The Kraft Heinz Co (KHC) Q2 2025 Earnings Call Transcript

The Kraft Heinz Co (NASDAQ: KHC) Q2 2025 Earnings Call dated Jul. 30, 2025

Corporate Participants:

Unidentified Speaker

Anne-Marie Megela — Head of Global Investor Relations

Carlos Abrams-Rivera — Director and Chief Executive Officer

Andre Maciel — Executive Vice President and Global Chief Financial Officer

Analysts:

Unidentified Participant

Presentation:

Anne-Marie Megela — Head of Global Investor Relations

Hello, this is Ann Marie McGulla, head of global investor relations at the Kraft Heinz Company. I’d like to welcome you to our second quarter 2025 business update. During the following remarks we will make forward looking statements regarding our expectations for the future. Hello, this is Annemarie Magella, Head of Global Investor Relations at the Kraft Heinz Company. I’d like to welcome you to our second quarter 2025 business update. During the following remarks we will make forward looking statements regarding our expectations for the future included 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 accompany these remarks as well as Our most recent 10K and 8K filings for more information regarding these risks and uncertainties. Additionally, we will 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 that accompany these remarks which are available on our website@ir.krafthiinscompany.com under News and Events for a discussion of our non GAAP financial measures and reconciliations to the comparable GAAP financial measures.

Today, our Chief Executive Officer, Carlos Abrams Rivera will provide an update on our overall business performance and Andre Maciel, our Chief Global Financial Officer, will provide a financial review of the second quarter results and will discuss our 2025 outlook. We’ve also scheduled a separate live question and answer session with analysts. You can access our question and answer session@ir.kraftheimscompany.com A replay will also be available following the event through the same website. With that I will turn it over to Carlos.

Carlos Abrams-Rivera — Director and Chief Executive Officer

Thank you Anne Marie and thank you all for joining us. At Kraft Heinz, we continue to play a vital role in families lives as we navigate the complexities of the current market landscape. Our commitment to delivering superior, affordable and accessible products is unwavering. Whether it’s a family dinner, a backyard barbecue or a quick snack on the go, our brands are at the center of creating moments that matter. Our second quarter performance reflects this dedication. From product improvements to investments in our manufacturing capabilities, we are working tirelessly to ensure that our portfolio evolves to meet the changing needs of our consumers.

And as we look to the future, we remain focused on driving long term growth while maintaining the financial discipline that has always been and will continue to be part of the DNA of our company. I am pleased to report that our second quarter results came in line with our expectations and demonstrated an improvement in year over year top line performance. We are progressing across key areas of our business as our investments get implemented, including our focus brands in North America, retail, emerging markets and expanding our footprint in away from home. We are pleased with the momentum we are building giving us the confidence to reiterate our 2025 full year outlook.

We recognize that the macro environment remains volatile. Consumers are looking for value whether that be through price or product benefits and we’re delivering our investments are paying off providing value and driving brand and product superiority that is resonating with consumer with our brand growth systems as the foundation and importantly as we continue to make these investments, we are generating strong cash flow, maintaining a target net leverage ratio and and returning capital to stockholders. As we look to the future, I am confident that we have the right elements in place to drive long term profitable growth.

Now moving into the details of our second quarter results, organic debt sales declined 2% versus the prior year, an improvement when looking at our first quarter results which were down 4.7%. As expected, we experienced gross margin and bottom line pressure with gross efficiencies and price more than offset by higher inflation and trade investments in the quarter. On the cash side, we continue to deliver very strong results. We generated $1.5 billion of free cash flow year to date, nearly 30% above prior year levels. All in all, the second quarter played out in line with our expectations.

Our strategic priorities remain unchanged. We are focused on driving long term growth and value creation. We continue to unlock efficiencies to reinvest in the business, all to power brand and product superiority and ultimately accelerate profitable growth across our strategic pillars. Now let’s take a look at our results through the length of these strategic pillars. Our prioritized investments in our North America retail accelerate platforms are starting to yield results with underlying sales improved in 14 categories relative to the first quarter year over year. Strong growth in Philadelphia and Primal Kitchen brands was more than offset by declines in lunchables while improving sequentially and frozen snacks.

