Thank you. And hello, everyone. This is Chris Jakubik, Head of Global Investor Relations at The Kraft Heinz Company, and welcome to our Q&A session for our third quarter 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 the 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.

Well, thank you Chris, and good morning everyone. I would just like to start by sharing how encouraging it is for us to see our Company leaning into a scale and agility that we have been talking about for some time, addressing short-term challenges at the same time that we are building the long-term advantage. We are today a much stronger Company and we are better positioned to address the inflation that we're seeing. We are taking actions now to protect profitability through 2022 and our actions, and not just branching, we are also implementing price pack architecture, value-engineering, and leveraging our scaling procurement. At the same time, our team has continued transforming our business for long-term growth and advantage. Our momentum with the consumer is strong, and our consumer-focused platform-based approach is taking us to new occasions. We continue to invest, to improve the relevance of our brands. They are making greater, more creative marketing investments. And at the same time, we are building agility that will deliver the $2 billion of gross efficiencies and looking to unlock more. We are continuing to pay down debt and improve our net leverage. And we continue to invest in our most important assets, our people. And as we mentioned in our remarks, we have done all of these while delivering better 2021 results than previously expected, which speaks to the strength of our business. Well, with that, let's take your questions.

Great. Thanks so much. My question is actually for Rafa, if I could. We've been taking a look at some Nielsen trends and some key food categories in the U.S. and Western Europe. And while consumption obviously in the U.S. has certainly remained elevated, trends at least in some categories in Europe seems to be decelerating meaningfully, or I guess normalizing is a better word for it as those markets reopen at a faster pace than what we've seen here in the U.S. So I'm curious if KHC is seeing this dynamic play out at all for the Company, and if you see maybe certain trends in Europe as a fair leading indicator of what's to come in the U.S. around stickiness of demand. Or if maybe there are some differences suggesting that not a great set of data points to necessarily use to compare. Thanks so much.

Hi, Andrew. Rafa, here. Thanks for the question. From an overall market perspective in Western Europe, we have seen indeed more of a return to pre-pandemic consumption patterns than in other developed markets. That said, there is quite a bit per category, and we are seeing much greater stickiness in our base elevation platforms as the consumers continue to look to us to elevate their views. And this is quite positive for us because if you recall, we have three key pillars on our international growth strategy and our base elevation platform, emerging markets and food service channel. So this demand stickiness in base elevation, and we will continue to see favorable levels of consumption, growth, and absolute terms on the platform. And we do our best when we are focused on that. So we continue to see this elevation demand sustaining. And in food service in particular, Western Europe is rebounding very fast. It is approaching 2019 levels. And on top of this, I agree we've been gaining a lot of share in almost every market we operate in food service, so is another strength. As I said, overall, it's true most of the market is coming back to pre-pandemic. In some platforms, they continue to be very strong and that has played out favorably for us, this elevation.

Thanks, folks. Appreciate you slotting me in. I guess I'll lean into price a little bit. You reiterated the comment today that during the prepared remarks that you expect the price to catch up with costs by the end of the year. Can you confirm that that's not just ingredient costs, but that's sort of the total supply chain pressure? And then looking at slide 8, is it fair to look at that as a price index? So, to say you came into the year with the index around 103 and you plan to exit a bit north of 106, you'd be carrying around 3 points of price into next year, or is that 106 a bit of an average and the real exit rates closer to 107 or 108? Thanks.

Hi, Jason, I'm Paulo, here. Let me try to help with this question. We expect to see a similar level of inflation at the beginning of '22 as we are seeing now in the second half of '21. Most of the inflation that we're going to see is carried over from '21. We expect to enter '22 having executed the price plan that protects our profitability from current levels of cost. Current levels of cost that we're seeing now. And this should address the inflation that's expected in '22. So we are seeing our execution of pricing protecting our profitability given the cost levels that we're seeing now and this should protect our profitability when we're entering into '22.

So we're probably looking at something closer to a mid-single-digit pricing as we enter next year if you're carrying high single-digits percent of COGS. That's just the math on that. Is that unreasonable?

Listen, I don't want to get into the actual forecasting of pricing but I can tell you that the actions that we're taking now will protect the inflation that we're seeing, and it will protect our profitability from these inflation that we're seeing in the current cost levels. And this could put us in a good position to enter 2022.

Just complementing what Paulo is saying. I think that if eventually there is more inflation terms, we'll have to take action. Thank you.

Thanks, Jason.

Hi. Good morning.

Morning.

Can you elaborate on what drove the sequential softening in market share trends that you highlighted? Has that primarily been driven by the capacity constraints or have there been other competitive dynamics contributing to the share performance? And then how are you addressing the capacity constraints that you highlighted, and I guess, what do you see as driving improved share performance going forward?

Thank you Pamela for the question. I imagine a lot of those questions you had there, I think there were 3 I counted, but they were related to the U.S. so I'll take it. I guess for me I will say, yes, first of all, the way I think about the business is we want to make sure we continue to drive household penetration and repeat rates, which we are doing. And while there were some short-term share pressures, during the back-to-school, as really their demand grew faster than our capacity in a few categories, over the long-term effect that we are driving household penetration and repeat rates shows the strength of our portfolio and interest of our business on how we are actually managing through all that.

