Kraft Heinz : Q1 2024 Q&A Transcript

The Kra� Heinz Company

Q1 2024 Earnings Call | May 1, 2024

COMPANY PARTICIPANTS

Anne-Marie Megela

Vice President, Global Head of Investor Relations, The Kraft Heinz Co.

Carlos Abrams-Rivera

Chief Executive Office & Director, The Kraft Heinz Co.

Andre Maciel

Executive Vice President & Global Chief Financial Officer, The Kraft Heinz Co.

OTHER PARTICIPANTS

Andrew Lazar

Analyst, Barclays Capital, Inc.

Ken Goldman

Analyst, JPMorgan Securities LLC

Bryan Spillane

Analyst, BofA Securities, Inc.

John Baumgartner

Analyst, Mizuho Securities USA LLC

Stephen Powers

Analyst, Deutsche Bank Securities, Inc.

David Palmer

Analyst, Evercore Group LLC

Robert Moskow

Analyst, TD Cowen

The Kra� Heinz Company

Q1 2024 Earnings Call | May 1, 2024

QUESTION AND ANSWER SESSION

Operator: Good day and thank you for standing by. Welcome to the Kra� Heinz Company first quarter results conference call. At this �me all par�cipants are in a listen-only mode. A�er the speakers' presenta�on there will be a ques�on-and-answer session. 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 Kra� Heinz Investor Rela�ons

Anne-Marie Megela

Vice President, Global Head of Investor Relations, The Kraft Heinz Co.

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 expecta�ons for the future, including items related to our business plan and expecta�ons, strategy, efforts and investments, and related �ming and expected impacts. These statements are based on how we see things today and actual results may differ materially due to risk and uncertain�es. Please see the cau�onary 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 informa�on regarding these risks and uncertain�es.

Addi�onally, 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 informa�on available on our website at ir.kra�heinzcompany.com under News and Events for a discussion of our non-GAAP financial measures and reconcilia�on 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 Execu�ve Officer, Carlos Abrams-Rivera for opening comments.

Over to you, Carlos.

Carlos Abrams-Rivera

Chief Executive Office & Director, The Kraft Heinz Co.

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 perspec�ve on our top obsession here at Kra� Heinz, our consumers. And while we've seen a notable up�ck in consumer sen�ment in the first quarter, there is a gap between high and low earners, which con�nues to remain wide. And it shows a clear and con�nued bifurca�on.

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 restaurants and convenience stores. These consumers instead are looking for value as they prepare more meals at home. So, in contrast, there has been meaningful growth in travel

The Kra� Heinz Company

Q1 2024 Earnings Call | May 1, 2024

and accordingly, an increase in hospitality and entertainment sales driven by the bounce back among the higher earners.

And here at Kra� Heinz we are there to meet the evolving needs and tastes of all consumers, whether they're looking for value in serving their family delicious meals at home or seeking culinary delights as they set out on new adventures. They can look to the iconic and trusted brands of Kra� Heinz. So, for us it's about having brands that are accessible and available to everyone. And I believe we're well posi�oned to serve all of these consumers for three primary reasons. One, because we're bringing innova�ve food solu�ons and faster than ever before; two because we con�nue to renovate our core brands for today and tomorrow; and three, because we have the best team in the industry, full stop.

We're on track to meet our goals of genera�ng $2 billion incremental net sales from innova�on, and the world has taken no�ce, as we were recently named one of the world's top 50 Most Innova�ve 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 mul�packs, plant-based op�ons such as our newly released NotCo Mac & Cheese or expanding the choices in our iconic brands such as zero sugar Heinz Ketchup.

Myself, I've been travelling around the world visi�ng with our employees, and they are consumer obsessed. Their sense of ownership, collabora�on, and agility is so inspira�onal. I just want to say thank you to every one of them for their dedica�on. We are proud of our progress, but far from sa�sfied, as we con�nue focusing on serving those consumers and making life delicious for everyone.

And with that I have Andre joining me, so let's open the call for Q&A.

Operator: Thank you. Our first ques�on comes from Andrew Lazar with Barclays. You may proceed.

Andrew Lazar

Analyst, Barclays Capital, Inc.

Thanks. Good morning, Carlos, and Andre.

Carlos Abrams-Rivera

Chief Executive Office & Director, The Kraft Heinz Co.

Morning.

Andre Maciel

Executive Vice President & Global Chief Financial Officer, The Kraft Heinz Co.

Hi, Andrew.

The Kra� Heinz Company

Q1 2024 Earnings Call | May 1, 2024

Andrew Lazar

Analyst, Barclays Capital, Inc.

