Good day. My name is Chelsea and I will be your operator today. At this time, I would like to welcome everyone to the Kraft Heinz Company's second quarter 2017 earnings conference call. I will now turn the call over to Chris Jakubik, Head of Global Investor Relations. Mr. Jakubik, you may begin.

Hello everyone, and thanks for joining our business update for the second quarter of 2017. With me today are Bernardo Hees, our CEO, Paulo Basilio, our CFO, and George Zoghbi, the Chief Operating Officer of our U.S. Commercial Business. During our remarks, we'll make some forward-looking statements that are based on how we see things today. Actual results may differ due to risks and uncertainties and these are discussed in our press release and our filings with the SEC. We'll also discuss some non-GAAP financial measures during the call today. These non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results. And you could find the GAAP to non-GAAP reconciliations within our earnings release and at the end of the slide presentation available on our website. Now, let's turn to slide 2 and I'll hand it over to Bernardo.

Thank you, Chris, and hello, everyone. To begin our review today, it's important to recognize that clearly not everything went our way in the first half. Canada, India and commodity cost in United States are just a few examples. But given all that's going on in our industry at the moment, it is good to report that we remain on track with all our overall plans and confident that we will gain additional business momentum in the second half of the year. This is because we continue to make progress against our agenda for 2017 in the three objectives of our long-term strategy. On the top line, while we are not satisfied with our first half numbers, we are not discouraged with our ability to drive sequential improvement in organic sales and deliver our 2017 plan for profitable growth. So far in the year, our Big Bets and whitespace initiatives from last year have been the main driver and that's very encouraging for the perspective of sustainable growth. George will speak to that for the United States. Outside the U.S., we're this play out through positive investment-driven consumption trends, driven by our condiments and sauces portfolio, in Canada, Europe, Latin America, Asia and Middle East. At the same time, we have been laying the groundwork to capture additional whitespace opportunities. That includes the significant commercial investment to drive top line growth in our EMEA region that we have spoken about before. It also includes our Latin American investment in people to increase distribution across traditional trade, modern trade and foodservice in Mexico, as well as expand our distribution footprint in South America. So overall, we believe we have a strong pipeline to drive profitable sales growth going forward. I In terms of our goal to establish industry-leading margins, we remain…

Thank you. Thank you, Bernardo, and hello, everyone. Let's turn to slide 4 and our performance in the United States. To start, you will note that we did not provide the consumption bridge for the U.S. that we have in the past. This is due to a growing divergence between our sales performance and measured-channel data and our desire to provide you with a clear, concise picture of how we are doing. While it's true that we're operating in a challenging and rapidly changing environment, we do not believe that our challenges are to the degree that measured-channel data currently suggest. What is clear is that we had a sequential improvement in net sales from Q1 to Q2. So as Bernardo said, while we're not satisfied with our numbers, we are not discouraged with our ability to drive sequential improvement either. In the second quarter, we started to see better leverage of Kraft Heinz scale at retail in the form of increased in-store activity, with several scale events including Easter, Memorial Day and our Feed Your Family, Feed The World cause-related event. We're also seeing solid consumption gains in a number of our largest categories, including strong growth in our frozen business after years of decline behind the introductions of Devour and SmartMade brands, as well as solid performance in frozen snacks, ongoing growth in our Kraft American Slices, Philadelphia Cream Cheese and Oscar Mayer Bacon portfolios from recent renovation and innovation as well as innovation-led growth in the on-the-go arena from Lunchables and P3. And we are encouraged that our share performance was stable overall considering a back half weighted set of initiatives. That's not to say that some consumption challenges remain, but they are concentrated in few categories: natural cheese, mainly due to aggressive competitive pricing in the…

And our first question comes from the line of Rob Dickerson with Deutsche Bank. Your line is open.

