger versus what we saw pre-pandemic, essentially for two key reasons. First, because our foodservice mix favors the quick-service restaurant segment, which stands to recover, and we are seeing that recover faster than the rest of the foodservice channel. And we also see that to be more resilient post-pandemic. Early in the pandemic, we also made a strategic bet to support that growth in quick-service restaurants, and that bet is paying off. We now have 30% more capacity in our small packages of ketchup and sauces, so that has been seen to be working. And secondly, we see a more durable step-up in in-home consumption that comes at the expense of other categories and brands without necessarily sacrificing food service recovery and growth. And then lastly, let me just give you a little more color on the away-from-home. I mentioned that we gained a point of market share, and food service recovery begins, and most of that was fueled by the actions we took in three areas that I mentioned: culinary distribution and new channels. In Q2, we executed nine co-branded culinary limited-time offers with quick-service restaurant partners. Now one of those was so successful because it became part of our permanent menu item and now is going to be in '22. If you think about that context, we've been able to drive those kinds of limited-time offers with quick-service restaurants— in 2019 we had none of those. So, we are certainly driving a different level of execution with quick-service restaurants. Now, the second part of that, which is distribution, we actually grew key account by 20% over this quarter. And then finally, as consumers continue to evolve how they cook and eat, including the use of meal delivery kits, we're inserting our Kraft Heinz brands into that equation. We are working with one popular direct-to-consumer company to develop things like a recipe specifically for our Philadelphia Cream Cheese as the main ingredient of their products. That actual product was ordered over 200,000 times by consumers, setting an all-time record for that sales partner. So when you look at it holistically, I feel very optimistic about our away-from-home business and that it is going to be a springboard for us to continue to drive retail growth. Now, that's a perspective in the U.S., and Rafael, do you want to add something in terms of the international business and how you see it?

Yes. Thank you, Carlos. And hi, Bryan. Look, on balance, our developed markets are experiencing very similar trends to retail and food service in U.S. and Canada. Emerging markets, on the other hand, have actually rebounded stronger than in developed markets. In most countries that either had shorter or even stricter lockdowns, that kept their economies open during the pandemic overall. So, I mean, the consumption obviously differs country by country, in-home and out-of-home. The best of the pandemic lockdown approach and vaccine availability changes a lot. Given the delta variant, now it's a bit early to tell how the channels will stabilize in the second half. But all that said, we're seeing a lot of improvements on the retail channels, giving us a lot of confidence that we will come out of the pandemic well-positioned right after it. On the food service side, our mix is even more weighted towards quick service restaurants than the U.S. is, and this format is recovering very quickly. So with distribution gains in emerging markets and the potential of the food service that we still have across our overall international, I'm quite optimistic that after the pandemic, the net will be quite positive.

Okay, thanks, Rafael. Thanks, Carlos.

Our next question comes from the line of Ken Goldman from JPMorgan. You may begin.

Hi, thanks. Would you ever reconsider your policy of not guiding to annual sales and EBITDA? I realize it's been a company policy for a long time, except in rare cases not to give much. But I imagine you could avoid some confusion about let's say, I guess quite good or not quite as good print if outsiders had a basic bar against which to compare results. And I guess in that way we could give you more credit when you do come in ahead of expectations. Just curious if that's a possibility and I guess there's nothing else to it, probably makes Chris's life slightly easier too.

Thanks for the comment. Again, we will discuss this internally and we will let you know.

Thank you.

Welcome.

Our next question comes from the line of Jason English from Goldman Sachs. You may begin.

Hey, good morning, folks. And thanks for slotting me in. A couple of quick questions. So you guys mentioned that you've implemented pricing actions, and began to raise those prices. Can you give us some quantification there? Overall, on average, what is the price increase that you're pushing through and how does it vary across the different products?

Well, let me just say, Jason, that let me give a little bit more context, which is, if you think about our portfolio, we're really more diverse than most of the peers that we compete with. So, our approach to pricing is not unique in terms of just having one solution. We have to be more precise in certain categories than really broad strokes across an entire portfolio. But I can say that our actions that we have taken in pricing have covered the majority of the portfolio and that actually has quite a wide range of percentage increases, so it's hard to give you a specific answer. Now, what I will tell you is that we have taken actions to mitigate those incremental inflations that we're seeing, and that we feel comfortable with our approach, that we feel very good about how we are managing it and that we're going to continue to monitor things and take further actions if necessary. Thanks for the question, Jason.

Thanks. But you don't know what your weighted average price increase is across your portfolio?

I mean, I think it's something that for us is something that we're not going to be discussing, but I'm happy to continue to have conversations about how we are responding in this moment and how we're finding a very manageable solution from us.

Okay. And one more thing just on the inflation, can you give us a quantification of what the rate was in the quarter and what you expect in the back half? I see the total for the year going from low-end to mid-singles to high-end. I'll just zoom in a little bit on the near term. Thank you.

Jason, our expectation was in that range. Jason, we need to remember also that in Q2, we have higher pressure on the meat commodity, especially in bacon. I can tell you that in the first half of the year, our inflation rate was in the low end of the mid-single-digit range, including this significant component. And that's the range that we saw for the quarter too.

Okay. Thank you. I'll pass it on.

Welcome.

Our next question comes from the line of Carla Casella from JP Morgan. You may begin.

