Good day, and thank you for standing by. Welcome to the Kraft Heinz Company first quarter results conference call. Please be advised that today's conference is being recorded.

Thank you, and hello, everyone. Welcome to our Q&A session for our first quarter 2024 business update. During today's call, we may make forward-looking statements regarding our expectations for the future, including items related to our business plans and expectations, strategy, efforts, and investments and related timing and expected impacts. These statements are based on how we see things today, and actual results may differ materially due to 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. Additionally, we may refer to non-GAAP financial measures, 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.kraftheinzcompany.com under News & Events for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. Before we begin the Q&A session, it gives me great pleasure to hand it over to our Chief Executive Officer, Carlos Abrams-Rivera, for opening comments. Please, Carlos.

Well, thank you, Anne-Marie, and thank you, everyone, for joining us today. Before we begin our Q&A, I'd just like to provide some perspective on our top-up session here at Kraft Heinz, our consumers. While we've seen a notable uptick in consumer sentiment in the first quarter, there is a gap between high and low earners that continues to remain wide, showing a clear and continuing bifurcation. The lower-income consumers are challenged with high interest rates, elevated gas prices, and dwindling savings. Consequently, there’s a clear pullback in restaurant spending by these lower-earning households, especially in restaurants and convenience stores. These consumers are instead looking for value as they prepare more meals at home. In contrast, we have seen a meaningful growth in travel and accordingly, an increasing hospitality and entertainment sales, driven by the bounce back among higher earners. Here at Kraft Heinz, we are committed to meeting the evolving needs and tastes of all consumers, whether they're looking for value in serving their families delicious meals at home or seeking culinary delights as they embark on new adventures. They can look to the iconic and trusted brands of Kraft Heinz. For us, it's about having brands that are accessible and available to everyone. I believe we are well positioned to serve this consumer for three primary reasons: one, because we are bringing innovative food solutions faster than ever before; two, we continue to renovate our core brands for today and tomorrow; and three, we have the best team in the industry, full stop. We are on track to meet our goals of generating $2 billion incremental net sales from innovation, and the world has taken notice as we were recently named one of the world's Top 50 Most Innovative Companies by Fast Company. More importantly, we are expanding the choices we offer our consumers so that they don’t have to sacrifice quality. This includes providing greater value through multipacks, plant-based options like our newly released NotCo Mac & Cheese, or expanding the choices in our iconic brands such as Zero Sugar Heinz Ketchup. I've been traveling around the world visiting with our employees, and they are consumer-obsessed. Their sense of ownership, collaboration, and agility is inspiring. I just want to say thank you to every one of them for their dedication. We are proud of our progress but far from satisfied, as we continue focusing on serving these consumers and making lives delicious for everyone. And with that, I have Andre joining me, so let's open the call for Q&A.

Our first question comes from Andrew Lazar with Barclays.

It looks like KHC is still losing share in North America Retail, though at a more modest pace recently. However, in the ACCELERATE platform specifically, your remarks call out holding or gaining share in about 55% of this platform. Would you expect this percentage to be higher given the disproportionate allocation of resources to this platform? A bit more detail on share trends within ACCELERATE would be helpful. You mentioned U.S. restaurants softening a bit. Are you starting to see any of that on the flip side benefit at-home eating for your business? If not, why would that be?

Thank you, Andrew, for the question. Before I get into ACCELERATE, let me give you a view of how I see the business performance thus far. Removing the noise of Easter from the last 5 weeks, we actually continued to see volume share improvement versus year-to-date, and we are holding dollar share at the same pace in the U.S. Now, if you look at the ACCELERATE platforms, we continue to outperform the other platforms. So far, we are seeing flat dollar share and growing volume share by 0.2 points. There are notable brands that are part of this platform that I would like to expand on. For instance, with our Mac & Cheese business within the ACCELERATE platform, you will see us start to lap many of the headwinds from SNAP benefits. Mac & Cheese was notably affected by SNAP. As we enter Q2, starting now in May, you'll see numerous innovations from gluten-free to new options and flavors in our Mac & Cheese business, alongside some new and exciting items for the category in the second half of the year. Regarding our ACCELERATE platform's other components, which include condiments, I can say that our category is expanding, and we are indeed growing our volume share. The focus for us is how to maintain this growth within a category that has favorable tailwinds. We plan to expand the number of offers and innovations as we advance through the year. It’s also important to note that we exited some non-strategic business, especially our Heinz bulk vinegar, which we determined did not make economic sense for us. I hope this provides clarity on our approach to the ACCELERATE platform within the context of our total company performance. To address your second question regarding the Away From Home business, as I mentioned in my prepared remarks, we are observing some slowing of restaurant traffic in the U.S. This has impacted our business, compounded by our decision to exit some low-margin businesses—this limited our profitability but was a necessary choice for our overall P&L. The exit of this business resulted in approximately $50 million in the first quarter, and we expect a similar trend for the rest of the year. Moving forward, we believe the importance of the Away From Home segment will continue to grow in new channels. As I mentioned in my opening remarks, we see great opportunities in travel and leisure, which will not only drive growth for us but will also enable us to expand our margins. We are also witnessing enhanced distribution for our core businesses as we approach Q3. Therefore, I feel very optimistic about our Away From Home business and believe that trends will only improve. Furthermore, at Kraft Heinz, we have the scale to ensure that we are present and able to serve consumers, no matter where they are shopping—be it hotels, restaurants, or at home.