Global Away from Home Organic net sales declined 1.9%. We delivered growth in international away from home for the 17th straight quarter while the overall us away from home industry continues to face pressure due to traffic headwinds. Looking ahead, we continue to expect growth in our international business, but we are not contemplating an improvement in the US industry for the rest of 2025. Turning to emerging markets, our top line growth has continued to strengthen with an acceleration from 3.9% in the first quarter to 7.6% in this quarter. This was primarily driven by double digit growth in Latam and Middle east and Africa regions.

Emerging markets continue to be a bright spot in our portfolio as we progress further towards our own algorithm pace of double digit growth. Now let’s dive into our North America retail business where our brand growth system is gaining momentum. This systematic and repeatable data driven methodology is a critical component in our creative ecosystem and it is strengthening our disruptive marketing and innovation efforts to drive brand superiority in 2025. Our brand growth system is on track to reach 40% sales coverage by year end which is an increase of 30% points compared to 2024. We prioritize resources to drive improvements across four focus brands in North America, Capri Sun Lunchables, Kraft Mayonnaise and Kraft Mac and Cheese and we are starting to see progress reflected in our results with sequential improvements relative to the first quarter across each of these four brands.

Starting with Capri sun, dollar sales have improved by 10 percentage points relative to the first quarter, growing by over 6% in Q2. We have achieved superior taste, expanded our reach into new channels and households and improved brand resonance through product focused creative and by capturing culturally relevant moments. These results give me confidence in our ability to replicate this methodology across our brands to drive further top line performance. In lunchables we saw a 9 percentage point improvement in dollar sales with relative to the first quarter. Through relevant innovation, enhanced product offerings and our largest launchable fall season campaign ever, we are proving our commitment to both maintaining our number one market share position and to expand in the category.

Our recent launch of Lunchables Peanut Butter and Jelly is a great example of this innovation. The new product gives kids the freedom to enjoy a peanut butter and jelly just just the way they like it. By bringing innovative solutions to the category, we are driving excitement for both our consumers and our customers. Moving on to kraft menu where dollar sales improved by 7 percentage points in the second quarter. Building on its great taste, we are investing in packaging, price and product focus creatives to drive further improvement and after applying insights from a brand growth system, we are using a targeted regional approach to push our presence in the places where we matter the most during the most relevant key seasons and finally, Kraft Mac and Cheese, we increased sales by 1 percentage point versus the prior quarter with several initiatives hitting the market in the second half.

To build upon these improvements, we are doing three things to drive growth. First, our new Flavors line is specifically designed to attract younger consumers by giving them the bold adventure of flavors they crave. Second, we revamped our packaging to proudly highlight the fact that Kraft Mac and Cheese has been made with no artificial flavors, no preservative and no dyes since 2016. And third, recognizing that value is a top priority for our consumers, we we introduced value offerings that provide affordable options for families. We are headed in the right direction and positioned for even a better second half as an additional action plans are.

Set to take effect. The powerful combination of our brand growth system and agile ways of working are fueling improvements across our US Retail business and creating a repeatable model that can be successfully applied across all brands in our portfolio. Within Taste Elevation In North America, we are seeing growth across important brands and categories. As consumers increasingly prioritize protein in their diets, they’re turning to our high quality premium condiments to elevate the flavor and enjoyment of the protein rich foods. This trend is driving meaningful growth for our brands with steaks of up 5% and Worcestershire sauce up 17% as we have great products that enhance protein no matter what type consumers choose.

Even in today’s environment where conversation centers around value, we are also seeing consumers prioritize better for you options. We have an array of great tasting, affordable products that consumers who are looking for healthier, more sustainable choices can enjoy. Two leading examples of this high Infanta Tomato Ketchup and our Primal Kitchen portfolio grew an impressive 17 and 24% respectively in the second quarter. Building on this success, I am incredibly proud that our company led the way in committing to remove artificial color from our US portfolio by the end of 2027. With 90% of our US portfolio already free of artificial colors, we are going even further to ensure we deliver on our promise to provide nutritious, affordable and delicious food that meets the evolving needs of consumers.

This move is a testament to our company’s dedication to innovation, exceptional quality and unparalleled consumer satisfaction. Let’s shift our focus to our next strategic pillar, Global Away from Home I am encouraged by the progress we’re making across key elements of our strategy, notably our ability to maintain share in the US in the midst of a challenging environment. While there is still room for improvement and we are not yet where we aspire to be, I am optimistic about our potential for growth. We are growing in higher margin channels where we have concentrated our efforts to drive both growth and profitability, recently adding Entertainment and Live Nation as a new customer.