Thanks. It looks like KHC is s�ll losing share in North America Retail, though at a more modest pace recently. But in the ACCELERATE Pla�orm specifically, your remarks call out holding or gaining share in about 55% of this pla�orm. I guess, would you expect this percentage to be higher given the dispropor�onate alloca�on of resources to this pla�orm? I guess a litle more detail on share trends within ACCELERATE would be helpful.

And then, you men�oned US restaurants so�ening a bit. Are you star�ng to see any of that on the flip side benefit at-home ea�ng for your business? And if not, why would that be? Thanks so much.

Carlos Abrams-Rivera

Chief Executive Office & Director, The Kraft Heinz Co.

Yeah. So thank you, Andrew, for your ques�on. Before I get into the ACCELERATE, let me just at least give you a view how I'm seeing the business perform so far. And if you look at the last five weeks, just to remove the noise of Easter, we actually have con�nued to see volume share improvement versus year- to-date, and we're holding dollar share at the same pace in the US. So that's at the macro level at the US for our company. Now, if you look at ACCELERATE Pla�orms, we actually con�nue to outperform the other pla�orms. So far, we are seeing flat dollar share and growing volume share by 0.2 points.

And now let me just break out the other two and then I'll go back to ACCELERATE. We are losing share in PROTECT pla�orms as we con�nue to see the impact of the decline in SNAP benefits. At the same �me, I'm actually prety excited about the renova�ons we are seeing in these brands because we are going to con�nue to bring more consumer preference op�ons as we go through the year. In our BALANCE part of our por�olio, we are losing share, but improving versus year to date, primarily driven by coffee.

Now, to your ques�on about ACCELERATE pla�orms, there's a couple of big brands that are in there that I would like to unpack a litle more. If you think about our Mac & Cheese business, which is within the ACCELERATE pla�orms, what you're going to be con�nuing to see is, one, we are going to start lapping a lot of the headwinds from SNAP. Mac & Cheese was probably one of the categories that was more impacted by SNAP. And as we go into Q2, beginning now in May, you'll see a plethora of new innova�ons from gluten-free to new op�ons on flavors on our Mac & Cheese business, as well as some new and exci�ng things for the category with some new SKUs that we're bringing in the second half of the year.

If you look at the other parts of our ACCELERATE Pla�orm, that includes our condiments. And in the condiments side, what I would say is, our category actually is expanding. So, we are growing, and we're actually growing volume share. So, for us, how do we con�nue to drive this growth within the category that has the right tailwinds behind it? And you'll see us con�nue to expand on the number of offers and innova�ons as we go through the year.

The one note that may be also helpful to understand in our ACCELERATE Pla�orm is also we also got out some non-strategic business, in par�cular, our Heinz bulk vinegar, which it was a business that, for us, in

The Kra� Heinz Company

Q1 2024 Earnings Call | May 1, 2024

terms of economics, didn't make as much sense. So, we also exited that in the first quarter of the year. So hopefully that gives you a sense how we're thinking about ACCELERATE within the context of our company.

I think the second part of your ques�on is on our Away from Home business. And I think, let me just say that right now, as I men�oned in the prepared remarks, we are seeing some slowing of the restaurant traffic in the US, and some of it is impac�ng our business. But also some of the impact that we saw in the first quarter was due to us exi�ng some low-margin businesses as we think about making the right choice for the overall P&L. The actual exit of the businesses was about $15 million in the first quarter, and that's going to be similar throughout the rest of the year.

Now for us, we believe as we go forward, we actually believe that it's about us con�nuing to drive the importance in Away from Home in new channels. I men�oned in the opening remarks that we're also seeing great opportuni�es in terms of travel and leisure. And that's an area where our teams are both focused because of not only growth, but also because it allows us to expand margins into those areas.

And we also are seeing improvement in terms of distribu�on of our core businesses as we go into Q3. So again, I feel very good about Away from Home. I think that the trends will con�nue to improve.

And at the same �me, for us at Kra� Heinz, we have the scale to make sure that no mater where our consumers are shopping, at hotels, restaurants or at home, that we have the distribu�on opportunity for us to kind of make sure that we are there to service anywhere they are.

Andrew Lazar

Analyst, Barclays Capital, Inc.

Thanks very much.

Carlos Abrams-Rivera

Chief Executive Office & Director, The Kraft Heinz Co.

Thanks for the ques�on, Andrew.

Operator: Thank you. One moment for ques�ons. Our next ques�on comes from Ken Goldman with JP Morgan. You may proceed.

