Kraft Heinz Co Q1 FY2025 earnings call

• Carlos Abrams-Rivera stated the company is a trusted partner in kitchens, providing confident connections during uncertain times. Despite market pressure in the first quarter, they achieved top-line results in line with expectations, had strong cash flow and a healthy balance sheet. - Progress in improving brand superiority was noted, though not yet reflected in financial results, but there is confidence in the building blocks being put in place. - The commitment to making necessary investments to deliver quality and value offerings to consumers is unwavering. - Guidance has been adjusted due to monitoring market tension. - Andrew added that prior guidance already contemplated a step up in price investments (approximately 100 bps on the top line) and a double-digit increase in media, with the aim to accelerate market investment to reach around 5% of revenue for marketing. - Investment in the brand growth system (BGS) is ongoing, with 10% of brands piloted in 2024 and scaling up to 40% of the business by the end of 2025.

Despite growing market pressure in the first quarter, The Kraft Heinz Company delivered top-line results in line with expectations, exhibiting strong cash flow performance and a healthy balance sheet. However, no specific financial performance details on absolute terms and revenue contribution percentages for each product segment were provided.

• Guidance has been adjusted in response to market tension. The aim is to accelerate market investment to reach approximately 5% of revenue for marketing. - COGS is impacted by factors such as product renovation, with tariff impact estimated to be 50 - 200 bps in 2025, mostly concentrated in the second half. - The second quarter top line is expected to be better than the first quarter, with factors like Easter timing shift providing a tailwind, improvement in accelerate platforms, and lapping of certain factory closures. - Operating income is expected to decline double digits in the second quarter.

• Growing market pressure poses challenges. - Uncertainty related to tariffs is a risk factor. - The dynamic consumer environment adds to operational and financial uncertainties.

Q: Andrew Lazar inquired about the revised outlook and the company's investment approach.

A: Carlos Abrams-Rivera explained that the company is continuing to invest in the business with discipline, prioritizing marketing, R&D, and technology. The brand growth system is being utilized, with the BGS having been piloted in 10% of brands in 2024 and scaling to 40% of the business by the end of 2025. Andrew added that prior guidance already contemplated a step up in price investments and a double-digit increase in media, and now there is an acceleration in market investment towards reaching 5% of revenue for marketing.

Q: Yasmeen Wandi asked about North America organic sales guidance.

A: Carlos Abrams-Rivera stated that the second quarter top line is expected to be better than the first quarter, with the Easter timing shift providing approximately a 90 - 100 bps tailwind. There will be improvement in accelerate platforms like cream cheese and Oreo, Lunchables will improve after mid-May and June as the main renovation hits the market, and there is lapping of the Muscatine factory closure, though food service has slowed down.

Q: Tom Palmer inquired about the COGS inflation breakdown and pricing.

A: Carlos Abrams-Rivera said COGS inflation has stepped up to 5%, with tariff impact estimated at 50 - 200 bps in 2025, mostly concentrated in the second half. Incremental pricing investments are mostly in marketing and product renovation.

Q: David Palmer asked about pricing offsets to tariffs and the promotion strategy.

A: Carlos Abrams-Rivera mentioned disciplined promotion with good returns, with a step up in promotion activity during key windows like summer. Efforts are being made to minimize price impact from tariffs through measures such as delaying purchases, alternative sourcing, and reformulation. Andre added that promotion activity will step up during key windows and they are trying to minimize the price impact from tariffs.

Q: Chris Carey asked about Q2 gross margin weakness and bright spots.

A: Carlos Abrams-Rivera said Q2 gross margin pressure is due to promotion activity, hedge losses, commodity increases, and product renovations. Bright spots include progress in accelerate businesses like Philadelphia cream cheese, desserts after reformulations, and the Mexican strategy growing double digits.

Q: Alexia Howard asked about the wider operating income guide related to the policy landscape.

A: Carlos Abrams-Rivera stated that the wider range in guidance is to contemplate different policy scenarios, preparing for policy implications and investing to drive the business and expand brands.