Our next question comes from Ken Goldman with JPMorgan.

You mentioned inflation in your comments in a few areas. I have two questions. First, I don’t think you updated us— forgive me if I missed it— but I think last time you were talking about roughly 3% cost inflation for the year. Is that still a reasonable number? Second, there's been a lot of discussion regarding cocoa, but coffee inflation has also been quite significant. Even though historically, coffee is somewhat of a pass-through category, do you think that if you and your competitors need to, you'll be able to raise prices to customers as much as you typically would? Or do you expect more pushback than usual?

Thank you, Ken, for the question. Let me start and then I'll ask Andre to build on it. We are fully committed to continuing to provide families with affordable options; this is a priority for us. If we reflect on 2023, we concluded the year with a 3% inflation rate but only passed through about 1% pricing to consumers. We approach this situation intentionally to ensure consumers don’t feel that burden. Now, Andre, would you like to provide further comments on current cost inflation in the coffee category?

Sure. We still expect inflation to remain in the low single-digit range, as we noted previously. Nothing has changed in that regard, although inflation is somewhat concentrated in Q2 and Q3 rather than the shoulder quarters. This is mainly because of the significant three commodities: cheese, meat, and coffee, where we’ve seen heightened levels of inflation, particularly in meat and cheese, happening in Q2 and Q3 as we compare with favorable numbers from last year. So we don’t foresee any meaningful changes in that respect. The pricing adjustments we are making are very targeted to those categories experiencing the most considerable impact. Cocoa isn’t a significant concern for our portfolio at all, with some minor presence in the Netherlands, but nothing worth mentioning otherwise. We also do not foresee any barriers to our ability to pass through prices in those commodity categories as we have historically done.

All right. Just a quick follow-up. The increase in gross margin guidance, coupled with no other changes, suggests a bit higher SG&A than you previously expected. Assuming that's accurate, are there any key areas in operating expenses we should consider that may be a bit higher than planned? Could the plant shutdown be a primary issue there?

As stated in our CAGNY presentation, we are initiating our brand growth system, which is our method to enhance marketing and strengthen our brands. A critical aspect of this system is ensuring we invest adequately in marketing across our portfolio. We've started to identify several areas where we need to increase our marketing investments, thinking about the long term. We have been steadily approving incremental marketing spend on top of what we initially planned, which I believe is a positive development for us.

Our next question comes from Bryan Spillane with Bank of America.

I have two questions. Can you share how much the SNAP issue has impacted organic sales? You’ve mentioned this before.

It's never perfectly exact as we’re discussing a macroeconomic model, but we estimate a few hundred basis points of negative impact on the U.S. Retail business due to SNAP.

Could you provide some detail about the Away From Home business and the deceleration? You've quantified the impact of exiting low-margin customers, but how much of the decline is also tied to restaurant traffic? Can you assess what is driving the slowdown? Additionally, as we look towards the second half, what underpins your expectation for recovery, given that many restaurants appear to be guiding downward?

Let me start, and then Andre can add. I remain optimistic about our global strategy for the Away From Home business. We continue to see improvements outside the U.S., even as restaurant traffic appears to be slowing. Concerning the second half, I see several factors that I believe will lead to better performance. First, the impact of unplanned maintenance is temporary and will be resolved as we move past Q2. The second factor is that we will expand our client base, increasing visibility of our portfolio. There are certain updates I can’t yet discuss, but you can expect expansion in distribution as we proceed into Q3. Thirdly, we'll aggressively focus on capturing opportunities in higher-margin channels. We’re observing solid performance in areas like leisure and travel, particularly among higher-income consumers. This strategy allows for margin expansion. In summary, while we are noticing some deceleration in restaurant channels, I still feel confident about the potential for improvement in the second half.

I have nothing to add.

Our next question comes from John Baumgartner with Mizuho Securities.

Carlos, you've mentioned consumer stress as a theme. In North America, where volume declines are more pronounced—particularly in products like Mac & Cheese and ketchup—these are categories where private label has historically been underpenetrated, yet we’re seeing volumes grow. Are you observing new merchandising approaches by retailers or increased price sensitivity among consumers that might be altering the dynamics in these categories? I’d like to get your insights into this private label share growth. Additionally, are there specific categories in U.S. Retail where you're anticipating material benefits from joint business plans or reinvestment this year?

Thank you for the question. Regarding private labels, we feel fortunate to hold such iconic and beloved brands in our portfolio. What we've noticed is that there hasn't been much change in our overall stand against private labels. Our substantial investment in renovating our product lineup over the last two years, where we have nearly fully upgraded our U.S. portfolio to stay relevant, has played a significant role here. While private labels have indeed gained share, they have primarily taken that share from other brands rather than from us. Our ongoing focus on delivering that great value to consumers encompasses not just price but also ensuring that our products are worth their cost. Consequently, private label growth appears stable, reflecting an increase in competitive actions rather than a decline in our offerings. Concerning our joint business plans (JBP), these remain a key strength for us. We’ve established robust partnerships with our key retailers and continue to leverage our scale effectively. Our comprehensive portfolio enables us to generate unique value propositions for our retailers that others may struggle to replicate, especially as we approach the holiday season.

