Good morning, and welcome to The Kraft Heinz Company Quarter 4 2024 Earnings. As a reminder, this conference is being recorded. It is now my pleasure to introduce Anne-Marie Megela. Thank you. Anne, you may begin.

Thank you, and hello, everyone. 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. 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 all for being here today. I want to express my gratitude to the Kraft Heinz team for their hard work and commitment over the past year. Despite the challenges we faced, we remained focused on preparing for the future and enhancing profit margins while increasing free cash flow. We recognize that the economic environment is tough, but we take pride in having returned $2.7 billion to our shareholders through share buybacks and dividends, which offer the highest yield in the food industry. Looking forward to 2025, we are observing significant achievements that are not yet reflected in our financials, and we anticipate improved revenue throughout the year while maintaining profitability. I am genuinely proud of the progress being made by the teams and am confident that our strategy will deliver long-term benefits for our shareholders. Today, I have Andre with me, so let's proceed to the Q&A session.

Our first question comes from Andrew Lazar with Barclays.

Great. Carlos, you mentioned a number of times in the prepared remarks the plan to be disciplined in how you approach reinvestment this year, specifically calling out your expectation for some gross margin expansion and flat prices in '25 despite the stated plan to invest in price in some key areas. I guess, what I'm hearing most from investors this morning is that they're really wondering if this outlook provides enough room to do what's needed this year to get the key brands back into volume growth. So I guess, my question is sort of what gives you the confidence that this plan is accounting for an adequate level of investment given sort of current market share trends?

Thanks, Andrew. I think, first of all, let me put it into the context of the margin expansion. If you think about 2024, we increased our margin by 100 basis points. When you look at 2025, it's somewhere between flat to 20 basis points. So while, yes, it's an expansion, it certainly is much reduced compared to what we've had in the past. If I think about our plan and what gives me confidence, let me just highlight a couple of things. First, if you think about our growth pillars, we actually have a head start going into this year. In Away From Home, 75% of new customer wins are already locked in, which is about 40% of year-over-year incremental growth in our Away From Home business. In Emerging Markets, we are building on the 17% distribution increase with 40,000 additional points planned in 2025 that we have already mapped out. In North America Retail and the rest of the business, we see that 75% of the 2025 innovation pipeline is already locked in. We are also leveraging our Brand Growth System that we have proven through the pilots we conducted in 2024. We are investing in certain areas, including price, product, and marketing, ensuring we prioritize those brands that we can benefit from having the Brand Growth System insights. We are investing in technology-led solutions that help us drive the efficiencies that lead to improved margins. Lastly, we continue to shift more marketing dollars towards consumer-facing marketing as we move into 2025. This gives us the opportunity to modestly expand our margins while benefiting from the successful initiatives we built in 2024.

I'll just add to that, Andrew. Our top line improvement doesn't only come from price. It also comes from overcoming some of the challenges we faced last year and other product enhancements that we have been deploying since the second half of last year. In terms of gross margin, we do expect another year of efficiencies higher than inflation. We will price the inflation linked to commodity categories, with coffee being one example, as we have done historically. So there is some price embedded into the plan in commodities and emerging markets. The combination of efficiencies ahead of inflation and price in emerging markets gives us room to invest more where it makes sense.

Our next question comes from Peter Galbo with Bank of America.

I wanted to ask about the top line and the pillars maybe in a slightly different way. Just within the organic sales guidance for '25, Andre, how are you thinking about the growth rates for each, ACCELERATE, PROTECT, and BALANCE, within that organic sales guidance? And then the part B to that question, Carlos, I think a year ago you gave us market growth rates for each of those ACCELERATE, PROTECT, and BALANCE. How do you see the market growth for '25 comparing to those targets you provided a year ago?

I can start. When I think about the pillars of growth, in Emerging Markets, we will see gradual improvements building from Q4 across all quarters, and we do expect to exit '25 at double-digit growth. In Away From Home, we expect slight improvement in Q1 to flat compared to Q4, but then building gradually throughout the rest of the year, probably exiting around mid-single-digit territory. Inside the ACCELERATE platforms in the U.S., we expect a continued recovery, and most of the U.S. improvement in trends in Retail will come from ACCELERATE, where we are investing significantly in pricing and product enhancements. By the end of the year, ACCELERATE should drive most of the improvement in the U.S.

What I would add is that we can all agree that tactics win battles, but strategies win wars. Our strategy hasn't changed. We continue to prioritize our ACCELERATE platforms while ensuring that our portfolio maintains the right margins while bringing innovation into the categories. Our balanced portfolio continues to contribute positively, and I feel confident that we have the right strategy to deliver long-term results.

And our next question comes from John Baumgartner with Mizuho Securities.

I wanted to ask about the marketplace activities in the U.S. and the market share softness. As you reduce the unprofitable trade, which is net positive for margins, are you sensing that consumers have become more conditioned to buy on deals for your products? Are the lifts from your reinvestment in marketing or display insufficient to counter the volume drag? I'm curious if making these promotional changes is more challenging upfront than you anticipated with the consumer elasticity.

As we've said, not all promotions are performing as they used to. Base volume significantly impacts the lifts we observe, so we are focused on that. Many product enhancements should help with base volume. We are also considering base price changes rather than just promotions. Historically, higher frequency promotions work better than deeper discounts, which you'll see reflected as we head into next year.

One thing we continue to observe is consumers increasing the number of locations where they shop for food. This leads to smaller basket sizes per trip but more frequent trips. Therefore, it’s vital for us to ensure that we have the right pricing and distribution across various U.S. channels, including expansions into dollar and club channels where we’re seeing growth.

