Greetings. Welcome to The Kraft Heinz Company Third Quarter 2025 Earnings Call. Please note that this conference is being recorded. I will now turn the conference over to Anne-Marie Megela, Head of Investor Relations. Thank you, Anne-Marie. You may now begin.

Thank you, and hello, everyone. Welcome to the Q&A session for our third quarter 2025 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, as well as statements regarding the proposed separation of Kraft Heinz into 2 independently traded companies. 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 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. Over to you.

Well, thank you, Anne-Marie, and thank you, everyone, for joining us today. I am encouraged by our progress in the third quarter, recognizing there's more work to do to navigate today's complex environment. We delivered a modest year-over-year recovery in the top line performance, showing progress versus the first half of the year. That said, the operating environment remains challenging with worsening consumer sentiment and ongoing inflation influencing buying behavior around the world. To reflect our third quarter results and the expected continuation of these macro trends, we have updated our 2025 outlook. We remain on track to separate into 2 independent companies in the second half of 2026. And while we manage that transition, our priority is to drive performance today and position both businesses for long-term success. I want to thank our teams for their efforts and our customers, consumers and shareholders for their support. With that, I have Andre joining me, so let's open the call for the Q&A.

And our first question comes from Andrew Lazar with Barclays.

Carlos, in light of the weaker consumer sentiment that you've talked about, we are seeing a number of food companies sort of lean in more aggressively on investment spend, both pricing related and broader advertising and promotions. I guess I'm curious how much of the '25 profit revision, if any, is due to more aggressive spending behind the brands than initially contemplated versus just the impact of sort of higher costs and volume deleverage. And if there's not significant additional spend, I guess I'm curious why wouldn't it make more sense now to help jump-start volume improvement in a still tough consumer environment as you think towards next year?

Let me have Andre kind of give you a little bit of context on how we think about the updated guidance, and I will fill in some additional information.

Thanks for the question, Andrew. The profit revision is not linked to incremental investments beyond what we had previously communicated. The profit revision is a function of lower expectations on consumption in the U.S. which we can talk more about, is a function of elongated recovery on Taste Elevation, which has been improving in a meaningful way, with 70% of the revenue now gaining market share. However, the recovery is still slower than what we anticipated. So there is a mix component to that. We face incremental inflation in meat and coffee, and we didn't price certain elements of it due to competitive dynamics. Additionally, we had a few other one-offs affecting our supply chain results in Q3 that should not be expected to repeat in Q4. However, they stick in the year. Remember, though, that for this year, we are increasing promotional investment around $300 million in the U.S. We have approximately $80 million of incremental marketing spending in media. We have more R&D investments, and we have incremental headcount in selected areas, primarily commercial-related functions. We are adding relevant investments in the business. And we don't think that adding more price at this moment will yield results. The investments we have made already allow us to have opening price points in critical categories to the retailers and consumers. We have investments in meat and cheese, frozen potatoes, mac & cheese, and a few others. We don't believe adding more marketing at this point will yield returns. The marketing investment increase is concentrated in the second half of the year, so we don't think going further beyond that would deliver results at this point. However, we are open in the future to add more marketing as we continue to go deeper in our brand assessments. But at this point, we don’t think it’s a matter of putting more investments.

I think the one thing I would add, Andrew, is, we think about this at our company as a very consumer-centric, brand-driven company. For us, what's important is that we're building brand for the long term. When we think about stepping up investments, we are thinking in terms of what Andre mentioned in R&D, in marketing, to continue to drive the renovation of our products because that is going to be the way for us to be successful over the long term. The fact that we've concentrated our efforts behind our Brand Growth System to ensure that we are continuing to bring distinct attributes that consumers value—that’s going to be our route to long-term success. Some of the pricing we have done strategically in terms of promotions has worked. If you look at our back-to-school campaign, we were able to drive significant returns behind the key brands that we focused on during that period—Capri Sun, Lunchables, Jell-O. So we will continue to be tactical in our investments while building our brand over the long term. Thank you for the question.

The next question is from the line of Peter Galbo with Bank of America.

I wanted to ask a more conceptual question around the spin. One of your CPG peers is going through a similar dynamic right now in terms of a split, and you're living kind of parallel lives, I guess, for lack of a better word. In the case of your peer, there was an announcement, the market responded, and there's been a pivot on their behalf—not in terms of pursuing the split but in terms of how they're going about it. As you've solicited feedback from investors and as you've heard from them since your announcement, has there been any thought of a pivot for Kraft Heinz, whether that means the leadership isn't the way that you thought it would pan out, or the brands that you announced at the spin, maybe some of them move from one to the other? Just any thoughts as you've heard feedback that you may potentially pivot versus the initial announcement?