Our next question comes from Steve Powers with Deutsche Bank.

Carlos, in your prepared remarks, you mentioned the unplanned maintenance that you undertook at one of your Away From Home plants. It seems you have resolved that issue, expecting the impacts to be contained to Q2. Could you provide a bit more detail on what occurred there? Any root cause analysis? Do you anticipate a quick recovery in Q3, or will it be a more gradual return to normalcy?

Thank you for the question, Steve. While I won’t provide considerable new information, it was indeed a temporary shutdown for maintenance focused on our Away From Home business. It impacted production levels, but we have the capability to outsource certain production from other facilities, which mitigated the immediate financial implications. Thus, it only affected Q2. Andre, would you like to elaborate on Q2’s impact on production?

Production has resumed and is gradually approaching prior levels. However, we are not there yet. I expect the impact of production to be fully back on track within the quarter. As for top-line concerns, we assessed it will range between 50 to 100 basis points of total company growth, primarily dependent on the speed of our recovery.

Our next question comes from David Palmer with Evercore ISI.

Two questions. First, what is your general assumption for Foodservice moving forward that supports your mid-single-digit organic growth target for the year? Do you anticipate that current trends industry-wide and globally will mirror the levels seen in Q1, or will they improve? My second question is regarding Oscar Mayer and the beverage business, both of which were experiencing mid-single-digit declines in various measure channels during Q1. Can you discuss the challenges and general plans for improvement for each of these categories?

Regarding the second half, we expect to align with our long-term growth expectations. Q1 met our mid-single-digit forecast primarily due to shipment timing in Brazil. As we move into Q2, we anticipate better alignment with long-term expectations, especially in Emerging Markets. In U.S. Retail, we expect an increase in volume due to industry improvements, the innovations and renovations Carlos mentioned, which should significantly contribute to growth in the second half. While we don’t need to return fully to prior performance in the U.S. Away From Home segment to meet our guidance, we do expect gradual improvements as we navigate through industry fluctuations. I think several sources are beginning to show signs of this improvement.

To elaborate on the Oscar Mayer and beverage concerns, both belong to different segments within our company. Our beverage business falls under the PROTECT category, where we allocate resources to sustain profitability through brand renovation. For instance, we’ve recently revamped our MiO liquid concentrate branding and initiated a new marketing campaign stressing the wellness benefits of our products. With respect to Crystal Light, we are launching the first substantial innovation after a decade. We aim to provide numerous new functional benefits. In Oscar Mayer, which is part of our BALANCE category, we are intentionally making investments to protect our distribution and simultaneously managing a commodity-exposed business. We remain thoughtful about maintaining strong top-line performance while ensuring effective gross margin management within the total Kraft Heinz portfolio. Although the BALANCE portfolio declined 4% in the quarter, gross profit dollars increased by 5%. As we mentioned before, this balance is crucial, and we’re committed to ensuring that those brands receive adequate investment without jeopardizing their viability.

Additionally, our first-quarter performance demonstrates how we are maintaining focus on adequate investments to ensure the BALANCE portfolio does not see deteriorated core support.

Our last question comes from Robert Moskow with TD Cowen.

Andre, you may have answered this, but mathematically, the guidance now for Foodservice indicates a 50 basis point reduction compared to the high single-digit guidance from last quarter. Does the rest of the portfolio need to offset that? Are you expecting anything to perform better than expected, or will it simply absorb that decline? Additionally, I think the slide indicated a boost in retail trends in U.S. Retail. Can I assume that despite market shares being low versus last year, there’s no need for significant adjustments to your marketing plans for 2024? Will there be increased price or advertising investments that differ from your expectations?

The 50 basis points we mentioned indeed relate to the 50 to 100 basis point impact attributed to the plant shutdown, emphasizing its focus on Q2. Therefore, we should not anticipate any fallout from that matter as we progress through to the second half. We expect Emerging Markets to rebound to long-term growth, as well as U.S. Retail performance to improve gradually, paralleling the trends we observed in Q1 and further enhancing in Q2 due to SNAP impacts and combined contributions from ongoing innovations and renovations.

To address the retail trends, we are observing volume share improvements over the last five weeks compared to year-to-date performance, confirming that momentum is building. As we look further into the year, we will emphasize those factors within our control. You will see us continue to prioritize brand renovation, both in our PROTECT and ACCELERATE platforms, driving innovation that will emerge in Q2 and beyond. Significant marketing investments will be tailored to enhance gross margins while ensuring effective deployment of our brand growth system to focus on intelligent spending in pivotal areas that drive retail growth. Thank you for your question, Rob.

Thank you, everyone, for joining us. This concludes our earnings call for the first quarter of 2024. Thank you.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.