Good day, and thank you for standing by. Welcome to the Kraft Heinz Company first quarter results conference call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anne-Marie Megela, Global Head of Kraft Heinz Investor Relations.

Thank you, and hello, everyone. Welcome to our Q&A session for our first quarter 2024 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. 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. Before we begin the Q&A session, it gives me great pleasure to hand it over to our Chief Executive Officer, Carlos Abrams-Rivera, for opening comments. Please, Carlos.

Well, thank you, Anne-Marie, and thank you, everyone, for joining us today. So before we begin our Q&A, I'd just like to provide some perspective on our top-up session here at Kraft Heinz, our consumers. And while we've seen a notable uptick in consumer sentiment in the first quarter, there is a gap between high and low earners continues to remain wide, and it shows a clear and continuing bifurcation. So the lower-income consumers are challenged with interest rates remaining high, gas prices elevated and savings dwindling. So there's a clear pullback of restaurant spend by these lower-earning households, especially in restaurants and convenience stores. These consumers instead are looking for value as they prepare more meals at home. So in contrast, there has been a meaningful growth in travel and accordingly, an increasing hospitality and entertainment sales, driven by the bounce back among the higher earners. And here at Kraft Heinz, we are here to meet the evolving needs and taste of all consumers, whether they're looking for value in serving their family delicious meals at home or seeking culinary delights that they set out on new adventures. They can look to the iconic and trusted brands of Kraft Heinz. So for us, it's about having brands that are accessible and available to everyone. I believe we're well positioned to serve all of this consumer for three primary reasons: one, because we are bringing innovative food solutions and faster than ever before; two, because we continue to renovate our core brands for today and tomorrow; and three, because we have the best team in the industry, full stop. We are on track to meet our goals of generating $2 billion incremental net sales from innovation, and the world has taken notice as we were recently named one of the world's Top 50 Most Innovative Companies by Fast Company. But more importantly, we are expanding the choices we offer our consumers so that they don't have to sacrifice, whether it's providing greater value through multipacks, plant-based options such as our newly released NotCo Mac & Cheese or expanded the choices in our iconic brands such as Zero Sugar Heinz Ketchup. Myself, I've been traveling around the world visiting with our employees, and they are consumer obsessed. Their sense of ownership, collaboration and agility is so inspirational. I just want to say thank you to every one of them for their dedication. We are proud of our progress, both far from satisfied, as we continue focusing on serving these consumers and making lives delicious for everyone. And with that, I have Andre joining me, so let's open the call for Q&A.

[Operator Instructions] Our first question comes from Andrew Lazar with Barclays.

It looks like KHC is still losing share in North America Retail, though at a more modest pace recently. But in the ACCELERATE platform specifically, your remarks call out holding or gaining share in about 55% of this platform. I guess would you expect this percentage to be higher given the disproportionate allocation of resources to this platform? I guess a little more detail on share trends within ACCELERATE would be helpful. And then you mentioned U.S. restaurants softening a bit. Are you starting to see any of that on the flip side benefit at-home eating for your business? And if not, why would that be?

Yes. So thank you, Andrew, for the question. Before I get into the ACCELERATE, let me just at least give you a view of how I'm seeing so far the business performance. If you look at the last 5 weeks, just to remove the noise of Easter, we actually continued to see volume share improvement versus year-to-date, and we're holding dollar share at the same pace in the U.S. So that's at the macro level in the U.S. for our company. Now if you look at the ACCELERATE platforms, we actually continue to outperform the other platforms. So far, we are seeing flat in dollar share and growing volume share by 0.2 points. And now let me just break the other 2, and then I'll go back to ACCELERATE. We are losing share in PROTECT platforms, as we continue to see the impact of the decline in SNAP benefits. At the same time, I'm actually pretty excited about the renovations we are seeing in these brands because we are going to be continuing to bring more consumer preference options as we go into the [ sense of the year ]. In our BALANCE part of our portfolio, we are losing share but improving versus a year ago versus year-to-date, primarily driven by coffee. Now to your question about ACCELERATE platforms. There's a couple of big brands that are in there that I would like to unpack a little more. If you think about our Mac & Cheese business, which is within the ACCELERATE platform, what you're going to be continuing to see is: one, we are going to start lapping a lot of the headwinds from SNAP. Mac & Cheese was probably one of the more categories that were more actually impacted by SNAP. And as we go into Q2,…

Our next question comes from Ken Goldman with JPMorgan.

You mentioned inflation in your comments in a few areas. I guess two questions here. First, I don't think you updated us, forgive me if I missed it, but I think last time you were talking about maybe 3% cost inflation for the year. I'm just curious if that's still a reasonable number. And then I guess, second, more broadly, there's been a lot of attention paid to cocoa, obviously, but coffee inflation has been fairly notable as well. And I'm just curious, right, even though historically, coffee is somewhat of a pass-through category, do you think that if you and your competitors need, you'll be able and even willing to raise prices to customers as much as you typically might hear? Or do you maybe expect a little more, I guess, pushback than usual?