Thank you for the question. Let me give you a little bit of the context of how we ended up with this decision. We have spent several months working with our Board of Directors to ensure we were doing something that would unlock shareholder value. We believe we can create 2 stronger companies that can focus better and drive that unlock shareholder value. If you consider our 2 companies, we have already shown a playbook that focuses on a part of our business that will be part of Global Taste Elevation. If you look at our Taste Elevation progress in Q3, you are seeing that playbook is working, and we are improving our dollar sales and share position. In September, we gained share in 70% of the U.S. Taste Elevation business. The playbook we have has been effective, and we want to apply it now to both companies with the right amount of resources and support. While we are also continuing to see opportunities to think of the right ways to support this with the right experience, capabilities, and technical resources, our focus remains on doing the right thing by creating these 2 companies. In every situation, and you picked a particular peer, the reality is there are many examples of companies who have pursued similar paths. For us, we are focused on doing what is right for both Kraft Heinz and our shareholders.

The other thing I'll add is, regarding perimeter and balance sheet. As we said before, we decide on this perimeter: one, to allow focus; two, based on growth history and growth potential of different brands, their margin profile, and the synergies. As we go deeper now, we're doing bottom-up work. There's a lot of work going on, as you can imagine. If at any moment, we think adjustments will create more value for shareholders, we will consider them. However, at this point, we believe we did the right thing because we put a lot of thought into it. Regarding the balance sheet, I know there was initially some misunderstanding about what we plan to do with both companies, and we've tried to clarify that in subsequent forums. We said we are targeting both companies to be investment grade. We're committed to ensuring that we maintain net debt at reasonable levels. Our capital allocation priorities haven't changed: focusing on organic investments and maintaining net debt at or close to 3x, which will allow both companies to have solid balance sheets with optionality going forward. A clarification regarding investment grade—net debt is referring to below 4x. The specifics will still be a discussion point in the coming months and in talks with agencies, but we're committed to that as well.

Next questions are from the line of Tom Palmer with JPMorgan.

I wanted to ask about Emerging Markets. It seems like excluding Indonesia, trends are more encouraging. I guess, one: you did provide some commentary about Indonesia from a sales overhang. But how big is Indonesia within Emerging Markets? And when we think about the fourth quarter, the mid-single-digit growth guidance for Emerging Markets, what does that assume for the business excluding Indonesia and regarding the potential for improvement?

Thanks for the question. Let me start with the context of Emerging Markets. You're correct; there is great progress outside of Indonesia, and we have continued to see not only the success in terms of growth but also the continued improvement in that growth. For me, what gives me confidence is the fact that we think about the $1 billion we have in Emerging Markets, which is accelerating, driven by our key brands like Heinz, which continues to show tremendous growth. In fact, in Emerging Markets, our Heinz brand year-to-date is growing 13%. We continue to see this as a value piece of our portfolio and one of our key growth drivers. In the case of Indonesia, the top line is about $0.5 billion. We have seen a meaningful decline in consumer sentiment that has led to the softening of demand. In fact, consumer sentiment in Indonesia year-over-year has declined nearly 10 points. This has reduced sell-out growth expectations and caused some challenges with our distributor in the country, disrupting our business. We are taking action to correct this moving forward, rightsizing inventory to appropriate levels, transitioning to a new distributor, and ensuring pricing stability while continuing to invest in the marketing of our brand, particularly ABC, the largest brand we have. We believe driving brand superiority and maintaining penetration will return Indonesia to a position that contributes positively to our growth.

Just to add to that, Emerging Markets excluding Indonesia grew 9.2%. It did accelerate significantly compared to the first half of the year. Indonesia, for context, has close to $300 million in revenue, around 12% of the Emerging Markets business. It's still relevant but not massive. We expect the recovery in the P&L to only happen in the second half of next year due to adjustments in Q4. Additionally, in Q1, Ramadan is a major seasonality factor for Indonesia, impacting that quarter. We anticipate recovery in Q3 and Q4 next year, which is promising as we invested heavily in branding over the past 2-3 years, particularly for the ABC brand, which leads in several categories. While market share is robust, we must adjust our distribution network.

Our next question is from the line of Steve Powers with Deutsche Bank.

I don't know if this was disclosed in your presentation, but are you able to frame maybe pro forma performance of Global Taste Elevation Co. versus North American Grocery Co. in the third quarter? Also, could you update us on how you see those businesses progressing into the fourth quarter so we can better assess momentum into '26 and the eventual separation? Additionally, Andre, where are you in this process? Do you have a formal estimate around any one-time restructuring costs or cash costs that Kraft Heinz may incur in preparation for the split?