Thank you very much. So, I'd say good job in Q2, I think the sequential improvement we saw from Q1 is obviously a positive. Just in terms of your expectation into further sequential improvement that's expected in the back half of the year, I guess one is, you've spoken to Q2 being better than Q1, and the back half being better than Q2, but is I guess, one, should Q3 be better than Q2 and Q4 be better than Q3? And then secondly, as you speak about your leveraging the scale in retail and the investments that you're making, just wondering if you could give us one or two explicit examples of what investments you are making and how some of the innovation has already been playing out well? Thanks. Paulo Luiz Araújo Basílio - The Kraft Heinz Co.: Hi, Rob. This is Paulo, so in terms of the outlook, yeah, as I said, we're expecting sequentially better organic sales growth and our view is that and the call that we're having today is that we're seeing improvement in the second half versus our Q2 results. We're not breaking down this number for Q3 and Q4, but we expect today's improvement in the second half versus Q2 in terms of organic growth. Want to ask George to talk about the second question.

Yeah, Rob, this is George Zoghbi. As far as the second half, we believe the performance will improve compared to Q1 and Q2, we'll continue to see sequential improvement driven mainly by three things. One is the innovation that we have launched early in the year is building up to a higher ACV and then we turn on the advertising behind it. Number two is the in-store execution. We expanded the business development team for in-store execution. And number three, we already announced a number of price increases to cover for the commodities that constituted headwinds for us in Q2, so the three actions here will help us for further sequential improvement in the second half of the year. I think the same is applicable for the Canadian business and the Rest of the World, in Europe and Latin America already doing better second quarter to continue their journey.

Okay. Fair enough. Thank you.

Thank you.

Thank you. And our next question comes from the line of Andrew Lazar with Barclays. Your line is open.

Good afternoon, everybody.

Good afternoon.

So, on the cost save side, it looks like you delivered pretty strong cost saves in the quarter, and I guess my question is I guess why didn't more of that translate I guess dollar to dollar into EBITDA and perhaps as part of that you can give us an idea of the shape of the year in that context? Paulo Luiz Araújo Basílio - The Kraft Heinz Co.: Hi, Andrew. This is Paulo. So just to – let me break down the EBITDA in North America for you, so try to give more color on that. So our North America – we had $180 million of integration savings in the quarter in North America. Our EBITDA in North America grew approximately $62 million, okay? So the offsets that we had pretty much the first and the big one was the commodity unfavorability, $80 million roughly, again against a significant favorability we had in the prior year on that line. And approximately $40 million in sales performance that being the majority of that coming from the timing of trading accruals, as we said, that we expect to have the benefit in the second half. When you think about the savings, so just to give the reasons why we had a lot of offsets on the savings to the EBITDA. When you go the second question about the savings, I can tell you that now even discounting the $40 million related to the timing of overhead expenses, it's correct, our savings are coming in faster than expected. But also – and we are seeing more gross savings coming in that inflation than we originally expected, but our view here is that there's still a lot to happen in the second half. So for now, we're still targeting the $1.7 billion savings for this year. And as soon as we change our point of view on that, we will let you know.

Okay. And then it sounded like in a bunch of the segments, pricing was lower in the quarter year-over-year because of some of the timing around promotional environment and things you talked about, trade spend timing. Should I read that that we'll start to see or a return I should say to positive year-over-year pricing as we move through the third quarter?

Andrew, this is George. Yes, you are right about that. So the Q2 pricing was down from a combination of things. One is higher promotional activities versus the prior year, particularly in April, where we are heavy on Easter promotions. And number two is the timing of the trade cost accrual last year, as Paulo mentioned. So we expect this to improve in the second half from a better balance between pricing and input cost. Also, please note that we have announced already price increases in a number of large categories already, so that's been done and been implemented in the marketplace.

Got it. Thank you very much.

You're welcome.

And our next question comes from the line of David Driscoll with Citi. Your line is open.

Great. Thank you and good evening.

Good evening. Paulo Luiz Araújo Basílio - The Kraft Heinz Co.: Good evening.