Thank you, Ken, for the question. Let me just -- okay, let me start, and then I'll ask Andre to continue to build on it. For us, we are certainly committed to continue to provide families with affordable options. So -- and that means something that we take very seriously. And if you think about 2023, we did end the year with a 3% inflation, but we only pass about 1% pricing to consumers. So we do that very much intentional in a way for us to make sure we are all doing everything we can to offset things so that consumers don't see it. Now Andre, if you want to comment a little more in terms of what you see in terms of cost inflation today in the coffee category.

Sure. So yes, we still expect inflation to be in the low single-digit territory, like we said before. So nothing has changed in that regard, with inflation a bit more concentrated in Q2 and Q3 than in the shoulder quarters. And that's primarily because of what we call the big 3 commodities: cheese, meat, coffee, which we are seeing particularly in meat and cheese, higher level of inflation happened in Q2, Q3 as we are lapping very favorable comps from last year. So yes, so we don't see any other meaningful change here. And the price that has been taken is very surgical around those categories have been suffering the largest impact. And say cocoa likely is not a relevant part of our portfolio at all. I mean a little bit in Netherlands, but beyond that, there's nothing worth mentioning. And we don't see any reason to believe at this point that we would not be able to continue to pass-through the prices in those commodity categories like it has always been the case. So...

All right. And if I could ask a quick follow-up. Just the increase in gross margin guidance, coupled with no other changes implies a bit higher SG&A than you previously expected. So just assuming that's accurate, are there any key areas in operating expenses we should think about that are maybe a little bit higher than planned, obviously, not a huge amount? Or maybe the plant shutdown is the primary, I guess, culprit here, so to speak. Just trying to get a little color there, if we could.

As you saw in CAGNY, we are starting to deploy our brand growth system, which is the method that allows us to continue to improve in our marketing and continue to strengthen our brands. And one of the components of the brand growth system is ensure that we have the sufficient level of marketing across the portfolio. And we've started to see a few selected areas where we need to step up the market investment, thinking on the long term. And we have been gradually approving incremental investments on top of what initially planned on the marketing side, in particular, which I think is a great thing for us. That's all.

Our next question comes from Bryan Spillane with Bank of America.

I just had two questions. One, just, I guess, a detail. Can you share with us -- I think in the past, you've shared with us how much the SNAP issue has impacted organic sales. So do you have that for the first quarter?

Look, it's never 100% precise. We're talking about the macroeconomic model, but we estimate on the U.S. Retail business back in the range of a few hundred bps negative impact.

Okay. And then a question on the Away From Home in the U.S. and the deceleration. And again, you've quantified the impact of the plant closure, but just can you give us a sense of how much the -- I'm sorry, the impact of the exiting the customer. But can you give us a sense of just how much of the decline is also related to like traffic at restaurants? Just trying to get a sense of the weighting of what's actually driving the slowdown. And then also, as you look into the second half, right, where you're expecting -- there's an expectation that there's going to be some recovery, just what underpins that? And I say that in the context of as we're kind of going through earnings season, a lot of the restaurants have incrementally gotten worse or slower. So just is there maybe too much optimism baked into the back half expectation for recovery when it looks like a lot of these restaurant companies are guiding down?

Let me start and then Andre, if you want to kind of build on that, and thanks for the question, Bryan. First of all, I continue to feel very good about overall strategy globally about Away From Home. Again, it's a business that we are seeing continue to improve outside the U.S. and even as we are seeing some of the slowing of the restaurant business here in the U.S. If I think about the second half, there's a few things that I think we'll feel better as we go into this rest of the year, even in the U.S. here. First of all, we mentioned about this factor impact that we had to close for unplanned maintenance, and that's going to affect us in Q2, and that will be behind us as we go into the second half of the year. The second part is that we are also going to be expanding the number of clients is where you're going to find our portfolio. So there's a number of things that I cannot speak today, but that we'll see as we go into Q3, in which we actually expand the distribution of our products. And then the third part is that we are going to continue to drive the focus on us going into attractive higher-margin channels. So again, beyond the restaurants in places like leisure, hospitality and travel, where we are actually seeing better performance because of the higher-income consumer and us getting into those channels in particular. And I think within that channel, we are seeing very successful programs around our Heinz Selection program and hospitality experiences that allow us to bring differentiated type of programs in an industry that until now, we really have in play that strongly. So -- and then lastly, what I would say is this is an area where we're going to continue to drive innovation in Away From Home. I mean already, you are seeing how we are taking our Heinz REMIX machine, and we're actually using that and planning it to work in the partnership that we have with BurgerFi, which is now our first restaurant to debut through Heinz REMIX, and that we're going to see that expanding as we go into 2024. So the idea is it's not only the fact that we're going to be present, but we're also going to continue to bring innovative in both the channel and the type of products we're going to bring into those channels. And Andre, anything else you could talk about?

