Good day, and thank you for standing by. Welcome to The Kraft Heinz Company Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Anne-Marie Megela, Global Head of Investor Relations.

Thank you, and hello, everyone. Welcome to our Q&A session for our third quarter 2024 business update. During today’s call, we will 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 risk 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 and Events, for discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. I will now hand over -- I will now hand it over to our Chief Executive Officer, Carlos Abrams-Rivera, for opening comments. Carlos, over to you.

Thank you, Anne-Marie, and thank you, everyone, for joining us today. As we report our third quarter results, I first want to recognize the entire Kraft Heinz team for their continued dedication to making life delicious for our consumers. In today’s uncertain environment, people are increasingly seeking value. Our commitment to serving them with our iconic brand remains unwavering. For our stockholders, our focus remains on executing against our strategic pillars, driving profitable growth and generating strong cash flow. Both Global Away From Home and Emerging Markets are growing and gaining momentum, and we are addressing areas for improvements in U.S. Retail. By maintaining a disciplined management approach and long-term perspective, we are able to navigate today’s near-term volatility while generating strong cash flow and reinvesting in the business. We have the right strategy, we have amazing talent and competitive advantage culture. This gives me great confidence that we can drive consistent, long-term, profitable growth. And with that, I have Andre joining me. So, let’s open the call for the Q&A.

Thank you. [Operator Instructions] Our first question comes from Andrew Lazar of Barclays. You may proceed.

Great. Thanks. Good morning, everybody.

Good morning.

Good morning.

Good morning. So, Carlos, I know initially, right, Kraft Heinz expected to return to sort of an on-algorithm pace in the latter part of this year. Your comments in the prepared remarks suggest you now don’t expect to reach an on-algorithm pace during 2025. So, first, just to clarify, is that a comment on the totality of the year or you don’t expect to hit your algorithm at any point during the year? And then as you diagnose the elongated recovery in U.S. Retail, how much of this is sort of execution-related or simply a consumer that has not yet fully adjusted their reference price points to the new levels and you having to sort of nudge them along a bit more than you might have initially thought? Thanks so much.

Thank you, Andrew. Let me start, and then maybe pass it off to Andre to give the details of how we see the impact of the long-term algorithm. I guess, first of all, I’ll say, certainly, this year has been very different than I think many of us in the industry expected. So, I think, when we think about what we thought was going to be the exit versus what we see now, a number of circumstances have changed, but I think we are, frankly, better reacting to what the reality of the consumer, particularly in the U.S. and that has implications on long-term algorithms. So, I think, Andre, if you can just cover to that and then I can go back and talk about the execution aspect of your question.

Sure. So, thanks for the question, Andrew. As you rightly pointed out, we do not expect at this moment to reach algo on any part of next year, and as we said in prepared remarks, we do expect Away From Home Globally and Emerging Markets to continue to improve and continue to grow, and we’re going to see migrating closer and closer to the long-term algorithm. Emerging Markets continue to deliver volume growth that has been throughout the entire year and the pressure will be mostly concentrated on the U.S. Retail part of the business. We -- as Carlos said, I think, the industry dynamics this year did not go the way that we initially anticipated and we’re exiting the year in a softer position, and we do expect, even though industry next year currently we expect should be in line with levels pre-pandemic, we do expect propensity to trade down, continue to be very elevated at similar, if not higher levels than what we have this year, which will continue to put pressure on share. The good thing about that is we remain very confident in what we’re doing in our strategy for the long-term. We are being very disciplined in how we want to grow the business, for us it’s critical to be focused on growing our base volume in a healthy way, better innovation, higher marketing, and being very prudent and surgical on where promotions make sense or not, and because the problem is very concentrated in four categories that represent the vast majority of the U.S. Retail challenge, some of them, as we have said in prior earnings, take a longer time to recover. You’ve got Capri Sun, for example, where they did a firm renovation, as we have said, it takes time until the trial gets generated and the repeat happens. So we need to be prudent. We are confident in what we are doing, but there is a longer trajectory out there. And with that, for execution, Carlos going to say a few words?