We continue to expand beyond ketchup through both distribution and innovative offerings. After taking the Internet by storm earlier this year, Heinz and award winning music producer Mustard are teaming up once again with this summer’s hottest drop, an unbelievably delicious Heinz Chipotle Honey. Mustard fans can try this exclusive launch at Buffalo Wild Wings locations across the country before the sauce becomes available at retailers nationwide. Brought to market in only four months, this launch not only marked the first national innovation for Heinz Master in nearly a decade, but is also the brand’s first ever co created innovation in the US.

And finally, our efforts to expand distribution and drive growth are also paying off in other areas. In the second quarter we grew Organic’s net sales in emerging markets away from home by nearly 10%. A testament to a success of our go to market model and and the power of the Heinz brand. In the US we are expanding our Heinz Verify program as part of our ongoing efforts to support the restaurant industry. With 84% of survey participants stating that they would prefer a restaurant deserves Heinz ketchup, we are helping our customers tap into this opportunity by becoming Heinz Verified.

Restaurants gain exclusive access to a suite of benefits that that unlock growth including promotions, consumer insights, first access to innovation and a prestigious badge that enhances credibility and boost traffic. Our partnership with Uber Eats has already yielded results with participating high verified customers experiencing a 14% lift in orders and nearly half of those coming from first time customers. This showcased the unique value that ultimately only Heinz can deliver. Our final strategic pillar, emerging markets generated yet another quarter of growth, increasing top line by nearly 8%. And we are well on our way to reaching our long term algorithm pace of multi digit growth by the end of the year.

We are driving profitable growth in emerging markets through both price and volume mix while at the same time expanding margins substantially achieving our highest adjusted operating income margin ever. And that growth stemmed from leveraging the strengths of our Heinz brand which grew an impressive 18% in the quarter as well as expanding distribution through a repeatable go to market model. Heinz is our global anchor with over $1 billion in sales in emerging markets alone. With our unmatched tomato expertise, we have successfully expanded into new and growing categories from sauces and condiments to meals markets from Latin America to the Middle east to Asia.

And we continue to expand distribution through our go to market model, adding approximately 6,000 distribution points compared to the second quarter of 2024. This is why I’m confident that emerging markets and the Heinz brand are well positioned for continued long term success. We are fueling our growth engine with two powerful drivers, Innovation and marketing. By focusing on delivering superior products, we are creating new innovative opportunity for Our brands. Our Mexican food strategy is a great example, allowing fans to recreate the Taco Bell restaurant experience in their own kitchens. Recently, our Canadian team executed a best in cleanse launch.

With national distribution achieved in less than two months and our 2025 full year sales target achieving only four months. In Canada, Taco Bell has already garnered over 20% market share of the Mexican category. And in the US we are seeing a second year of double digit growth. We’re also expanding into new occasions and channels as well as growing categories. The early success of our single serve Capri sun bottle is encouraging. Initial sales continue to beat expectation in both velocities and distribution. For over a century, Heinz has been growing the world’s best tomatoes. And the brand’s versatility has proven to be a recipe for success.

With a reputation for superior taste and quality that transcends categories from protein to size to pasta, we are leveraging these trends to drive growth globally. In the UK Heinz pasta salt sales have increased by over 20% year to date and we are now expanding to over eight countries bringing our rival tomato expertise to new markets. We know that in today’s environment consumers want to enjoy the same great taste with better for you ingredients. That is why we created high Tk0 with zero added sugar and salt and the same irresistible taste consumers know and love. After launching in over 10 countries, our recent renovation in the UK has just hit the shelf with a new formula, graphics and creative campaign.

We are giving consumers even more reasons to choose Heinz to support our brands. We’re not only making a big step up in marketing dollars, we are also transforming our approach to drive growth and build brands that resonate with consumers. We are investing behind Product Focus Creative that celebrates our great tasting products and unleashes the the power of our brands. Let’s face it, if our product is. Not the hero of our story, we’re. Not telling the right story. So we have created a playbook that help us getting to right every time. It is all about crafting creative that makes your mouth water, ensures our brand stands out and reminds consumer of all the moments when our products are the perfect fit. We’re also bringing our brands to life in a way that resonates and and our Oscar Mario Winnie 500 event was a great example. We partnered with the Indianapolis 500 and created an experience that generated unprecedented media coverage with over 6 billion earned impressions and 1 million live stream viewers.