And our next question comes from Ken Goldman with JPMorgan.

I wanted to dig in a little bit on the increase in your tax rate into '25. We've heard from a number of multinational food companies and beverage companies. I don't think any of them have talked about quite the increase in tax that you're about to experience. Is there anything unique in how you previously considered tax in some of these countries that we should consider?

Look, companies have different strategies regarding taxes, making it challenging to comment on others' approaches. We had a more competitive tax rate in our P&L compared to peers. In December, we recorded a $2.4 billion tax benefit in net income linked to a transfer in a particular business operation, part of our efforts to reduce the cash impact of various countries enacting global minimum tax regulations. Consequently, our P&L tax rate will see a 500 basis points increase starting in '25, but the cash tax rate will only increase about 200 to 300 basis points due to this one-time benefit.

And our next question comes from Leah Jordan with Goldman Sachs.

I wanted to ask about Lunchables. Can you provide an update on how you see the recovery in that business? I know you had a supplier issue in the fourth quarter that seemed to be resolved in 1Q, but the January data still looks a bit soft. How should we think about the improvement from here?

Thank you for the question. The supplier ingredient issue we faced in Q4 continues into Q1, but we expect to exit Q1 in a much better position regarding service. As we collect data in January, we anticipate significant improvement as we move through the quarter. Our focus is to invest in the Lunchables business as a great source of growth by utilizing our Brand Growth System to address consumer pain points. You'll see improved product quality, better ingredients, and new innovations in our Lunchables line.

In December and January, for Lunchables, four SKUs linked to the upstream supplier issue are declining more than twice the average rate of Lunchables as a whole. We expect this trend to continue into February, but anticipate a gradual recovery in sellout once the service issue is resolved during that month.

And our next question comes from Tom Palmer with Citi.

I wanted to just ask on organic sales growth and inflection as the year progresses. The comment in the prepared remarks was sequential improvement throughout the year. It sounds like the second quarter may have some unusual timing benefits with the Easter shift. Are we looking for significant inflection starting in the third quarter to overcome that? What are the key drivers of that inflection?

Yes, in the second quarter, you should see relevant improvement in trends due to the Easter shift moving about 100 basis points from Q1, as well as lapsing the factory closure from last year. These factors alone will contribute to a noticeable improvement, along with planned price investments becoming more pronounced as we head into Easter and beyond.

And our next question comes from Michael Lavery with Piper Sandler.

Wanted to ask a similar question to Andrew's but with respect to advertising as opposed to promotional spending. You pointed out the 4.5% level, but that includes market research. Is your marketing spending enough? Is there a need for an increase in marketing spending given competitive and consumer dynamics?

Thank you for the question. Not all brands and countries have the same requirements. We've ensured that our past analyses have led to appropriate marketing levels based on the needs for success. We've designated categories to ACCELERATE, PROTECT, and BALANCE, and our marketing dollars will follow that strategy. Our focus has been on improving the return of every marketing dollar invested, and we're successfully shifting more from non-working to working dollars. So while our overall spending may remain consistent, the visibility and effectiveness of our marketing will improve significantly as we move into 2025.

As we have said before, we believe our sufficiency levels are around 5%, and we'll gradually reach there. One of the benefits of the Brand Growth System is that it helps us improve returns on marketing investments. In '25, we plan to increase brand media marketing by $60 million to $80 million, which is over a 10% increase from our overall media investment, reallocating non-working dollars to enhance return on investment. You'll see significant marketing pressure, which is crucial.

And our next question comes from Chris Carey with Wells Fargo Securities.

I wanted to ask a bigger picture question. Given that the categories where you compete are running in line with historical growth rates, your business is underperforming those categories. While there are specific categories with issues, it seems there may be broader dynamics at play. What is driving this underperformance relative to the categories on a broader level? If we find ourselves in several months with no pickup, what are the correct actions to take?

Thank you for the question. To give some perspective, our portfolio encompasses over 200 brands across 40 countries. Today, our challenges concentrate on four brands exclusively in the U.S. Retail sector. This focus allows us to strategically invest in products and pricing to drive improvements. For instance, we've improved Capri Sun with product renovations and new packaging, which helped increase sales. We are applying our Brand Growth System to critical brands to drive top line growth. While it may seem complex, it's targeted interventions that will drive results.

There isn't one answer or 'silver bullet' approach. Given our diverse categories, different dynamics necessitate tailored approaches. In some areas, we need to address affordability, while in others, investment in product superiority is crucial. At CAGNY next week, we'll present a detailed plan for our growth strategy across different platforms, addressing these issues in depth.

And our last question comes from Alexia Howard with Bernstein.

Can I touch on the GLP-1 topic? We've seen other protein-focused companies in North America announce plans to leverage the uptake of GLP-1 injectable weight loss drugs. First, do you believe Kraft Heinz is seeing any impact from them? What opportunities do you see to meet the unmet needs of these patients over time?

Thank you, Alexia. We have not seen any meaningful impact from GLP-1 in our business. However, we know that consumers using GLP-1s are typically seeking protein and hydration alternatives. At Kraft Heinz, we are committed to providing these choices across our portfolio, emphasizing protein content in products like Oscar Mayer, Lunchables, P3, and Heinz Beans. Our Taste Elevation product platform ensures that we cater to consumers' diverse protein needs while delivering excellent taste. You'll see us continue prioritizing this approach.

Thank you, everyone, for your questions. We look forward to seeing you all at CAGNY next week.

See you next week. Thank you.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.