Yeah. Let me just start by saying, as I said in the prepared remarks, we do feel like we have the right strategy, and frankly, if you look at our two out of our three strategic pillars for growth, they are working and gaining momentum. That also gives me quite a bit of confidence in terms of our ability to execute, and in fact, the reality is that we have also delivered consistent, best-in-class productivity levels for five conservative quarters about 4% of COGS. Again, our ability to execute shows up that way. And if you think about Away From Home, you think about the way that the year began and how we were able to navigate that storm and be able to gain momentum as we go into the second half, again, our ability to execute in that area. If I think about Emerging Markets, the fact that we are growing volume, we are gaining share, we are increasing retribution, again, our ability to drive execution in that area as well, too. So we have a number of things that I think are going well that give us the confidence and now we are also diagnosing kind of their specific areas in U.S. Retail that, frankly, we know what we have to address and we are going to be putting our entire company focus on making sure we make the right turnaround on those businesses. Thank you, Andrew.

Thank you.

Thanks for your thoughts. Yeah. Thank you.

Thank you. Our next question comes from Ken Goldman with JPMorgan. You may proceed.

Hi. Thank you. I wanted to ask about Lunchables. On the one hand, you are optimistic you can turn the brand around. I can certainly appreciate some of the challenges, and I guess, your upcoming efforts in a positive direction. On the other hand, you did take a pretty large charge today, which is related to Lunchables, and I guess, that does not really happen if there is an internal belief that the brand can fully come back. So, can you kind of walk us through how to balance -- I do not want to say it is an optimistic tone, but certainly you are encouraged about the ultimate path for Lunchables and how to balance that with the charge you took today and is it fair to say that that charge reflects your belief, I guess, that the brand may not ever return to what it once was? I guess that is the underlying question here.

Yeah. Thank you, Ken. I appreciate the question. First of all, let me just be clear. Lunchables is a very important part of our business, and defending a number one market share is a top priority. Full stop. Now, we are expected to see gradual improvements, but at the same time, we also recognize where we are right now. And part of that, I would say, is the negative publicity that we receive from that misleading interest group appears to be lingering longer. Remember, this is a brand that is focused on families and kids, so rebuilding that trust just takes some time. At the same time, we are seeing some competitive entry coming into the category, and in particular, and again, this is only for this particular quarter, we are seeing -- we are managing a particular supplier ingredient issue that we know that is a short-term focus on. So let me, I guess more importantly, let me tell you what the things that we are doing to recover. First of all, we are continuing to invest to expand the category penetration in this changing competitive environment. We are expanding flavors and formats. We just introduced a new spicy nachos that is launching nationwide as we speak. We are reimagining how we think about value at the shelf. We actually launched a new campaign for both parents and kids as we go into the first half of 2025, and at the same time, we are investing to renovate our entire line as we go into the first half of next year. Now, beyond this, we are also pulling forward a brand growth system to deploy against Lunchables to make sure that we have brand superiority for now and the future. And just to make sure that we have the right kind of nomenclature, brand growth system, if you recall, is a repeatable global model for growing our brands. It is essentially a process to solve consumer pain points with superior products delivering a convenient way at the best value possible. So we are using the best brand growth system that we have developed against the opportunity for us to drive this brand into next year. So, as Andre said, some of the things do take some time. We recognize the moment right now is being more challenged because of the one challenge in this particular quarter, but we believe this is a brand that will continue to grow and continue to be a hugely important part of our portfolio.

Just to add, regarding the charge, that is mostly a function of the decline that we are facing this year and the consequence of the allocated recoveries. So, when you do the cash flows, they land at a different spot because, remember, if you just look at Q3 alone, the sell-out of Lunchables is down about 15%. So, we -- as we expect the recovery to take longer and be gradual, that has an implication on that has resulted in the decline mostly.

Thank you again.

Thank you very much.

Thank you. Our next question comes from Peter Galbo with Bank of America. You may proceed.

Hey, guys. Good morning. Thanks for taking the question.

Good morning, Peter.

Maybe to follow up there as it relates to Lunchables, if you could give us a bit more detail just on the ingredient supplier issue. I mean, I know certainly in Oscar Mayer, right, there’s an overhang from kind of the Listeria outbreak in the category that’s probably impacting Oscar Mayer sales. But is that having any sort of upstream impact into Lunchables as well and any detail there would be appreciated.