I don't think so.

Our next question comes from John Baumgartner with Mizuho Securities.

Carlos, you highlighted consumer stress as a theme. And I wanted to ask in North America where the volume declines are still more pronounced, things like Mac & Cheese you just detailed for Andrew, but also catch-up in juices. These are categories where private label has been underpenetrated historically, and now you're seeing volumes growing a bit. Are you seeing anything different, whether it's new merchandising by retailers or new price sensitivity among consumers that's changing the dynamic in these categories at all? So I'm curious for your take on the pockets of private label share growth. And then maybe a follow-up, are there any specific categories in U.S. Retail where you're expecting material benefits from joint business plans or reinvestment for the duration of this year?

Let me thank you for the question. First on the private label, first of all, we are fortunate that we have such an iconic and beloved brands in our portfolio. And I think what you're seeing is that really, we haven't seen much of a change in terms of our overall gaps versus private label. And I think for us, the benefit that we have had is that over the last 2 years, we have spent a significant amount of energy and continue to renovate our portfolio. And today, we certainly have, in the U.S., renovated almost 100% of our portfolio to make sure that it continues to be relevant for today and tomorrow. And I think that, that along with the fact that we are also very much focused on delivering great value to consumers. We have to make sure that as we think about value, that is not just about the price point, it's also about it's worth paying for it. So that's why our focus on driving quality products in a way that is affordable and giving more consumer choices, that is also driving the overall value equation for consumer. So what you're seeing in the data is private label have been gaining share, but really they have stabilized and they're taking more share from other branded players. In terms of our JBP, that continues to be a strength of ours. That frankly, it comes out with the fact that we have been building this trust and partnership with our key retailers that allows us to truly leverage the scale of our total portfolio in a way that help us to both drive our distribution of innovation as well as improve our overall performance and execution in store. Because of this partnership, we can do things in store that probably the other peers cannot do. Whether that's when you think about the holiday season coming up now in the summer, we have the range of a portfolio that allows us to create through differentiating and unique value promotions that other people cannot do. So it's something that we continue to elevate and we continue to build on as we strengthened our portfolio and the partnership we have with the key retailers.

Our next question comes from Steve Powers with Deutsche Bank.

Carlos, in the prepared remarks, you talked about the unplanned maintenance that you had to take on one of your Away From Home plants. It seems that you've resolved that issue and you expect the impacts to be isolated to the second quarter. But maybe just a little bit more detail on what transpired there. Any kind of root cause diagnostic? And then just do you expect that to be a pretty quick bounce back in recovery in 3Q? Or is the recovery going to be more spread across the back half?

Yes. Thank you for the question, Steve. Yes, listen, it's not -- I wouldn't give you that much more information than already shared. It was a temporary shutdown in our plant for that unplanned maintenance. Now that particular factory was very much focused on our Away From Home business. And so those continents are places that we can outsource from other places and much within our network of factories. So that's why, in particular, it created a little bit of a dissonance in the Q2 only. And Andre, if you want to give a little more details on the impact in our -- what we see in the range of the portfolio for Q2?

Yes. So as we said in prepared remarks, production has resumed and is gradually going back towards the prior level. Not there yet, but production has resumed. And that's why I expect the impact to be -- we do expect production to be fully back on track within the quarter. And then the impact on top line, as we said, will be in the range of 50 to 100 bps to the total company growth, which is a function of how fast you can really bring the production fully up to speed.

Our next question comes from David Palmer with Evercore ISI.

Two questions. First, a follow-up on Foodservice. What is your general Foodservice assumption going forward that underlines your mid-single-digit organic growth that you have planned for the year? Is that, that you basically expected that current trends industry-wide and globally will remain similar level that you saw in the first quarter or improving from there? And then secondly, just Oscar Mayer and the beverage business, both were declining maybe mid-single digits or so in measured channels in the first quarter. Could you maybe talk about the challenges and general plans and prospects for improvement for each of those?

Maybe, Andre, if you can comment on Away From Home and maybe I can build on the Oscar Mayer and beverage business.