Ken Goldman

Analyst, JPMorgan Securities LLC

Hi. Good morning. Thank you.

The Kra� Heinz Company

Q1 2024 Earnings Call | May 1, 2024

Carlos Abrams-Rivera

Chief Executive Office & Director, The Kraft Heinz Co.

Morning, Ken.

Ken Goldman

Analyst, JPMorgan Securities LLC

Hi. You men�oned infla�on in your comments in a few areas. I guess two ques�ons here. First, I don't think you updated us. Forgive me if I missed it, but I think last �me you were talking about maybe 3% cost infla�on for the year. I'm just curious if that's s�ll a reasonable number.

And then I guess, second, more broadly, there's been a lot of aten�on paid to cocoa, obviously, but coffee infla�on's 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 or your compe�tors need, you'll be able and even willing to raise prices to customers as much as you typically might have? Or do you maybe expect a litle more, I guess, pushback than usual?

Carlos Abrams-Rivera

Chief Executive Office & Director, The Kraft Heinz Co.

Thank you, Ken, for the ques�on. Okay, let me start and then I'll ask Andre to con�nue to build on it. For us, we are certainly commited to con�nue to provide families with affordable op�ons. And that is something that we take very seriously. And if you think about 2023, we did end the year with 3% infla�on, but we only passed about 1% pricing to consumers. So, we did that very, very much inten�onally 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 litle more in terms of cost infla�on today in the coffee category.

Andre Maciel

Executive Vice President & Global Chief Financial Officer, The Kraft Heinz Co.

Sure. Good morning, Ken. We s�ll expect infla�on to be in the low-single-digit territory like we said before. So, nothing has changed on that regard, with infla�on a bit more concentrated in Q2 and Q3 than in the other quarters. And that's primarily because of the big three commodi�es: cheese, meat, coffee, which we are seeing par�cularly in meat and cheese a higher level of infla�on happen in Q2, Q3 as you are lapping very favorable comps from last year. So, we don't see any other meaningful change here. And the pricing we would be taking is very surgical and would be around those categories that have been suffering the largest impact.

And I'll say, cocoa, luckily, is not a relevant part of our por�olio at all. I mean, a litle bit in the Netherlands. But beyond that, there's nothing worth men�oning. And we don't see any reason to

The Kra� Heinz Company

Q1 2024 Earnings Call | May 1, 2024

believe at this point that we would not be able to con�nue to pass through the prices in those commodity categories like it has always been the case.

Ken Goldman

Analyst, JPMorgan Securities LLC

All right. Thank you. 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 opera�ng expenses we should think about that are maybe a litle 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 litle color there if we could.

Andre Maciel

Executive Vice President & Global Chief Financial Officer, The Kraft Heinz Co.

As you saw in CAGNY, we are star�ng to deploy our Brand Growth System, which is the method that will allow us to con�nue to improve in our marke�ng, con�nue to strengthen our brands. And one of the components of the Brand Growth System is ensure that you have the sufficient level of marke�ng across the por�olio.

And we're star�ng to see a few selected areas where we need to step up marke�ng investment, thinking on the long-term. And we have been gradually approving incremental investments on top of what we ini�ally planned on the marke�ng side in par�cular, which I think is a great thing for us. That's all.

Carlos Abrams-Rivera

Chief Executive Office & Director, The Kraft Heinz Co.

Thank you, Ken.

Operator: Thank you. One moment for ques�ons. Our next ques�on comes from Bryan Spillane with Bank of America. You may proceed.

Bryan Spillane

Analyst, BofA Securities, Inc.

Hey, thanks, operator. Good morning, everyone. I just had two ques�ons. 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?

The Kra� Heinz Company

Q1 2024 Earnings Call | May 1, 2024

Andre Maciel

Executive Vice President & Global Chief Financial Officer, The Kraft Heinz Co.

Look it's never 100% precise. We're talking about the macroeconomic model. But we es�mate on the US retail business, in the range of 200 bps nega�ve impact.

Bryan Spillane

Analyst, BofA Securities, Inc.

Okay. Thank you. And then ques�on on Away from Home in the US and the decelera�on, and again, you've quan�fied the impact of the plant closure. But just can you give us a sense of how much of the impact of exi�ng the customer. But can you give us a sense of just how much of the decline is also related to like traffic at restaurants? I'm just trying to get a sense of the weigh�ng of what's actually driving the slowdown.

And then also, as you look into the second half, right, where you're expec�ng - there's an expecta�on that there's going to be some recovery. Just what underpins that? And I say that in the context of as we're going through earnings season, a lot of the restaurants have incrementally goten worse or slower. So, just is there maybe too much op�mism baked into the back half expecta�on for a recovery when it looks like a lot of these restaurant companies are guiding down?