I had two questions on the U.S.; they're related. You called out three different areas as problem areas, but when I look at the Nielsen data, we see volumes in snack nuts down 17%, shelf-stable juices down 9%, coffee down 9%, powdered beverages down 15%, but you also made this interesting comment about the Nielsen data just not being accurate. So two questions here. The first one is that, are these areas seeing significant weakness and maybe could you talk about them? And then secondly, just bigger picture on the Nielsen data, kind of what's wrong with this data? Is it something that you would dissuade people from relying on too much? Thank you. Paulo Luiz Araújo Basílio - The Kraft Heinz Co.: Thank you. I mean, this is – let me cut the question into two parts. It's a little bit complicated. First, we still have to rely on AC Nielsen. However, the coverage of AC Nielsen has shrunk to where we are selling our product. So with the changing retail landscape, measuring consumption is not as simple as it used to be. AC Nielsen cover mainly scanned or a non-census data within traditional and some – and clubs. However, there is significant growth going on in hard discounters and some big major club players that are not covered by Nielsen and almost the entire e-commerce channel is not covered by AC Nielsen, so just to give you an idea as I mentioned in my remark, rate from small base of 1%, our ecommerce channel is growing at 60%. It happened to be the two largest segments we have in ecommerce happen to be the snack nuts and coffee segments. So they lend themselves more towards that channel. The other thing is we are comfortable about where we are at with juices and our plans were delayed somewhat to take full advantage from the new products advertising and promotion as a combined bundle at the same time. So to summarize, yes, we still rely on AC Nelson, but we tried to focus the AC Nelson measurement in the channel, where we can scan data we add to it our own data to fill the gap to get the picture and that's why we have the diversions between what is net sales revenue and what is consumption from AC Nelson.

So today's data wouldn't suggest an inventory build at retail. It is saying that the Nelson data is just understating the reality of it because of these unmeasures, is that fair? Paulo Luiz Araújo Basílio - The Kraft Heinz Co.: It is fair for us. I can't speak for other companies and in our case, inventory build or decline was not a major factor in our Q2 results.

Thank you so much. Paulo Luiz Araújo Basílio - The Kraft Heinz Co.: Welcome.

And our next question comes from the line of Steven Strycula with UBS. Your line is open.

Hey, guys. So a two-part question. The first would be for your global route-to-market capability, and you're a little past the two-year mark in terms of the formal deal legally closing. So could you spend a moment talking about some of the global supply chain investments and CapEx and route-to-market spend, what evidence are you seeing of this yielding revenue synergies for some of your global brand platforms? And then secondarily, how do we think about adding new brands on top of your platform, what's particularly unique about what you've built here to drive incremental scale? Thank you.

Hi, Steven. It's Bernardo. You are right, we're just actually celebrating two years of the merger of The Kraft and Heinz this July, and it has been quite a journey and much more ahead of us. And to your question about investment in rest of the world, in our five-year strategic plan and the way we're positioned, remember, we talk about having trying to have three global brands with five platforms, and there would be significantly push towards these brands and platforms, and I'm pleased with the progress. There is a lot of investment being made, especially in the rest of the world business on the supply chain side, not only on the manufacturing, but the capabilities. The approving process of the products, having them ready with local registration, packaging and go-to-market route, marketing, and you're seeing the results from that right. With the mac and cheese launch in Europe and Latin America, with the Planters being now – being rolled out from U.K. to Continental Europe to say Planters China, what has been 100% e-commerce driven as a launch. A lot of the – now we're preparing ourselves to the Kraft repatriation for 2018, that will affect our business in Continental Europe and Australia for next year. So I would say it's too early to say, but we're pleased with the foundation of the things to accelerate. Part of the Rest of the World result, we're having is related to that. Our top line on the second quarter Rest of the World (39:55) of the question has been softer than our Q2 data for really two reasons that's nothing to do with your question on the global brands and the merger, but really the timing of Ramadan in Indonesia that have shift part of our sales to the first quarter and really the change in taxes system in India that has made our distributors destocking our products for some time that also is timing related. Taking out those two issues, we're very pleased with the progress on the Rest of the World and we should see that in the second half not only on the top line, but also in a better bottom line.

Great. Thank you.

And our next question comes from the line of Bryan Spillane with Bank of America. Your line is open.

Hey, good afternoon, everyone.

Good afternoon. Paulo Luiz Araújo Basílio - The Kraft Heinz Co.: Good afternoon.

I have a question for you, George, related to the food service business in the U.S., given where the consumer is sort of shifting more and more out of traditional food retail – food services is an important – should be an important component of your business to capture those sales, and so I guess, it's been an ongoing source of weakness here this year, so could you talk a little bit about maybe a little more color in terms of what's happening there and maybe some actions that you're taking to correct that?

