Good day, and thank you for standing by. Welcome to The Kraft Heinz Company Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. After the speaker’s presentation, there will be a question-and-answer session. Please follow the operator's instructions. I would now like to hand the conference over to your speaker today, Anne-Marie Megela, Global Head of Investor Relations.

Thank you, and hello, everyone. Welcome to our Q&A session for our third quarter 2024 business update. During today’s call, we will 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 for 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. Carlos, over to you.

Thank you, Anne-Marie, and thank you, everyone, for joining us today. As we report our third quarter results, I first want to recognize the entire Kraft Heinz team for their continued dedication to making life delicious for our consumers. In today’s uncertain environment, people are increasingly seeking value. Our commitment to serving them with our iconic brand remains unwavering. For our stockholders, our focus remains on executing against our strategic pillars, driving profitable growth and generating strong cash flow. Both Global Away From Home and Emerging Markets are growing and gaining momentum, and we are addressing areas for improvement in U.S. Retail. By maintaining a disciplined management approach and long-term perspective, we are able to navigate today’s near-term volatility while generating strong cash flow and reinvesting in the business. We have the right strategy, we have amazing talent, and a competitive advantage culture. This gives me great confidence that we can drive consistent, long-term, profitable growth. And with that, I have Andre joining me, so let’s open the call for the Q&A.

Thank you. Our first question comes from Andrew Lazar of Barclays. You may proceed.

Great. Thanks. Good morning, everybody.

Good morning.

Good morning.

So, Carlos, I know initially Kraft Heinz expected to return to sort of an on-algorithm pace in the latter part of this year. Your comments in the prepared remarks suggest you now don’t expect to reach an on-algorithm pace during 2025. So, first, just to clarify, is that a comment on the totality of the year or you don’t expect to hit your algorithm at any point during the year? And then as you diagnose the elongated recovery in U.S. Retail, how much of this is sort of execution-related or simply a consumer that has not yet fully adjusted their reference price points to the new levels, and you having to sort of nudge them along a bit more than you might have initially thought? Thanks so much.

Thank you, Andrew. Let me start, and then maybe pass it off to Andre to give the details of how we see the impact of the long-term algorithm. First of all, I’ll say that this year has been very different than I think many of us in the industry expected. So, when we think about what we thought was going to be the exit versus what we see now, a number of circumstances have changed, but I think we are, frankly, better at reacting to what the reality of the consumer, particularly in the U.S., is, and that has implications on long-term algorithms. Andre, if you can just cover that, and then I can go back and talk about the execution aspect of your question.

Sure. So, thanks for the question, Andrew. As you rightly pointed out, we do not expect at this moment to reach algorithm expectations at any part of next year, and as we said in prepared remarks, we do expect Away From Home Globally and Emerging Markets to continue to improve and grow, and we’re going to see migrating closer to the long-term algorithm. Emerging Markets continue to deliver volume growth that has been consistent throughout the year, and the pressure will be mostly concentrated in the U.S. Retail part of the business. As Carlos mentioned, the industry dynamics this year did not go the way that we initially anticipated, and we’re exiting the year in a softer position, and we do expect, even though the industry next year is expected to be in line with levels pre-pandemic, we do expect the propensity to trade down to continue to be very elevated, at similar, if not higher levels than what we have this year, which will continue to put pressure on share. The good thing is we remain very confident in our long-term strategy. We are being very disciplined in how we want to grow the business; for us, it’s critical to focus on growing our base volume in a healthy way, better innovation, higher marketing, and being very prudent about where promotions make sense. Because the problem is very concentrated in four categories that represent the vast majority of the U.S. Retail challenges, some of these, as we've mentioned in prior earnings calls, take a longer time to recover. Take Capri Sun, for example, where there has been significant renovation; it takes time until consumption increases and repeat purchases happen. So we need to be prudent. We are confident in what we are doing, but there is a longer trajectory ahead. With that, Carlos will say a few words regarding execution.