Both companies—Global Taste Elevation and North American Grocery—on a pro forma basis declined low single digits in the quarter. We see the Global Taste Elevation trajectory improving and expect it to continue in the very low single-digit territory. Our main priority is to return Global Taste Elevation to growth in 2026, as it has grown for several of the last 15 years. Priority number one for North American Grocery is ensuring stable cash flows heading into '26, while also working hard to ensure that this company has the prospect for low single-digit growth moving forward. Regarding one-off costs, we are currently reviewing the situation closely and are committed to being disciplined in our use of cash. Despite the EBITDA decline, our cash flow is up year-over-year and will continue to be strong going forward, as we're disciplined in our investments necessary to set both companies up for success.

Let me add a note regarding the North America Grocery Company. Our history shows we can be efficient operators. As we consider separation, we will maintain that operational efficiency in driving both companies. Additionally, we have been successful in delivering strong cash flow for our shareholders. I want to highlight that some aspects of our playbook we have already deployed to key brands that will be part of North American Grocery. Brands like Lunchables and Capri Sun returned to growth in Q3, suggesting that we can maintain efficiency and excellence as we move forward. By separating into two focused companies, we will allocate resources and attention appropriately to allow both to realize their full potential. Management's focus remains on ensuring progress as we approach the second half of 2026.

The next question is from the line of David Palmer with Evercore ISI.

In your slide presentation, you noted several key categories where you're clearly improving in terms of market share. Your guidance for the fourth quarter doesn't imply much improvement. Could you discuss categories that may be slowing? Are there offsetting brands where you're seeing deterioration? Also, regarding your promotional spending—$280 million—which is about 2% of North American retail sales. When we review scanner data, we see your volume on promotion has only changed slightly, basically staying unchanged, which raises questions about your promotional strategies. Could you clarify what's going on with promotions?

Regarding Q4, you're right. The outlook implies revenue declines of about 100-120 basis points compared to Q3, largely due to inventory phasing. We expect this inventory headwind to be significant. There is also the impact of lower consumption expected in Q4. The industry has been decelerating further in the U.S., and October also began slowly, which further influences our outlook. While we continue to expect market share to improve, particularly in Taste Elevation, we expect the overall industry to worsen, which will challenge consumption figures. Regarding promotions, we focus on significant holiday periods. Our highest market share typically occurs during Thanksgiving and Christmas, so we ramp up promotions at those times. Some investments were intended to secure incremental distribution, leveraging joint business plans with retailers. We ensured deeper investment during back-to-school to accelerate consumer trial of our renovated products. The expected return on investments for these promotions has been lower than anticipated, which may explain why scanning data appears less favorable.

In terms of the U.S., while facing some pressure in Europe, particularly in the U.K., we have maintained share amidst challenges to UK consumers. Additionally, we have seen robust growth in emerging markets, including Brazil and Mexico among others. The main constraint has been Indonesia, where weak consumer sentiment has impacted growth potential. The situation is reflected in our guidance. A prevailing negative consumer sentiment is impacting customer inventory levels and expectations. Retailers are reassessing inventory based on this sentiment.

The next question is from the line of John Baumgartner with Mizuho Securities.

Staying with the promotional environment in U.S. retail, even with joint programming efforts with retailers and larger investment dollars, weak promotions appear to be common across the center of the store. Carlos, you mentioned successes during back-to-school, but lifts have also been weak for other parts of the portfolio. What distinguishes the areas with stronger lifts from weaker ones? What changes are you contemplating for your promotional approach into '26 given the consumer environment?

I think there were about 3 different questions in there. Regarding back-to-school success, we effectively focused on winning key moments when consumers are actively shopping. This approach resulted in improved in-store displays, increased marketing, and promotional activity within the retail environment. This helped us achieve significant improvements in cross-purchase metrics and base velocity from products like Lunchables and Capri Sun during the back-to-school season. We made these renovations effective, enhancing our long-term base volume. I believe these learnings will influence our strategy for the holidays and future periods. Andre, do you want to address other aspects?

To complement Carlos’s points, we found that more frequent promotions tend to yield better results than deeper discounts. Overall promotional lifts are declining year-over-year, driven by increased incremental activity that reduces lift effectiveness. We are evaluating various tactics, including cross-merchandising, bundling products, and optimizing promotional spread throughout the year instead of solely focusing on major holidays. We are committed to improving the effectiveness of our promotional strategies going forward.

It's also important to remember that while we are navigating current consumer challenges, our focus is on building strong brands and ensuring a superior consumer experience. We are preparing for a stronger portfolio coming out of this difficult consumer sentiment period. Our goal is to emerge from this cycle with a fortified market position and enhanced brand equity.

The next question is from the line of Robert Moskow with TD Cowen.

I wanted to focus on the commoditized categories, like Coffee and Meats. These categories comprise about 40% of the sales in North American Grocery. As we've seen, Sliced Meats and Coffee have become problematic. Have you started to implement the Brand Growth System in these categories? Is it more challenging to execute this strategy in these categories as opposed to others? Previously, you mentioned a lower ability to succeed in Coffee and Meat. Does that complicate traction with the Brand Growth System in these areas?