Yes. So first, if you think about our second half, as we said, we expect to be on algo throughout the entire second half. And if you think about our 3 pillars of growth, first, on Emerging Markets, as we said, Q1 came in line with what we said will happen mid-single digit, primarily because of the shipment phasing in Brazil. So as we head into Q2, we do expect Emerging Markets to be now very close at our long-term algo, and in the second half fully on the long-term algo. So that's a point comes from that roughly, maybe a little more. On the U.S. Retail business, as a function of industry improving gradually, volume continues to improve. All the innovation, renovation, Carlos mentioned a few examples. We do expect to be, if not on algo, at least approaching algo, so that will be a big contributor for the improvement as we head into the second half. And then finally, on Away From Home, like we don't need to be fully on algo to deliver our numbers in the second half, and that's not what we're contemplating. So we don't expect Away From Home to be fully back on algo. Even though on the international side, we should be back there in the U.S. where we think the dynamics of the industry is what give us a pause. We do expect improvement and a gradual improvement on the industry plus the business risk. But I mean, I think we're still a bit on a pause to see how much of the industry will recover. But again, we don't need to be fully on algo in the U.S. Away From Home to deliver our guidance for the second half.

And then just going deeper on the Oscar Mayer and beverage question, David. But I would say, if you go back to our CAGNY presentation, those are businesses that are in 2 different portfolio roles within our company. So our beverage business is within our PROTECT business, in which we actually are allocating resources in order to protect the profitability through the renovation across those brands to drive the growth. So if you think about some of the key brands there, you see that our MiO liquid concentrate in which we actually just renovated our entire kind of design or product. We have a new campaign, a marketing campaign focused on the wellness of the brand can offer. If you think about Crystal Light, we just debuted our first major innovation in 10 years, and we're launching a number of new and exciting functional benefits. If you think -- and then for us is how do we continue to drive that sense of focus on renovating on those particular products because we know they are differentiated, and we think they are well positioned for the long term. In the Oscar Mayer part of our BALANCE business, which, again, we are making sure we're making the right investments in order to protect our distribution. And at the same time, we also are being thoughtful about how we are going to manage a business that are very exposed to the commodity side of things. So we are being also thoughtful of making sure we are protecting the top line, while at the same time, making sure we have the right gross margins management in order for us to make it work within the entire Kraft Heinz portfolio.

The other thing I'll add on the BALANCE portfolio as a whole, you saw in prepared remarks that overall, the BALANCE declined 4% in the quarter, but the gross profit dollars grew 5%. So as we have said before, we continue to -- it's a balancing act, and we continue to make sure that we don't starve those brands of the core investments to sustain their business. But you should not expect an average growth coming from there.

Our last question comes from Robert Moskow with TD Cowen.

Andre, I think you might have already answered this, but mathematically, I think the guidance now for Foodservice implies a 50 basis point reduction to the overall company compared to, I think, the high single-digit guidance you had last quarter. So does the rest of the portfolio need to offset that? Is anything -- are you expecting anything to be a little better than you expected? Or is it just kind of absorbed? And then secondly, I think the slide said that you're seeing improvement in retail trends in U.S. Retail, maybe that's just versus a year ago. But can I assume that despite the market shares being down versus a year ago, do you need to make any big -- any adjustments to your marketing plan for 2024? Is there any increased price investment or advertising investment that needs to be made that's different from what you expected?

Andre, do you want to start with Away from Home, and I can comment on the retail trends?

Yes. First, as you said, the 50 bps that we mentioned in the prepared remarks should be clear, is linkage, the 50 to 100 bps expansion of plant shutdown and is focused on the second quarter. So we do not expect impact from that as we go into the second half. So as we head into the second half, as I said before, we do expect Emerging Markets to be fully back on algo. We do expect the U.S. Retail, North America Retail to continue to improve, like improve in Q1. We expect to improve more in Q2 and then more in the second half, like as a function, again, of lapping SNAP and a lot of contribution from innovation and renovation. And on the Away From Home, we do expect the rest of the world to gradually improve and get close, if not, at algo. And then the U.S. becomes then the question we don't need to be at mid-single digit in the second half for us to achieve our guidance. But we do expect a gradual improvement on industry. And I think we are seeing that from different sources as well. I think that there is a general expectation of that together with all the business wins that we have done, and I think that we're going to be past the situation with the plant as we had in the second half.

Thank you, Andre. And on the retail trends, I guess, I'll go back to the point at the beginning, which is we are seeing volume share improvements versus in the last 5 weeks into year-to-date. So we are seeing that the momentum is happening already. And for us, what we are going to be doing is focus on those things we can control, which is as you go into the year to go, you'll see us continue to drive the renovation of our brands, like I mentioned, whether it's in our PROTECT platforms and ACCELERATE, which is driving more innovation, as you'll see now, begin now in Q2 and we continue to step up through the rest of the year. And then these margins are marketing investments. Andre mentioned earlier that part of the reason we're taking some of those gross margin dollars and investing back in the business is because now we are deploying a brand growth system that allows us to think about how do we make sure we're being smart about where to spend and places that maybe we haven't been spending at sufficient levels. So you are, in fact, going to see that continued focus on not driving the right dollars against the right priorities for us to drive the retail growth. And thank you for the question, Rob.

And thank you, everyone, for joining us. This concludes our earnings call for the first quarter '24. Thank you.

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