Hi. You mentioned that you're maintaining your leverage target below four times and you're currently at three. Would you ever think of changing that target to lower it or are you leaving that flexibility, just given your outlook for either the business or other potential, either mergers and acquisitions or shareholder-friendly activity?

We are. Thanks for the question. We are keeping. We are not changing that target of leverage to be below four times in a consistent way. Let's remember also that this 3.1 times that we closed would go to 3.4 if we adjust by the EBITDA that we lost, that we're going to lose right at pro forma adjusted body EBITDA, of note that was the date that we divested. But, yeah, our idea is to keep the same policy and to give us more flexibility to accelerate our strategy, and again, we're going to operate with this flexibility going forward.

Okay, great. Thank you.

Maybe just one more question.

And our last question will come from the line of Robert Moskow from Credit Suisse. You may begin.

Thanks for the question. Maybe a two-parter. One is, do you think that you will increase media again in 2022? And then the second question is, I think you entered the year expecting market shares to grow. So maybe you could decompose those two things as to which of those really drove the outperformance in 2021. And then also for your back half guidance, second quarter categories have been pretty resilient. Are you expecting a drop-off in category performance in the third and fourth, as people go back to work and consumers go back to school, specifically North American retail?

Let me answer the first part regarding marketing and media. And I'll pass the second one to Carlos to talk more specifically about categories in U.S. Let me say that, first, we are excited about the changes that we have been making in our marketing programs and capabilities. We've been investing not only in our brands but also in our people. This is an area that I'm very passionate about, and given the important role it has to drive our growth. We are driving improvements actually in a couple of ways. The first one is more marketing dollars that we put. We have $100 million more in marketing than we had in 2019. And we said that we want to increase marketing moving forward. So it's our intention. However, I think it's not only about increasing marketing, it's really about efficiencies. We're today achieving 30% more of our consumers with the same spend by doing better marketing and not only better marketing, but also better media. Third, I think we're excited about stepping up on creativity in our Company. Today, we started an internal agency in digital media in Canada in May last year, and today, we have 12 of these internal hubs in different places covering more than 30 markets around the world. And that is critical for marketing efficiency because it's faster, better, and much more creative. We can really have marketing linked to the culture and need to be very fast on that. So, overall, that would be my answer for marketing. Carlos, you may answer the second one.

Sure. I can just build on your point, Miguel. Specific to market share and our performance, I would say we are off to a very solid start to the year. And you saw in the presentation, we are seeing household penetration and repeat rate growth rates, but higher than pre-pandemic levels. And we are regaining share, which is an improvement from last quarter, and certainly from what we saw in 2019 pre-pandemic. When you take a step back and look at our overall performance, I think what we're proving is that our consumer platform approach, our focus on renovation, innovation, marketing, and our resale activations, they're all working. Now as we go forward, we will continue this agenda. We are going to increase support around key holidays while using price promotional actions that I mentioned earlier, all the revenue management tools to manage inflation. Now, for our total business and I think your point about asking about the future, there are several factors impacting the category performance, but I will tell you the most important is that we believe we're in a strong position to balance share, risk profitability to continue to deliver strong returns. Thanks for the question.

Just one comment on that, just to build on to what you're saying and the question here on the outlook. I think it's also relevant to say that while our outlook implies a lower EBITDA margin in the short term, what is in the second half and Q3, we don't think that EBITDA margin is representative of the run rate that they said, and we expect that to improve back to normal levels as we enter into 2022 and when our price realization starts to catch up in our results.

I'm sorry, I want to press a little bit more. This is really a question about your categories. Like do you expect your categories to face pressure in the third quarter and fourth quarter compared to the first half, because of people going more to work and because of students going back to school? What do you think will look more similar to the second quarter?

I'm sorry, but I would like to ask a follow-up question regarding your categories. Do you anticipate your categories experiencing pressure in the third and fourth quarters compared to the first half, due to more people returning to work and students going back to school? What do you believe will be more similar to the second quarter?

Yeah. Let me just give a perspective, at least in the U.S. piece. I mentioned that there were several factors that are taking into consideration how the categories are behaving, and I think that there are three things in particular that we are looking at. There are certain things around the fact that there are hybrid working schedules. We need to see the home purchases, renovations, and a new consumer preference that would likely keep people at home, the higher level of home consumption that we have seen in the past. We've also now seen the delta variant and the rising case counts across the U.S., and those are factors that we're also closely monitoring, particularly because they are important in terms of thinking about how families are preparing for the upcoming school year. I think there are all things that are making it very difficult for us to say at this point exactly how this is all going to shape out. What I can tell you is that we are focused on those things we can control. So we are focused on making sure we improve our agility and execution as Miguel said, that we continue to invest behind our brands to build relevance and compete for those locations through our consumer platform-based approach, regardless of how we see this happening and unfolding. So far we're pleased with how we are showing up. So we believe we can continue to see positively and the fact that we are able to drive helps operate ratios, repeat rates. I mentioned earlier in the call, right now you see all channels growing, but realistically that is not right now our expectations as we go through the second half.

Okay. Thank you for indulging me. Appreciate it.

Great. Well, thanks to everyone for joining us today. If you have any follow-up questions, Investor Relations and the media teams will be available for your follow-ups, but thanks everyone for joining us today.

This concludes today's conference call. Thank you for participating. You may now disconnect.