Carlos Abrams-Rivera

Chief Executive Office & Director, The Kraft Heinz Co.

Let me start and then Andre, if you want to build on that. And thanks for the ques�on, Bryan. First of all, I con�nue to feel very good about our overall strategy globally about Away from Home. Again, it's a business that we are seeing con�nue to improve outside the US and even as we are seeing some of the slowing of the restaurant business here in the US.

If I think about the second half, there's a few things that I think we'll feel beter as we go into this rest of the year, even in the US here. First of all, we men�oned about this factory 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 in our por�olio. So, there's number of things that I cannot speak to today, but that we'll see as we go into Q3 in which will actually expand the distribu�on of our products.

And then the third part is that we are going to con�nue to drive the focus on us going into atrac�ve higher-margin channels. So again, beyond the restaurants, in places like leisure, hospitality, and travel where we are actually seeing beter performance because of the higher income consumer and us ge�ng into those channels in par�cular. And I think within that channel we are seeing very successful programs

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Q1 2024 Earnings Call | May 1, 2024

around our Heinz Selec�on program and hospitality experiences that allow us to bring differen�ated type of programs in an industry that, un�l now, we really haven't played as strongly.

So, and then lastly what I'll say is, this is an area where we're going to con�nue to drive innova�on in Away from Home. I mean, already you are seeing how we are taking our HEINZ REMIX machine, and we are actually using that and planning it to work in the partnership that we have with BurgerFi which is now our first restaurant to debut our HEINZ REMIX. And we're going to see that expanding as we go into 2024.

So, the idea is not only the fact that we're going to be present, but we're also going to con�nue to be innova�ve in both the channel and the type of products we're going to bring into those channels. And Andre, anything else you want to talk about?

Andre Maciel

Executive Vice President & Global Chief Financial Officer, The Kraft Heinz Co.

I don't think so.

Carlos Abrams-Rivera

Chief Executive Office & Director, The Kraft Heinz Co.

Thanks for your ques�on, Bryan.

Bryan Spillane

Analyst, BofA Securities, Inc.

All right. Thanks, guys.

Operator: Thank you. One moment for ques�ons. Our next ques�on comes from John Baumgartner with Mizuho Securi�es. You may proceed.

John Baumgartner

Analyst, Mizuho Securities USA LLC

Good morning. Thanks for the ques�on.

Carlos Abrams-Rivera

Chief Executive Office & Director, The Kraft Heinz Co.

Morning. Thanks.

The Kra� Heinz Company

Q1 2024 Earnings Call | May 1, 2024

John Baumgartner

Analyst, Mizuho Securities USA LLC

Carlos, you highlighted consumer stress as a theme. And I wanted to ask in North America where the volume declines are s�ll more pronounced, things like Mac & Cheese, which you just detailed for Andrew, but also ketchup and juices, these are categories where private label's been underpenetrated historically. And now you're seeing volumes growing a bit. Are you seeing anything different, whether it is new merchandising by retailers or new price sensi�vity 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 US retail where you're expec�ng material benefits from joint business plans or a reinvestment for the dura�on of this year?

Carlos Abrams-Rivera

Chief Executive Office & Director, The Kraft Heinz Co.

Thank you for your ques�on. First on the private label, first of all, we are fortunate that we have such iconic and beloved brands in our por�olio. 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 two years, we have spent a significant amount of energy in con�nuing to renovate our por�olio. And today we certainly have in the US renovated almost 100% of our por�olio to make sure that it con�nues to be relevant for today and tomorrow.

And I think 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 it's not just about the price point. It's also about it's worth paying for. So that's why our focus in driving quality products in a way that is affordable and giving more consumer choices, that is also driving the overall value equa�on for consumers. So, what you're seeing in the data is private label has been gaining share. But really, they have stabilized and they're taking more share from other branded players.

In terms of our JBP, that con�nues to be a strength of ours. But frankly, it comes 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 por�olio in a way that helps us to both drive our distribu�on of innova�on as well as improve our overall performance and execu�on in-store. Because of these partnerships, we can do things in-store that probably other peers cannot do. Whether that's about the holiday season coming up now in the summer, we have the range in our por�olio that allows us to create truly differen�ated and unique value promo�ons that other people cannot do. So, it's something that we con�nue to elevate and we con�nue to build on as we have strengthened our por�olio and the partnerships we have with the key retailers.

John Baumgartner

Analyst, Mizuho Securities USA LLC