No. What I would say is, if essentially one of our suppliers was unable to fulfill one particular ingredient and it actually impacts essentially one SKU of Lunchables, but it’s an important one, and again, we impact to be limited this year. So this is creating a short-term shortage of that particular ingredient and it’s affecting us mostly in this particular quarter in Q4. But we continue to see opportunity for us to kind of resolve this in the very near future and get us back to what we need as we go into first half 2025.

Got it. No. That’s helpful. Thank you.

Okay.

If I could sneak in a second one. Just on Spoonables, I think that was an addition in terms of one of the challenges. Andre, I think, in the past quarters you’ve talked about, you thought it was kind of a pass-through issue on some of the raw materials that some of your competitors were seeing. But now it seems like maybe there’s more of a brand problem or a product lingering issue. So maybe you can expand a bit on Spoonables, what changed in the quarter. Again, that’s kind of been added to the list of headwinds?

Yeah. Spoonable has been facing a soft sell-out now for several months. And as we said before, we believe it’s not only, but mostly linked still to price gaps out there in the market. And we -- I don’t think we have executed everything the way that we anticipated and that is work to do on that front. But we still see, versus historical levels, certain price gaps that are disadvantage. That’s just where the issue should be.

All right. Thanks very much.

Thank you. Our next question comes from Tom Palmer with Citi. You may proceed.

Good morning and thanks for the question. I wanted to follow up quickly on 2025 assumptions. Oh, hi. Thanks. When you look at some of the challenged areas of your portfolio, I think for 2025, you said you’re assuming better category performance, but assume continued trade down. So, I guess, to what extent do you see price adjustments as a way to address this continued trade down versus innovation and packaging, things like that?

Listen, I think for us, we know that the right way for us to continue to build our brands is by driving superior products with better marketing and making sure that we have a full value format for all consumers, which is why we have continued to drive innovation in our products while we continue to focus on expanded distribution, both in club channel, Dollar General, as well as continue to expand our distribution in omnichannel. So that’s number one. I think the question behind your question might be in terms of us thinking through whether we need anything else that we need to do in terms of managing price. I guess, what I would tell you is that, there are moments in which it does make sense for us to promote more. What -- the way we think through it is, let’s make sure we do that in the right consumer location that ultimately leads to better base growth for the brand. So we need to do that intentionally so that we have the right investments returned on those promotions so that we avoid areas like barking, hunting behavior that ultimately do not have real incremental sales for the brands. So -- but at the same time, there are good places where, in fact, we have promoted more and we see that it makes sense for us to continue to see positive returns. So areas like Mac & Cheese Cups in which we’re driving significant growth as we are right now, making sure we have the right price gaps and the right kind of attractive starting price points in the category. Areas like Cool Whip, what we know can also lead to better base growth for the future. So it is a combination of, again, making sure we grow the brand, leveraging a brand growth system, focusing innovation, renovation, better marketing, and at the same time, be thoughtful about the places in which it makes sense for us to manage those price gaps in a way that leads to the base growth going forward.

What I’ll add is our long-term algorithm contemplates continuous gross margin expansion. We feel very confident and proud about what we have done on the supply chain efficiency side. We have now four consecutive years of very strong delivery coming from there and this year in particular is the highest ever for us. We feel confident about the pipeline to continue to sustain very good levels of productivity and this productivity is critical to allow us to reinvest in the business. As Carlos said, look, our priority is really on improved trends on the base volume. That volume that happens agnostic of promotions. That’s 90% of food and beverage sales and people keep talking about promotions. The focus is base volume. And base volume, you do it to continue to innovate, bring the news to consumers, renovate the portfolio like we have been doing, do more and great marketing and that’s what we want to do and that’s what we continue to do. So our priority is there. So look, we’re not going to talk in detail guidance of 2025. We’re going to talk a lot about that in the next quarter. I think we’ve said enough about 2025 to give you just a flavor of how we are seeing the big picture. But nothing changes in our strategy and nothing changes in terms of expectation to continue to expand gross margin in a prudent way.

Thank you.

Thanks.

Thank you.

Thank you. Our next question comes from David Palmer with Evercore ISI. You may proceed.