Let me just start by saying, as I mentioned in the prepared remarks, we do feel like we have the right strategy, and frankly, if you look at two of our three strategic pillars for growth, they are working and gaining momentum. That giving me confidence regarding our ability to execute; in fact, our consistent, best-in-class productivity levels over the past five quarters have been about 4% of COGS. Again, our ability to execute shows up that way. Considering Away From Home, you think about how the year began and how we navigated that storm, we were able to gain momentum as we entered the second half, highlighting our execution in that area. If I think about Emerging Markets, we are growing volume, we are gaining share, and we are increasing profitability; again, underscoring our ability to execute effectively there too. We have various elements moving in the right direction, providing me confidence, and now we are also diagnosing specific areas in U.S. Retail. We recognize what we need to address, and our entire focus will be on ensuring a successful turnaround of those businesses. Thank you, Andrew.

Thank you.

Thanks for your thoughts. Yeah. Thank you.

Thank you. Our next question comes from Ken Goldman with JPMorgan. You may proceed.

Hi. Thank you. I wanted to ask about Lunchables. On one hand, you are optimistic you can turn the brand around. I appreciate some of the challenges, and your upcoming efforts in a positive direction. On the other hand, you did take a large charge today related to Lunchables, and that doesn't typically happen if there’s internal confidence in the brand’s full recovery. So, can you walk us through how to balance an optimistic tone with the charge you took today? Is it fair to say that the charge reflects a belief that the brand may not return to what it once was? That’s the underlying question here.

Thank you, Ken. I appreciate the question. First of all, Lunchables is a very important part of our business, and defending our number one market share is a top priority—full stop. We expect to see gradual improvements, but we also recognize where we stand right now. Part of that has to do with the negative publicity from specific interest groups that seems to be lingering longer than expected. Remember, this is a brand focused on families and children, so rebuilding that trust naturally takes time. We also face competition entering this category, and specifically for this quarter, we are managing a supplier ingredient issue that we expect to be a short-term focus. More importantly, let me outline how we plan to recover. We are investing to increase category penetration in this evolving competitive environment. We are expanding flavors and formats; we just introduced a new spicy nachos variant that is launching nationwide. We are reimagining how we approach value at the shelf. We have a new campaign targeting both parents and kids as we step into the first half of 2025, and we are investing in renovating our entire product line as we head into the first half of next year. We’re implementing a brand growth system to ensure we establish brand superiority both now and in the future. And just to clarify, our brand growth system is a repeatable global model for brand development. It’s essentially a process aimed at addressing consumer pain points with superior products delivered conveniently at the best possible value. Therefore, we are utilizing the strongest brand growth system we’ve developed against this opportunity for Lunchables as we progress into next year. As Andre mentioned, some initiatives take time. We recognize that the current atmosphere presents additional hurdles, but we believe we can continue to grow Lunchables, which remains a critical component of our portfolio.

Just to add regarding the charge, that is mostly due to the decline we’re facing this year and the resultant recalibrations regarding recoveries. When analyzing cash flows, they land at different projections because, for Q3 alone, Lunchables' sell-out is down about 15%. As we expect recovery to take longer and be gradual, that has implications resulting in the decline.

Thank you again.

Thank you very much.

Thank you. Our next question comes from Peter Galbo with Bank of America. You may proceed.

Hey, guys. Good morning. Thanks for taking the question.

Good morning, Peter.

Maybe to follow up there regarding Lunchables, if you could give us more detail just on the ingredient supplier issue. I know certainly in Oscar Mayer there is an overhang from the Listeria outbreak that is likely impacting sales. But is there any sort of upstream impact on Lunchables as well? Any details would be appreciated.

No. Essentially, one of our suppliers was unable to fulfill one specific ingredient, and it is impacting one SKU of Lunchables, which is important. But we expect this issue to be limited this year, so it is creating a short-term shortage of that specific ingredient, mainly affecting us in Q4. Nonetheless, we see opportunities to resolve this soon and get back on track as we approach the first half of 2025.