Yes. So you're right about foodservice, and we continue to think we have more whitespace to capture in this area and we are working hard not just in the U.S., but everywhere around the world. That being said, we did need to course correct, that in foodservice, we had a large number of initiatives that did not yield what we wanted to get out of it, so we found that we were chasing too many small things and we needed to reorganize, so that we were facing the customers, the large customers with large big ideas. And we made that correction about two months, three months ago and we already started seeing some good results that we are pleased with. Last month was the first month where we start getting net – when we look at the net gain, net loss from customers, we got into the net gain positive territory. So overall, we expect foodservice business to continue improvement in the rest of the year and it continues to be a strategic whitespace for us.

Have you actually added sales people, like is there – do you just have more sales coverage than you had before?

We refocused the sales team on where we believed the largest opportunities are. You see in the foodservice, it's a very large universe, you can get lost where you are chasing ideas, and we went through a program and a project to identify where best to focus our resources and our investments and we made that change a few months ago and we are very happy with what it is yielding, and going forward we expect more positive results.

Okay. Great. Thank you.

You're welcome. Operating: And our next question comes from the line of Michael Lavery with Piper Jaffray. Your line is open. Michael S. Lavery - Piper Jaffray & Co.: Good evening. Thank you.

Evening. Michael S. Lavery - Piper Jaffray & Co.: Just wanted to get some better understanding on Europe margins. A couple of years or so ago that looked like the sort of benchmark standard of where everything could go, and since then those margins have come back in, do you think they've peaked there, is there a path to how you see visibility on better upside and what's the right way to think about some of the leverage and opportunities you have there? Paulo Luiz Araújo Basílio - The Kraft Heinz Co.: Hi, Michael, this is Paulo. So, yes, you're right, we – our European business used to have a much higher business, if you think like one, two years ago, pretty much three things I would mention here, that impacted this. The first one was for sure the depreciation of the pound. That had a big impact (44:34), because part of what we sell in U.K. comes from Continental Europe, so that was an impact that we have a transaction effects. The second piece also is that we are growing more in the Continental Europe, so there is a geographical mix that changed. And the third also, we need to adjust slightly below lower margin because of – we add Russia on the Europe. So I think those three would be the main impacts in that order I told you in terms of that impacted the European margin. So I think going forward, I think we should see, as we always mention, our focus is in dollar margin to dollar growth, but as the business recover, I think we should see and should count on some margin accretion for the future. Michael S. Lavery - Piper Jaffray & Co.: No. That's very helpful. Thank you. You also called out the higher promotional levels in the U.K. and Italy. Is there a light at the end of the tunnel? How much is there ability to get some better pricing? And do you see sort of timing on when and how that might happen?

Yes. Michael, I think there are two different stories here. On the Italy case, we're still going to go to a more extended promotion trends given what's happening in the baby food environment, remember, our sauces business expanding fast in the country. But baby foods continues to be predominantly the anchor of the business in the country and that has been a more challenged category with different competitors coming from different places outside Italy, or actually, the Italian brand and the Italian producer in the country. The U.K. is going to depend a lot on where we're going over now to end the sauce season in the summer. Now it's going to come soup and back-to-school with beans that we're going to have some promotional activity, but we don't see that changing that much from the level we are right now. We are performing well in the country. We're back to growth and seeing volume/mix and activity in the country, I would say, should be very stable even with the change (47:27) between sauces and soup and beans. Michael S. Lavery - Piper Jaffray & Co.: That's great. Thank you very much.

And our next question comes from the line of John Baumgartner with Wells Fargo. Your line is open.

Good afternoon. Thanks for the question.

Thank you.

George, I'd like to ask about the mix opportunity in the U.S. I mean looking at some of your recent news, the organic Mac & Cheese is a premium product, the Simply Heinz Ketchup is at a premium price per ounce, and there's a few other examples I can think of. But when you look at your consumer base, what have you seen and how do you think about the opportunity to keep I guess just walking people up that pricing ladder through mix? Do you exhaust that at some point? Is it contingent on just continuing attractive new product? How do you think about that?