It was a huge win for us and it has opened lots of possibilities for future activations. And finally, we are leveraging the scale of our portfolio to make a bigger impact during key must win moments like the upcoming back to school season. We know kids love our brands and we want to make them a part of their daily routine. Across some of our most beloved brands including Lunchables, Capri Sun, Kraft Mac and Cheese and Jell O, we are increasing our media investment by 75% by bundling several of our favorite brands. We are providing consumers with convenient solutions for any occasion.

Before I hand it off to Andre, I would like to emphasize that there are so many great things happening at Kraft Ice. I am proud of our progress and the investments we’re making to celebrate our great tasting products and iconic brands. With that, let me hand it over to Andrew to provide more details on our financial results and to discuss our 2025 outlook.

Andre Maciel — Executive Vice President and Global Chief Financial Officer

Thank you Carlos in the second quarter, organic net sales declined 2% for total craft heights with price up 0.7 percentage points and volume mix down 2.7 percentage points. In North America, organic net sales declined 3.2% with growth in our Canada business offset by lower sales in the US. This includes a benefit of 120 basis points driven by the timing of Easter. In our international developed markets, organic net sales declined 2.2%. This was largely driven by sales declines in the UK, primarily driven from pressure in the ambient news category. In emerging markets, organic natural sales were up 7.6%.

Results were driven by both price and volume growth with double digit growth in Atem and Middle east and Africa regions. Turning to the next slide, total Kraft Heinz adjusted operating income declined 7.5% and our adjusted operating income margin decreased 120 basis points. In North America, adjusted operating income declined 12.5% versus the prior year. This was primarily driven by commodity inflation as well as volume declines which more than offset productivity gains. In international developed markets, adjusted operating income increased 8.2% and adjusted operating income margin expanded by 100 basis points, mainly due to a combination of FX productivity savings, disciplined fixed cost management.

In emerging markets, adjusted operating income increased 52.3% and adjusted operating income margin expanded by 440 basis points. This growth and margin expansion was driven by improvement in Brazil, a mixed benefit of Heinz growth accelerated and productivity savings. As we navigate the current consumer landscape and macroeconomic conditions, our focus remains on delivering value to our consumers. Funded by unlocking efficiencies and optimizing our marketing spend, we are investing in price and supporting our brands. Consistent with our previous expectations, we are increasing our investment in price in 2025. These investments are focused on reestablishing optimal price gaps, increasing trial across renovated products including lunchables and crab Mac and cheese driving distribution gains in away from home including through our Heinz Verified Loyalty program and investing in strategic areas to drive momentum.

This includes Oreida, where we see solid traction through our national programming, growing the average number of items carried across 30 customers. In addition to increasing our investments in price, we are also increasing investments in marketing, product R and D, E commerce and our sales force in emerging markets. We expect marketing as a percentage of sales to be at least 4.8%. We anticipate media spend will increase at least 20% and this incremental spend will be heavily concentrated in North America in the second half of the year. We are also targeting a double digit increase in returns on that spend.

By optimizing our media mix and brand allocation, we expect these investments will drive a gradual long term improvement in our top line trends. Our productivity savings are not only enabling us to make the investments I just discussed, but they also helping us to mitigate inflationary headwinds. Year to date we have generated 4.1% of gross efficiencies as a percentage of cost of goods sold, exceeding the 3.5% goal we have for the year. This achievement marks the fourth consecutive year we are on track to exceed our long term algorithm of 3%, a testament to our team’s commitment to continuous improvement.

Our investments in technology, particularly in AI have transformed our ways of working from improving demand forecasting to optimizing factory floor processes. We are driving end to end improvement and with $2 billion in efficiencies projected through 2025, we are confident that we will achieve our goal of $2.5 billion by 2027 which will further solidify our position as a leader in operational excellence. Moving to adjusted gross profit margin, it came in a bit better than expected, declining 140 basis points in the second quarter. The decline was driven by increased commodity cost inflation which more than offset the benefit from gross efficiencies.

This was better than anticipated due to the timing of additional inflation and trade investments that were expected in the second quarter that are now expected to hit in the third quarter. We continue to demonstrate our strong ability to generate attractive cash flow with year to date free cash flow of $1.5 billion. Our year to date free cash flow conversion was 96%, up over 30 percentage points versus the prior year. This was primarily driven by improvements in working capital and other cash management initiatives. In terms of adjusted eps we declined 11.5% or 9 cents versus the second quarter of 2024 this was driven by negative impact from results of operations and a higher effective tax rate, partially offset by a favorable impact from share repurchase.

