The Kraft Heinz Company 2026 Q2 Earnings Call

Hello, this is Anne Marie Megela, Head of Global Investor Relations at The Kraft Heinz Company. I'd like to welcome you to our second quarter 2026 business update. During the following remarks, we will make forward-looking statements regarding our expectations for the future, including 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 accompany these remarks, as well as our most recent 10-K, 10-Q, and 8-K filings for more information regarding these risks and uncertainties. Additionally, we will 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 that accompany these remarks, which are 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. Today, our Chief Executive Officer, Steve Cahillane, will provide an update on our business performance and overall strategy. Andre Maciel, our Chief Global Financial Officer, will then provide a financial review of the second quarter results, and we will conclude by discussing our 2026 outlook. We have also scheduled a separate live question and answer session with analysts. You can access our question and answer session at ir.kraftheinzcompany.com. A replay will also be available following the event through the same website. With that, I will now turn it over to Steve.

Thank you, Anne Marie, and thank you all for joining us. The momentum we built in the first quarter continued into the second quarter as we delivered results ahead of our expectations. On the top line, our over delivery was broad-based, driven by better than expected performance in U.S. retail, global away from home, and Emerging Markets. Our traction reflects the work we've done to meet consumers where they are, ensuring our brands remain relevant at a time when consumers continue to prioritize value and affordability. We are seeing continued progress on share recovery, and we know our investments are working. This gives us the confidence to raise our outlook for Organic Net Sales. To build on this progress, we are increasing our 2026 incremental spend by $100 million to approximately $700 million.

We know that investing behind our brands is the right decision and that it sets us up for an even stronger 2027. Let me be clear, we are increasing investments from a position of strength, not because what we are doing is not working, but precisely because it is, and we intend to build on that momentum. As a result of the increased investments, we are narrowing our guidance range for constant currency adjusted operating income. Overall, we are ahead of our 2026 operating plan and our goal is unchanged. We are making investments in the business to position ourselves to return to volume-led, sustainable, and profitable growth. As encouraging as it is that we are running ahead of our expectations, there is still more work to be done.

Organic Net Sales were down 1.3%, driven by a decline in U.S. retail, partially offset by growth in Emerging Markets and global away from home. These results included a 100 basis point headwind from Easter timing. Compared to the first quarter, our underlying performance improved when adjusting for this shift. adjusted gross profit margin was flat versus the prior year, a result of strong productivity that helped to offset the impact from inflation. constant currency adjusted operating income declined 18.4%, reflecting our planned increase in marketing and higher variable compensation expense. Taken together, these factors drove adjusted EPS of $0.56 in the quarter. On cash, we again delivered strong results, with free cash flow up 10% versus the prior year, led by working capital gains. Combined with a healthy balance sheet, this allows us to constantly support our dividend while managing leverage. Turning to our market share performance.

Overall, the percentage of our revenue that is gaining or holding share is improving from 21% in 2025 to 36% year to date. This reflects improving trends from last year across all three portfolio groups, hold, win, and win big. When we look specifically at win big, 45% of our revenue is gaining or holding share year to date. This is led by our Heinz brand, which is gaining or holding share across market and category combinations, reflecting over 70% of revenue. Underscoring the breadth of Heinz, we grew sales across each region, North America, International Developed Markets, and Emerging Markets, and across categories including ketchup, mayonnaise, pasta sauce, and soups. In U.S. retail, we are also moving in the right direction. We ended 2025 with 12% of our revenue gaining or holding share. Year to date, we are now at 30%.

Through investments made in 2025 and early 2026, we have driven improvements across Taste Elevation, hydration, and dessert. That said, we still have work to do to address declines across meats and meals where we are taking targeted action. This includes price, product, and packaging investments across Oscar Mayer, and stepping up innovation and media across Kraft Mac & Cheese, where we are starting to see market share trends improve. We believe the investments we are making will continue to translate into stronger performance in U.S. retail. As a reminder, we are prioritizing investments by market share goal. Where we aim to hold share in brands like Oscar Mayer and Maxwell House, we are spending to defend. Where we aim to win, brands like Lunchables and JELL-O, we are investing selectively. Where we have the right to win big, like our Taste Elevation brands, Heinz and Philadelphia, we are distorting investments accordingly.