I will certainly embrace that. My focus is on ensuring we succeed by maximizing our controls. Our strategy for success revolves around consistently addressing consumer needs more effectively than anyone else, regardless of current circumstances. Looking ahead, I see three distinct advantages that position us favorably. First, we've been continually updating our portfolio and managing costs in our brands to enhance value for our consumers, which is crucial in facing any competition. Essentially, we're increasing the perceived value of our products on the shelves. Second, we are ensuring differentiation at every price level, from entry to mainstream to premium, allowing consumers to remain within our brand even if their financial situation changes. For instance, we offer a range from easy mac to the original Mac and Cheese. Lastly, we are restructuring our portfolio through divestitures that have significantly lowered our exposure to private labels. We continue to innovate and manage our costs effectively, ensuring we provide differentiated products across our categories for our regular consumer base. Our portfolio aims to minimize private label competition, and we still see opportunities for profitable growth by focusing on our consumer platforms. We're executing our plans effectively, utilizing innovation, and leveraging the efforts of our teams. Regarding your question about supply chain constraints, it's important to note that the entire industry is facing daily challenges in this area. Our supply chain team has been remarkably agile, harnessing our global scale to demonstrate flexibility in labor, manufacturing, and logistics. For example, we've reduced hiring times and significantly expanded our applicant pool by employing new digital tools at Kraft Heinz. Additionally, we're enhancing material flexibility through a cooperative approach across sales, procurement, and manufacturing.

And those things will change in our plans, 39 of them across the U.S., sometimes on a weekly basis. And then, in logistics we've actually increased the throughput on warehouses by shifting more of how we operate 24/7 and increasing the automation since the pre-pandemic time. So having said that, I will tell you that we do have a good line of sight to continue to improve our customer service levels as we move forward. And because frankly, restoring the top-tier customer service to the pre-pandemic level is a continued focus for us and the entire team. And thanks for your question, Pamela.

You also asked about moving forward in terms of capacity. On top of everything that Carlos is saying, I just want to add that we have been adding capacity. We increased substantially Heinz ketchup capacity, Mac and Cheese, on frozen snacks, on bagel bites, on crops of cucumbers, on meal, and on kid's juices. So this investment in capacities is a great proof of our belief about the demand for our products in the future.

Thank you. Very helpful.

Hi, thanks, Operator. Good morning, everyone. So my question is, I guess, tied to some of the themes here, just in terms of inflation and pricing and margins. Maybe if we could just step back pre all of this inflation and pre-COVID, there was a transformation in your supply chain in which that work had started. We look at gross margins or profitability of the gross profit line, and you've held up pretty well, relative to your peers; if anything, probably a little bit better. I guess as we're thinking about profitability going forward, knowing that there's some pricing that's coming through to cover inflation. But how much are you also still benefiting incrementally from some of the supply chain work you've done, and how much of that is going to be also a contributor to helping to offset all of the inflation and supply chain disruptions?

Let me begin by addressing your question and then others can add their insights. What you mentioned is accurate. When we implemented our strategy at the end of 2019 and into early 2020, we concentrated on enhancing our gross profit over time. To achieve this, we initiated several programs aimed at improving efficiencies in our supply chain, as well as developing a new pricing and revenue management strategy, which is currently in effect. We are seeing the results of this today, especially considering the inflationary pressures we face and the difference between our pricing realization and cost inflation. We have managed to maintain our gross profit margin at the level it was prior to the pandemic, which instills significant confidence in our brand moving forward. Therefore, I can confidently say that our approach to enhancing profitability and gross profit margin is effective.

I want to share some thoughts on our overall progress in our transformation, especially in light of what you've heard from Miguel earlier. We are significantly advancing critical projects related to our capacity. For instance, regarding ketchup, our Heinz dip and squeeze package has nearly doubled its capacity. By the end of next year, for Mac and Cheese, we expect to increase our cup capacity by about 20% in the second half of the year. Additionally, in Frozen snacks, we will have increased our capacity by about a third in areas like daily mix, also by the second half of next year. These are examples of how we fast-tracked projects during the pandemic and continue to do so, with more work ahead. Another aspect to consider is how to optimize the utilization of our assets, and we've made progress in improving our overall equipment efficiency, especially comparing 2020 to 2019 and 2021 to 2020. This will help us smartly invest in our capacity and get better performance from our assets. Thank you for your question, Bryan.

All right. Thank you.

Hi, thanks. I just wanted to try to square the outlook for 2022 slide with your comments about pricing catching up to costs. Because if pricing is really catching up to cost that would imply that your EBITDA growth on a core basis divestitures should be able to grow in 2022. So if you're confident enough that the pricing is really catching up, why not take the extra step and talk about it in your outlook? As it stands, the slide is pretty general. It says that things are going to be strong, stronger than you thought post-pandemic but I'm not quite sure it points to EBITDA growth on a core basis yet.