In the second quarter, we also recognized an approximate $9.3 billion impairment charge. This impairment was driven by a sustained decline in our share price and market capitalization. We have been able to provide consistent cash generation as well as significantly reduce our net leverage ratio, positioning ourselves to better navigate this uncertain environment. Our healthy balance sheet and strong cash flow generation provide us with financial stability and flexibility. We continue to be excellent stewards of capital by taking a disciplined approach to financial management. We have created optionality for capital allocation. We will maintain our competitive annual dividend target, net leverage ratio of three times and investment grade status.

On top of that, our priorities remain the same. We will invest in organic growth, actively manage our portfolio and return incremental capital to our stockholders. We recently announced an agreement to sell our infant and specialty food business in Italy. This transaction is consistent with our strategy to drive profitable growth through our ACCELERATE platforms throughout Europe, enabling us to fill investments in core growth areas. Our balance sheet remains strong with net leverage at our target ratio of approximately three times in year to date, we returned nearly $1.4 billion in capital to stockholders. The $1.4 billion returned to stockholders nearly $1 billion worth through our competitive dividend with a Yield that exceeds 5.5% and approximately $400 million through our share repurchase program.

Currently, we have about $1.5 billion remaining against our $3 billion authorization. As a reminder, our share repurchase program is non programmatic, a function of excess cash and takes into consideration the macroeconomic environment. Now, turning to our full year 2025 outlook, we are reiterating our guidance for the year. We continue to expect organic net sales in the range of down 1.5% to down 3.5%. This contemplates growth in emerging markets which is expected to reach a double digit pace by year end. It also reflects exiting the year with relatively flat top line performance in global away from home and continued improvement in US Retail challenge categories.

For constant currency adjusted operating income we continue to expect a decline of 5 to 10%. This includes impact from inflation and tariffs. The wider range reflects a larger degree of uncertainty given the macroeconomic environment. It also reflects for varying levels of potential returns on investments and the timing of those returns. Lastly, the range provides us with some flexibility to dial in on incremental investments as deemed appropriate. Our constant currency adjusted operating income expectations include the impact of lapping lower variable compensation 2024 which is an approximate 150 basis point headwind. It also contemplates an adjusted gross profit margin towards the Lower end of down 25 to 75 basis point year over year driven by inflation and incremental investments in price and product partially offset by our gross efficiencies, tariff mitigation efforts and additional pricing.

We continue to expect adjusted EPS to be in the range of $2.51 to $2.67. Our adjusted EPS expectation contemplates an effective tax rate of approximately 26% which is a 23 cent headwind on adjusted EPS year. From a free cash flow perspective, we expect 2025 to be flat versus prior year with free cash flow conversion of at least 95%. It is driven by working capital efficiencies and lower cash outflows for variable compensation partially offset by the net cash impact of a higher tax rate. As is customary, our outlook does not reflect an impact from future potential share repurchases.

Looking specifically at the third quarter, we expect year over year organic net sales to be in the range of down 1 to 2%. This reflects an improvement in our underlying business that is Offset by the approximate 100 basis point year over year benefit from the timing of Easter we had in the second quarter. We expect our year over year adjusted gross profit margin in the third quarter to be comparable to the down 140 basis points we saw in the second quarter. As I mentioned earlier, some incremental inflation and promotions that were originally expected in the second quarter are now hitting in the third quarter.

We have a significant amount of investment in SGNA in the third quarter, primarily marketing as well as in product, R and D, E commerce and our sales force in emerging markets. Our full year outlook give us flexibility to increase spending further into Q4 as we deem appropriate. This anticipated adjusted gross profit margin and year over year increasing SG and A lead us to an expected mid to high teen decline in adjusted operating income versus the prior year in the third quarter. With that I will pass it back to Carlos for some closing comments.

Carlos Abrams-Rivera — Director and Chief Executive Officer

Thank you Andre. I am proud that we are delivering value through superior, affordable and accessible products to our consumers. We are executing our commitments by accelerating growth in emerging markets, improving across focus brands in North America retail and continuing to unlock efficiencies and generating cash something we know how to do well. We are stepping up investment to drive long term top line growth building on the momentum delivered on the first half of the year. Thank you for joining us and for your interest in Kraft Heinz.