Turning to our 2026 operating plan. Our goal is to drive volume-led, sustainable, and profitable top-line growth while continuing to generate attractive free cash flow. To do this, we have built and are executing against clear plans to drive the turnaround of our U.S. business and accelerate momentum across our international markets, both in retail and away from home channels. Starting with the U.S. Building on the investments we made in 2025, earlier this year, we announced an incremental $600 million across product superiority, select pricing, marketing, sales, and R&D, of which the majority is focused on turning around our U.S. business. We over-delivered our expectations in the first half of the year, we are now increasing investments by allocating an additional $100 million. This incremental $100 million is an opportunistic acceleration and will be concentrated in marketing, building brand equity across our core and supporting innovation.

We know our brands respond well when we invest behind them. We've seen the early green shoots, and we are going to build on that while continuing to improve how we allocate dollars and sharpen our execution. We are deploying these incremental dollars with discipline, and our strong balance sheet and robust free cash flow position us well to fund them. We also have continued to simplify our North America operating model, driving stronger accountability and faster decision-making throughout the organization. We have separated Taste Elevation and Away From Home into 2 distinct business units, giving them each dedicated focus and resources. At the same time, we have consolidated our supply chain and procurement function to improve efficiency and align with the new global structure.

Turning to our international business, as we look to accelerate momentum, growth will be led by our Heinz brand, along with distribution expansion in Emerging Markets. In the 2nd half of 2026, we expect Emerging Markets growth to further accelerate. Let me walk you through how we're deploying our investment. As consumers continue to face economic pressure, affordability remains a major focus for us. That focus is shaping how we approach pricing, pack sizes, promotions, and innovation across our portfolio. Across price, we are making disciplined investments to improve the ROI of our promotional spend, expand access to opening price points, and in select cases, implement base price adjustments. Over the course of the year, we have improved the ROI of our promotional spend. At the same time, we have been laying the groundwork for our 2nd half price investments.

Partnering with retailers on stronger joint business plans, ensuring that we are building quality merchandising through display and features. We have also introduced smaller and more accessible pack sizes in categories such as pasta sauce, cheese, and salad dressings. Within our portfolio, where commodity costs have come down, we're passing those savings onto the consumer, for example, in coffee. A portion of our investment is also geared towards people. We are increasing headcount throughout the organization, with a focus on our marketing and sales teams. As we assess our progress on this front, we are on track, having hired approximately half of our North America commercial needs. This includes investments across e-commerce, where we grew approximately 14% year to date through May.

We are also making a significant step up in our marketing investment, increasing spend to at least 6% of net sales and putting our marketing dollars to work. We are strengthening brand equity through new campaigns like Heinz's "It Has to be HEINZ" and Philadelphia's "Really Philly Good." We are putting more media behind consumer-led innovation, including PowerMac, Capri Sun Hydrate, and Ore-Ida Shapes, and we are building strategic partnerships that elevate key moments and enable us to showcase our brands. As part of our America250 sponsorship, we unveiled The United Tastes of America, our largest portfolio campaign ever. At the heart of the campaign is a new national TV spot that brings multiple brands together in a single creative, featuring favorites like Heinz, Oscar Mayer, Kraft Singles, Kraft Mayo, and Kraft Dressings.

Going beyond the screen, we brought the celebration to life with a lineup of limited time, summer-ready innovations at retailers nationwide. Just a couple of weeks ago, we also announced a landmark multi-year strategic alliance with The Walt Disney Company. Brands including Heinz, Philadelphia, and Kraft Mac & Cheese will become part of moments tied to Disney's iconic franchises that guests and fans love most. Not only are we spending more to support our brand, but we are spending more efficiently. We've reallocated dollars towards higher return brand media, improved efficiency through fewer, more effective media partners, and launched stronger consumer-driven creative. Importantly, we're measuring direct sales impact, and we are seeing clear improvements. In addition to marketing, we are also stepping up investments in R&D to drive product superiority and value.

These investments are increasing both capacity and capabilities to support our growth agenda across consumer experience, packaging innovation, and process development, all further enabled by digital advancements. Our R&D investments directly support our strategy of bigger and fewer as it pertains to innovation. We are continuing to launch, support, and scale innovation that is focused on consumer-driven platforms, including convenience, new occasions, and nutrition. Earlier this year, we launched Kraft Mac & Cheese PowerMac nationwide. We drove a lot of retailer excitement with distribution coming in very strong, over 35,000 stores. We are supporting the launch with media and promotions, both of which are live, and initial results are encouraging. While still early, velocities are in the top quartile and initial results show sales are highly incremental to our base and the overall category.