Thanks. I just want to build upon the discussion you’re having, which has been helpful. Really, you’ve protected profitability pretty well in spite of inching up promotional activity in the U.S. Retail data that we see. And it sounds like from what you’re saying that you’re open to doing some tactical shifts in promotion spending from here if you see the returns. But I’m wondering, do you see more significant spending level investments potentially in the horizon? It might not be promotion. It might be other marketing. And/or conversely, are you seeing any sort of tactics or content that could be improved upon that could really improve the base trends as you’re talking about? What -- is there anything in the pipeline that you think might cause one of your key platforms to materially improve, just really good old-fashioned innovation and marketing improvements that you can make? Thanks very much.

Let me start. Thank you for the question. First of all, I would just say, if you put into context, again, we have three growth pillars. Two of them, we have put the effort and now are both growing and gaining momentum. And if you think about the U.S. business, we have kind of diagnosed the problem exactly to about four to five brands. And just to give you context, we have over 200 brands in our company. So for us, it’s very much focused on those areas and we went to attack. And hopefully you got to see in our prepared information that we sent out that already we are seeing how Capri Sun and Mac & Cheese, we are seeing the improvements and trends in sales as we have renovated, innovated and invested in both of those brands. We are seeing places like our Philadelphia business, Ore-Ida, Taco Bell, places where we have turned around those businesses and now driving significant amount of momentum as we go into the year and we have seen that even outside of the U.S. as well. So that idea of us continuing to understand how we play to our strengths by focusing on renovating, innovating and investing is something that has been proven model for us, and we already see evidence of that. And frankly, if you look at our Heinz business globally, today, it is a brand that globally for us is $4.5 billion and actually grew 4% in this particular quarter. So we know we have the right replicable model for us to apply and we will continue to do so, which is continue to make sure we have the right level of investing in marketing, not only the levels, but also continue to focus on the effectiveness of the marketing and then support it with the right investments in terms of technology, R&D, in order for us to fully, completely drive the innovation that we want to see. So in terms of promotions that I mentioned, it has a role. It is something that actually supports the business in certain locations in which can lead to that base growth. But frankly, our commitment to making sure that we invest in the things that will drive the brand’s strengths over the long-term is the number one priority. Thank you for the question.

Thank you.

Thank you. Our next question comes from Robert Moskow with TD Cowen. You may proceed.

Hi. Thanks. I guess, I would like to drill down on one of the product lines as well as Mac & Cheese. Carlos, you said that where you’re making investments, it’s really working, but it is showing up as one of the drivers of the declines in the quarter. And I wanted to know, like, there’s a lot of elements of Mac & Cheese and your Kraft is a big innovator, but what elements are you kind of struggling in in Mac & Cheese, because the data shows market share losses and I see a lot of premium products being entered into the market by your competitors. Is that the part of it that is more difficult for Kraft to compete in?

Well, first of all, Rob, thanks for the question. In Mac & Cheese, remember, we have a brand that actually expands a number of formats. Like, if you see our Mac & Cheese Cups, already seeing a significant amount of improvements as we have gone into Q3. So that particular part of the business now is growing and gaining momentum as well. At the same time, we just launched new flavors to attract millennials. So a Ranch product, a Jalapeño product, and expect us to continue to work on those type of new flavors. We’re also now bringing new shapes into the category, and I think, again, the idea of also bringing properties like Super Mario Brothers will be an opportunity for us to continue to drive that in terms of attractiveness into the category. So I think for us in making sure that we are continuing to focus on what are those consumers and what are the right formats and flavors that we can bring into the category. And at the same time, making sure that we talk to consumers, we do it in a culture-relevant way. What I’ll tell you is that, one of the things that we’re proud of is that a brand like ours, Mac & Cheese, is a brand that is built for the many, not the few. So we know the role that we have in today’s families, in which we wanted to make sure that we provide affordable and approachable solutions that everybody can enjoy. So there’s a role for us to continue to live in, at the same time that we’re bringing new formats at different opening price points with different new flavors that attract a different type of consumers. So, again, we’re seeing the progress already in Mac & Cheese Cups, and I can see us continue to build on this as we go into next year. I feel very good about the path we’re taking.

Okay. Thanks. Can I ask…

That’s a good example, Rob, of items that require longer recovery, if you will, because innovation, you need to ramp up, consumers should try, they should repeat. So I feel great about the products that are there in the market, but they take time and you need to be patient. That’s something that we have not been in the past, is patient with our innovation and we are changing that. But we feel good about what we’re doing. And to your specific example, that’s one of the core examples of just promoting more is not it. So thanks for the question.