Yeah. It's a very good question about – particularly we always talk about the changing landscape in retail. There's always that changing landscape in consumers. And what we're finding there is a very large number of consumers in this market. They're happy to move up the value chain, and premiumization was one of our strategies to create growth. It's worked for us in beverages for Capri Sun organic. It's worked for us in ketchup with the Simply and organic. It's worked for us in Mac & Cheese by having priced at a 300% premium in Cracker Barrel versus the blue box Mac & Cheese, and you're going to continue to see some of that in the marketplace, so that's one way to create premium in a market where the population is stagnant, inflation is under wraps, and so forth. The other area is to create new segments to deal with consumer needs, and we've got some exciting news that we'll be talking about that in the next few weeks where we will create new segments in the market that serves new consumer needs. The combination of these two supported with advertising and higher quality product, fresh and less processed, makes a good proposition for growth.

And I guess it may be just broad generalization, but are you finding that of the mix accretive products, those also tend to be margin accretive more often than not?

It depends. So we find when we move to a more premium product, it can be margin accretive. In some area, we added costs in to protect the brands, and we could not price up in that category, so we have to do it in another category until consumers see value of it. So it depends on the category, it depends on the project. Either way, we are always driven by the consumer insights because that's what matters first to keep the brands relevant and keep the categories alive.

Thank you, George.

You're welcome.

And our next question comes from the line of Chris Growe with Stifel. Your line is open. Christopher Growe - Stifel, Nicolaus & Co., Inc.: Hi. Thank you. Good evening.

Good evening, Chris.

Good evening. Christopher Growe - Stifel, Nicolaus & Co., Inc.: Hi. Just a question for you, I think really for George in relation to the U.S. I think you mentioned in the quarter a flattish market share performance overall. So I guess I would confirm that. And I'm just curious if you see a stronger category performance picking up in the second half of the year, or is it more about your market share performance with all the activity you have coming up in the second half?

It's a good question. So we have a large number of categories where we grew market share, including American Singles, including bacon, including ketchup, frozen meals, frozen snacks, and we have a number of categories where we lost market share, like natural cheese, cold cuts, and so forth. And that's why when you look at the balance, market share was not a major driver for a decline of the 1.2%. It was more the categories we're operating in. Moving forward, with the different comps in the second half to what we had last year, that's number one. Number two, we implemented a number of price increases, which will lift the dollar value per pound in the category. And number three, we have a number of innovations either ramping up or about to announce to the market. That's why we are confident that the sequential improvement will continue in the second half from Q1 and Q2. Christopher Growe - Stifel, Nicolaus & Co., Inc.: And can I ask in relation to that, there's been a number of companies, a number of categories, where you've seen private label make some inroads. Are you seeing that in any noticeable way in any of your categories in the U.S.?

Yes, we are. There has been, as you said, a more pronounced focus in leading national retailers on increased private label total distribution point, merchandising, as a way to compete against discounters or separate themselves. For us the results of the focus on private label was mixed. We benefited a lot when retailers did that through an assortment work where they reduced the number of brands on offer, and it led to a better category performance. A great example of that, Kraft Singles and American Slices. By contrast, where retailers resorted to pricing private label so low to compete, it simply resulted in a reduction of the category size and profitability for everyone; example of that is natural cheese. So lucky for us, one offset the other. But just to give you an example how one was beneficial, the other one was not. So at the end of the day, what will win for us is growing our brands and categories by differentiating through innovation, through renovation, and strong communication campaigns. Christopher Growe - Stifel, Nicolaus & Co., Inc.: Okay. Thank you, George.

You're welcome.

And our next question comes from the line of Jason English with Goldman Sachs. Your line is open. Jason English - Goldman Sachs & Co.: Hey, guys. Thanks for the question.

Hey, Jason. Jason English - Goldman Sachs & Co.: George, I think I'll keep you talking for a bit longer and build off of I think your response to the last question in terms of private label, market dynamics, et cetera. We're hearing from a lot of your competitors about a lot more friction in terms of implementation of price increases than they've seen. Many have described it as sort of unprecedented. But you're on the call saying you're implementing, you're getting them through, it sounds like that the degree of friction isn't really what you're seeing. So can you expand on that a little bit more? From your vantage point with your categories, does the pricing environment really seem that different than it has in years past?