Hi Rob. I want to clarify that we are not offering any guidance for 2022 at this time, except for what we have already shared. We feel very assured about our decisions and our capability to retain both consumers and the current volume. We are also confident in our ability to maintain our strong margins. Our priority is to safeguard our margin dollars against inflation, as we previously mentioned. To provide more detail, during Q3, we noted a decrease in percentage margins, but we anticipate these margins will improve as profit realization occurs. That's the extent of our comments on 2022. We firmly believe that we are in a better position now, as a stronger company with increased consumption, and we are confident in our ability to manage the short-term inflation we’re experiencing.

Okay. Well, I appreciate it. Thank you.

Thank you.

Hi. Good morning. I just had a question for you in relation to promotions and you've talked about how you're rebuilding promotions in your business, especially in the US. I think you talked about a normalized promotional environment. So I just want to understand, and this gets back to a degree around pricing, as you recover promotions, especially against the period a year ago where they were lower, can you achieve price realization on a net basis that offsets inflation? And maybe related to that, would that rebuilding promotion or recovering promotion continue in the first half of 2022? Maybe a bit of an offset to the pricing you're taking in retail.

Chris, let me address your question. There are a few points to consider. First, it's important to highlight the transformation we've been undergoing at Kraft Heinz. A key part of this transformation is our consumer-first approach, which informs our strategy to invest in consumer platforms during the times when consumers are seeking solutions. We've made significant gains in brand household penetration and repeat rates because of this approach. We've ensured that when consumers are looking for specific solutions, we can provide our products effectively to meet their needs better than anyone else. Looking ahead to 2022, we plan to be more proactive and execute better than we did in 2020 during these important periods, although we won't reach the same depth as in 2019. We still see opportunities for growth as we move forward, and we'll remain focused on ensuring our offerings satisfy consumer needs better than anyone else, guided by our platform and our commitment to a consumer-first approach. Thank you.

Good morning, everyone.

Good morning.

Okay. So in your prepared remarks, you alluded to an appetite for more acquisitions in the emerging markets. I think you referenced the FM Foods and the deals that you've done so far. Can you talk a little bit about what additional or where you're focused in terms of potential future deals? Are there particular categories, particular regions that you're looking at? Can you say anything about the kind of scale of the pipeline in terms of which would you be looking just at tuck-ins or potentially something more medium-sized? Thank you. and I'll pass it on.

Sure, Alexia. Maybe I can comment and then give the word to Rafael, since he's responsible for emerging markets, among other things. We have, of course, today a portfolio that is better than we had 2 years ago and a much stronger balance sheet. And with that comes more flexibility, right? And you are right. I think that if we have opportunities for acquisitions, we'll look at them and always with price discipline. We like a lot to follow our strategy and as a consequence, taste elevation, which is really one of the critical strategic pillars of the strategy of the international zone is in the place where we're looking for opportunities. And that helps also food service business. So yes, some business in Turkey that we acquired is the leading Company in food service. And we expect to grow to the retailers with that place in Turkey as well. And I will give the micro for the word to Rafael so he can give you more color about carriers that we're looking at.

Thank you. We are very excited about Assan Foods and Hemmer because, as you mentioned, it's all about strategy. These are strong margin categories in the right regions, particularly in emerging markets and food service, which are foundational to our approach. Both Assan and Hemmer are approaching $100 million each. With Assan, we can further develop Heinz as a larger brand in Turkey and accelerate our growth throughout the Middle East. As for Hemmer, we are currently awaiting regulatory approval, but it will enhance our distribution, particularly in southern Brazil, and allow us to engage more deeply in the various levels of the Taste Elevation chain. We can effectively utilize their portfolio to scale our presence more quickly in the food service channels. This aligns perfectly with our strategy, especially in the core emerging markets where we see numerous opportunities.

Hi. Good morning. A couple of U.S.-based food producers, they've suffered through some worker strikes recently. I'm just curious how you're feeling about your labor relations in general at the moment. And I guess how investors should think about the risk, if there is any, of Kraft Heinz perhaps facing some incremental challenges on this front?

Thanks for your question. I won't comment on anyone else's business. What I can share is that our teams have demonstrated significant agility in maintaining a focus on workforce engagement. Currently, we have encountered some labor challenges, particularly in a few isolated areas. Moving forward, I am confident that we will continue to manage these specific situations effectively. Overall, I do not see this as a major concern going forward. I feel positive about our current position and our ability to handle this proactively. Is there anything else you'd like to discuss, Miguel?

No, I think the only thing I would add is that we've been working hard to improve overall engagement within the Company, which gives us more confidence regarding potential labor issues in the future. At this moment, we don't see any risk of a strike, but that doesn't mean it's impossible. However, we remain confident about this situation.

No, I think as Miguel said, we're in a good position and feel positive about how our teams have handled things and the agility they've shown during this challenging time. So thank you. I believe we're nearly out of time, so we'll wrap it up here. Thanks to everyone for joining us today. For anyone with follow-up questions, I'll be available to address them, and for those in the media, Kathy Krenger and her team will be available for your follow-ups. Thanks, everyone, and have a great day.

Thank you.

That concludes today's conference call. Thank you for participating and you may now disconnect. Everyone, have a great day.