Operator, we have time for one more question.

Thank you. And our last question comes from Chris Carey with Wells Fargo Securities. You may proceed.

Hi, everyone. Thanks for the question. As I digest the conversation in the call this morning, I think, really what I’m trying to understand is, this concept that I think Lunchables has been a headwind we have known about. Capri Sun was a headwind. And I think I’m trying to understand what your perspective is on sort of the underlying ex those items and whether that specific bucket or a large bucket has changed relative to a few months ago and perhaps how you see that going forward. And if it has -- if things have changed, what do you think are the core drivers, right? So I appreciate the focus on some of these items. But when you take a step back on the rest of the business, what are the things that are happening that are pushing you to feel one way or the other? If you could just maybe expand on that, I think it would be helpful to kind of understand the trajectory of the underlying business ex those items? Thanks.

Sure. I think it sounds like you’re referring mostly to the U.S. Retail business.

Yeah. That’s correct.

If you think about Capri Sun, this is a product that over the summer we renovated the product. We are seeing now the momentum is starting to improve. We are seeing that the fact that we are bringing a new format into new channels, whether that is multi-serving club, new bottles, single bottles into retail, going into convenience, going into vending, that allows us to continue to build the momentum of the holistic part of the brand. So new formula. Consumers are trying it. We are seeing that actually it’s helping us continue to start growing base volume. And at the same time, our focus continues to be how do we actually build that brand beyond just a typical retail channel in the 10-pack that for a long time has been the core part of the business. Now, in the case of Lunchables, I think the headwinds have really kind of offset some of the great work that is happening across Kraft Heinz. And I’ll tell you that as we think about Q3, the back-to-school period proved to be more challenging than we had expected and why we actually recognize that it’s going to take longer for us to do this, the recovery of Lunchables. Now, that doesn’t change the fact that we are completely committed to it. We recognize that this idea of us making sure we continue to build the trust with parents and families, it is part of what our job has to be done. But as I mentioned earlier, we are -- if you go into first half of next year, we’re bringing new products, renovating our quality, making sure that we have a new campaign that talks to both parents and kids, and at the same time, already in stores, we’re launching nationwide new products for us to expand to a bigger audience. In this case, we relaunched kind of the spicy nachos as we know that is an opportunity for us with bringing new kids into our franchise. So it is a short-term situation that is making what was a difficult headwind more challenging because of the supply ingredient that we have in Q4. But over time, you’ll see us continue to invest behind this to make sure that in fact Lunchables be the overall tremendous brand that we have created a shape into this category.

But just outside of those brands, how do you feel about the business on an underlying? Sorry to ask another, but it’s just with respect to the rest of the business excluding those two brands, have things materially changed or should we think about these really being the core headwinds on the relative trajectory from here? Thanks so much and sorry for interjecting again.

No. Thank you. I appreciate the question. Again, if I go back to what is it that we intend to do? We intend to drive the growth of our company through three key areas. Making sure we continue to drive Global Away From Home superior than anyone else. We are doing that and we’re getting momentum. We continue to drive emerging markets. We are seeing the growth that we saw in the quarter that gave us confidence that we can continue for us to drive that particular pillar. And in the U.S. Retail, really is about those few brands that we know we can act on. And in fact, a couple of those brands already, whether that is our Capri Sun business, whether it’s our Mac & Cheese business, we already are seeing improvements as we go through the quarter that we believe are in the right path for us to continue to gain into the future. So, overall, I feel very good about the fact that we know where the situations that we have to address are. That we have the tools in-house by leveraging a brand growth system to actually build on the momentum of those businesses as we go into 2025. And also feel good that we can deliver the accelerated platforms and growth that we expect as a third pillar of our overall growth for the company. And the last thing I will say is, this is also underlined by us continuing to deliver great productivity that is helping us fuel the gross margin. So we’re doing all this as we are delivering world-class level productivity. We’re investing back in the business by investing in marketing, R&D and technology, and not compromising in the long-term growth of our company. And at the same time, also making sure that we are thoughtful about continuing to deliver great cash flow for our shareholders. Thank you so much for your question.

Thank you. I would now like to turn the call back over to Anne-Marie Megela for any closing remarks.

Thank you very much, and thank you, everyone, for joining us today. We appreciate your interest in Kraft Heinz.

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