Well, implementing pricing anytime in any year is never a straightforward process. So, for us, we usually take the approach, whether there is an input cost, cost (54:48) product, or something like that. And we always do it when it's justified. We just don't take price increases if not justified. So that is, for us, utilizing our revenue management programs, combine that with our assortment management to create category value. That is usually what our selling story is based on. And in most cases, you see when we implemented using assortment management, revenue management, build innovation around it, we created value for the entire category and not just for our brand. And in these instances, we have been successful doing it. But, again, it's never an easy task at any time in any year. Jason English - Goldman Sachs & Co.: Great. Thank you for that. And it was a nice segue into a related question. You mentioned revenue management. Some of us, myself included, have a lot of optimism of what it could do for our top line. Clearly categories are slower than they were when the optimism was percolating. But still even in accounting for the category slowdown, there isn't really a lot of tangible evidence success on that front, especially given that this is kind of the year that it was supposed to start to hit its stride. So can you bring us up-to-speed on where you stand on those initiatives? Why maybe we aren't seeing tangible evidence? And what we can expect on the forward?

Yes. For us, we feel good about the implementation of our program. What's happening particularly in relation of where the promotional effectiveness and lift from promotional activity is heading, we feel very comfortable about the investments that we are making. Revenue management is not about just taking a price increase or reducing trade. For us, sometimes we do exactly the opposite. We find it beneficial to do the opposite. So we're very comfortable where we are. We believe the effectiveness of our program is very good and we will continue with managing our categories through the tools we created in revenue management, through the tools we created in assortment management, and we will continue to innovate to grow the categories. Jason English - Goldman Sachs & Co.: Very good. Thanks, guys. I'll pass it on.

You're welcome.

If we could take one more question, that would be great.

Thank you.

Certainly. And our next question comes from the line of Jonathan Feeney with Consumer Edge. Your line is open.

Thank you very much for getting me in. So two questions if you don't mind. One is quick. Is it fair to say that we see in the U.S. that revenue management is pretty much working outside of that like 20% of your business that's natural cheese and lunchmeats where it seems like you implemented some price increases and that resulted in some volume share loss? Would you agree? Is it fair to say that there's somewhat of a tale of two cities there and it's working outside of there? And secondly, a broader question, is there something perhaps fundamentally different about those particular categories as far as your level of value-add and does that shape the way you think about how you want to grow this portfolio going forward either internally or externally? Thank you.

Okay. So let me break down the question, the first one on revenue management, particularly in natural cheese and cold cuts. And the second one was about different things about shaping the business. Did I understand it correctly?

Yes. Category attributes. It just seems like there is a big difference between category attributes.

Okay. So the natural cheese and cold cuts have different sets of issues. On the natural cheese, as I mentioned, there were really aggressive pricing that we did not take a major part in the marketplace, and that resulted in some share losses. And you can see the months when it happened and persisted with us over the last two, three months. So it was purely based on the elasticity through pricing, and we always keep assessing, moving forward, when we participate and when we do not participate. On the cold cut cuts it's a completely different issue. The cold cuts, as we went through our footprint program, last year we had a major constraint. And we deleted a number of SKUs. So if you look at the total distribution points, or what we refer to as TDPs, is down year-on-year because of that and our merchandizing is down year-on-year before that. Once we get over August, you'll find that this will change. We overlap that period of time and we feel good about rebuilding that business. As a matter of fact, the programs we put in the accounts where we accelerated the program, we started seeing a good trend then. Now is there anything different about these categories as opposed to other categories? What we see that we have higher chances of success where the brand equity is stronger and the relative market share is higher. So these two attributes allow us a little bit of flexibility in terms of both revenue management and assortment management. So building the brand equity is important to us. That's why we always focus on innovation and communication, and building our relative market shares because we believe these two attributes in any category are strong assets for the organization and the brands.

Very helpful. Thank you.

You're welcome.

Thank you. And this concludes today's question-and-answer session. I would now like to turn the call back to Chris Jakubik for any closing remarks.

Great. Thanks very much and thanks, everyone, for joining us for – any analysts who have follow-up questions, I as well as Andy Larkin will be available to take your questions. And for anybody in the media, Michael Mullen will be available as well.

Thank you.

Good night.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Everyone, have a good day.