The Kraft Heinz Company (KHC) Earnings

Management highlights

- **Investment Strategy**: The company is executing a $700 million total incremental investment plan (up from the originally planned $600 million) focused on driving U.S. share growth and improving consumption trends. Only one-third of the original $600 million investment had been spent by the end of the first half of 2026, with the bulk of spending planned for the second half, split roughly evenly between Q3 and Q4. 2026 is set as the base year for this elevated investment level, with no planned carryover of unspent investment into 2027. - **Consumer and Share Trends**: After losing 90 bps of market share at the start of 2025, share trends have improved significantly, with a 30 bps loss in the first half of 2026 and 20 bps of share loss or better in the most recent four-week period. Consumption declines are gradually improving sequentially, from a 2.5% decline in Q2 to ~1% decline in July, with further sequential improvement expected in the second half. The company notes green shoots across its taste elevation portfolio, with more of its business maintaining or gaining share than in prior periods. - **Strategic Partnerships**: Kraft Heinz has entered a new multi-faceted partnership with The Walt Disney Company, focused on co-branding, merchandising, licensing, and activations across Disney parks, cruise lines, and hotels. The company also has a new NFL partnership, with both partnerships intended to drive stronger emotional consumer connections with the company's brands. - **Balance Sheet and Cash Flow**: While increasing investment spending, the company has maintained its prior full-year free cash flow target and improved cash conversion. It paid down $1.9 billion of debt in Q2 2026, completed an additional $1 billion debt paydown after quarter end, and successfully refinanced upcoming expensive debt maturities, leaving the balance sheet in a strong position.

Guidance

- 2026 is confirmed as the expected margin trough year, matching prior guidance. The company expects 4% to 5% inflation in 2027, which management views as fully manageable, with productivity as the first line of defense to offset inflation pressures and protect long-term margins. - Consumption is expected to improve sequentially through the second half of 2026: from a 2.5% decline in Q2, to an improved decline in Q3, to further sequential improvement in Q4, with the company targeting the best consumption rates of the year in Q4 to build momentum into 2027. Early July data already shows a 1% consumption decline, an improvement from Q2. - Full-year organic sales guidance midpoint implies weaker reported second half growth than the first half, but after normalizing for one-time Q1 snowstorm benefits and Q2 shipment phasing shifts to Q3, underlying performance improves by 70 to 80 bps in the second half versus the first half. Management expressed confidence in upside to the midpoint of guidance as investment ramps up. - The company will provide full 2027 guidance alongside fourth quarter 2026 results, and notes 2026 is the base year for the new elevated investment level that will drive growth in 2027.

Segment performance

No full financial results for individual product segments were included in the provided transcript. The call only includes high-level performance commentary for key brand categories: 1) Condiments & Heinz: Worldwide Heinz grew 3% year-to-date, with U.S. condiments (up 3% year-to-date) returning to strong growth after being flat in 2025. Emerging markets posted 12% year-over-year Heinz growth in Q2 driven by distribution and consumption gains. 2) Meals (Mac and Cheese): Power Mac, the new innovation, has achieved distribution across 35,000 stores, with consumption in the first quartile of all new product innovations and improving overall category consumption rates. 3) Meats & Deli (Oscar Mayer): Performance is mixed; bacon and hot dogs are performing well, while Deli Fresh has historically underperformed, with new packaging now fully rolled out and early encouraging results. Cold cuts are expected to improve trends as the company laps prior year declines starting in July. 4) Beverages (Capri Sun): Capri Sun and the new Capri Sun Hydrate variant are showing strong early consumption and share momentum as part of the company's taste elevation portfolio. 5) Away from Home: The strategic channel has returned to growth after underperformance in 2025, driven by targeted investments in product, customer relationships, and distribution.

Risks & headwinds

- Ongoing macroeconomic uncertainty and soft overall industry demand in the U.S. retail category remains a key headwind, even as the company improves its share performance. The company noted that continued volatility in industry demand creates uncertainty for full-year results. - Retailers have increased investment in private label pricing, which could widen price gaps with Kraft Heinz products. Management noted it has already made targeted price architecture adjustments to address this risk, and feels well-positioned with current pricing. - The company still faces lingering performance headwinds from the Oscar Mayer Deli Fresh segment, though the recent rollout of new packaging is expected to resolve these issues over time.

Analyst Q&A

• Q: Given 2027 expected inflation of 4% to 5% and incremental investments stretching into 2027, is 2026 still the margin trough year? /

  A: Management clarified that next year's 4% to 5% inflation is fully manageable and not a cause for concern. Productivity will remain the first line of defense to offset inflation, and the company is positioned to maintain and strengthen margins over time. With more than half of 2026 completed and investments on track, the company still expects 2026 to be the margin trough and is well set up for 2027.

• Q: Can you confirm the cadence of consumption improvement, and is Q4 expected to have the best consumption exit rate for 2026? /

  A: Management confirmed the analyst's read of the trend: a ~2.5% consumption decline in Q2, with gradual sequential improvement through H2 2026, with July already at a 1% decline. Market share has improved significantly from 90 bps of loss in early 2025 to 30 bps of loss in H1 2026, and 20 bps of loss or better in recent weeks. The company expects further improvement in Q4, exiting the year with momentum to carry into 2027, as incremental investments ramp up to drive consumption and share gains.

• Q: Why are specific brands like Capri Sun, Heinz, and Kraft Mac and Cheese receiving the majority of incremental spend, and would you increase spend beyond 2026's $700 million base to a $1 billion+ run rate in 2027 if returns remain strong? /

  A: These top priority brands have strong existing brand equity, high gross margins, and were the first to receive incremental investment starting in 2025, so their plans are already maturing now. Management confirmed 2026 sets the new base investment level, with the incremental $100 million added to increase confidence for 2027. The company retains optionality to adjust allocation or increase spending in 2027 based on ROI, and is already seeing improvement in marketing and promotion ROI year-to-date.

• Q: Does improved operating momentum increase the likelihood of proactive portfolio reshaping transactions? /

  A: Management noted the company always evaluates portfolio options from a position of strength, and will pursue any transaction that increases long-term shareowner value. The company maintains a strong balance sheet, having paid down $2.9 billion of debt in 2026 so far, and protected full-year free cash flow guidance even as it stepped up investments, putting it in a position to act on the right opportunities.