Got it. No. That’s helpful. Thank you.

Okay.

If I could sneak in a second question. Just on Spoonables, I believe that was added as it relates to one of the challenges. Andre, I think in past quarters you’ve mentioned that it was somewhat of a pass-through issue on some of the raw materials that competitors were experiencing. But now it seems like there’s more of a brand problem or product lingering issue. Could you expand on that regarding Spoonables and what changed in the quarter? This has been added to the list of headwinds.

Spoonables has been facing soft sell-out numbers for several months. We believe this is mostly linked to price gaps in the market. We still see certain price gaps compared to historical levels that put us at a disadvantage. Overall, we have not executed everything the way we anticipated, and there is work to be done on that front.

All right. Thanks very much.

Thank you. Our next question comes from Tom Palmer with Citi. You may proceed.

Good morning and thanks for the question. I wanted to quickly follow up on your 2025 assumptions. When you look at some of the challenged areas of your portfolio, I think for 2025 you said you’re assuming better category performance but expect continued trading down. To what extent do you see price adjustments as a way to address this continued trade down versus innovation and packaging, things like that?

For us, we see that building our brands effectively comes from delivering superior products and better marketing while ensuring we maintain a full value format for all consumers. That’s why we have invested heavily in innovation and expanded distribution channels, including clubs and dollar stores, while growing our omnichannel presence. When it comes to managing pricing, there are circumstances where it makes sense to promote more. We take a strategic approach to ensure promotions drive sustainable base growth. While the importance of promotions can’t be understated, our focus remains on base volume, which accounts for 90% of food and beverage sales. We continue to innovate, renovate, and market effectively, ensuring the brand’s long-term success.

What I’ll add is that our long-term algorithm accounts for continuous gross margin expansion. We feel very confident in our supply chain efficiency, and we have had four consecutive years of strong performance in this area. This year in particular is our best performance to date. We believe we have the pipeline in place to maintain these productivity levels, which is essential for reinvestments in the business. Our priority remains on base volume growth, which is unaffected by promotions. Our long-term strategy remains unchanged, and we expect to continue expanding margins prudently.

Thank you.

Thanks.

Thank you.

Thank you. Our next question comes from David Palmer with Evercore ISI. You may proceed.

Thanks. I just want to build upon the discussion you were having, which has been helpful. You’ve managed to protect profitability despite increasing promotional activity in U.S. Retail data we are seeing. It sounds from your comments like you’re open to making tactical shifts in promotions if you see returns. But do you see more significant spending levels potentially on the horizon? It might not be promotions; it could be other marketing tactics. Conversely, are you seeing any tactics or content that could significantly improve base trends? Essentially, is there anything in the pipeline that you think might materially improve one of your key platforms, perhaps through traditional innovation and marketing improvements? Thanks very much.

Let me start by saying that we have three growth pillars. For two of those, we have concentrated our efforts and they are both growing and gaining momentum. For the U.S. business, we’ve diagnosed the challenges to about four to five brands. And for context, we have over 200 brands in our company. Our focus is on those areas of concern, and we’ve started to see improvements. In prepared materials, we outlined improvements in Capri Sun and Mac & Cheese; both are gaining momentum due to our renovation, innovation, and investments. We’re observing positive steps for brands like Philadelphia, Ore-Ida, and Taco Bell, which have seen significant momentum as we progress through the year, both domestically and abroad. Our strategy relies on continuous innovation, brand renovation, and targeted investments. Today, our Heinz brand is valued at $4.5 billion globally and grew by 4% this quarter, confirming our replicable growth model is in play, as we continue utilizing the right marketing investments and optimizing our marketing effectiveness along with R&D investments for complete brand innovation. Promotions play a role, and we see it in locations that can drive base growth significantly. Our commitment to investing in key strengths for the long-term will remain a top priority. Thank you for the question.

Thank you.

Thank you. Our next question comes from Robert Moskow with TD Cowen. You may proceed.

Hi. Thanks. I want to drill down on one of the product lines as well as Mac & Cheese. Carlos, you mentioned that the areas you are investing in are showing success; however, they are showing as drivers of declines in the current quarter. I wanted to know about the elements of Mac & Cheese. Kraft is known as a big innovator, but what aspects are you struggling with, especially given market share losses and the influx of premium products from competitors? Is this the area where Kraft finds it difficult to compete?

First of all, Rob, thanks for the question. Mac & Cheese, remember, is a brand with various formats. For instance, our Mac & Cheese Cups are already seeing significant improvements as we transitioned to Q3. Additionally, we’ve recently launched new flavors to attract millennials, such as Ranch and Jalapeño, while also introducing new shapes to the category. Furthermore, we are incorporating cultural aspects, like properties from Super Mario Brothers, to attract wider audiences. We are committed to providing affordable and approachable solutions that families can enjoy. While we continue to focus on reaching consumers through appealing formats and flavors, I can report positive trends in Mac & Cheese Cups, and I am confident we will build on this into next year.

That’s a good example of items that require time for recovery because with innovation, it takes time for consumers to try products and develop loyalty. We feel positive about the products we have on the market but recognize the need for patience. This is a prime situation where excessive promotions are not the solution.

Operator, we have time for one more question.

Thank you. Our last question comes from Chris Carey with Wells Fargo Securities. You may proceed.

Hi everyone. Thanks for the question. As I absorb the conversation on the call this morning, I seek clarity on the notion that Lunchables has been a known headwind. Capri Sun has also been challenging. I'm trying to judge whether your view of the underlying performance excluding these items has changed over the past few months. What do you perceive to be the core drivers propelling your perspective in this regard? It would be helpful to understand the trajectory of your business outside these items, if possible. Thanks.

Sure. It seems you’re addressing mainly the U.S. Retail sector. For Capri Sun, we recently renovated the product, and we are starting to see momentum increase. Expanding distribution into new formats and channels, such as multi-serving club formats and single bottles in retail and convenience environments, is improving our overall brand experience. In the case of Lunchables, we face headwinds that are obscuring the valuable work across Kraft Heinz. I should mention that Q3's back-to-school period proved to be more challenging than we anticipated, prompting our acknowledgment that Lunchables will require a longer recovery timeline. However, our plans to enhance trust among parents and families remain steadfast. In the first half of 2025, we will launch new products, renovate quality, and execute a campaign targeting both parents and children, as well as introducing the spicy nachos nationwide to reach a broader audience. This is a temporary setback linked to the current ingredient supply issue affecting Q4, but we’re committed to ensuring Lunchables thrives as a fundamental part of our portfolio.

But outside those brands, how do you feel about the business overall? I apologize for asking again, but concerning the rest of the business excluding those two brands, are there material changes to consider, or should we regard these as the main headwinds affecting trajectory moving forward? Thanks.

Thank you. Overall, we plan to pursue growth through three key pillars. Firstly, we intend to drive Global Away From Home superior to our competitors. We are gaining momentum there. Secondly, we are successfully growing emerging markets, which saw strong results last quarter. Finally, in the U.S. Retail sector, we have identified brands we can effectively manage. We’re already witnessing recovery in key areas such as Capri Sun and Mac & Cheese as we implement our strategies effectively. Overall, I'm optimistic we have the right tools—leveraging our brand growth system—to harness momentum and drive growth in 2025 while delivering strong productivity for our shareholders. Thank you very much for your question.

Thank you. I would now like to turn the call back over to Anne-Marie Megela for any closing remarks.

Thank you very much, and thank you, everyone, for joining us today. We appreciate your interest in Kraft Heinz.

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