The Kraft Heinz Company Stock

All right. If we all find our seats, we'll kick off our next fireside chat here. Okay. Welcome back, everybody. For our next session, thrilled to welcome back the Kraft Heinz Company. And with us today are CEO, Steven Cahillane; and Executive Vice President and Global CFO, Andre Maciel. Thank you both for joining us, and welcome back.

Thanks for having us. Good to be here.

All right. Maybe to start off, Steve, when you took over one of the recurring perceptions we hear from investors was that KHC had underinvested behind its brands for a long period of time. 6 months into what you've explicitly called a reinvestment year, what evidence gives you confidence that the trajectory of the business is actually changing?

Yes. So a couple of things, Andrew. First, the brands have been underinvested. I mean that's demonstrably true. It's measurably true. We hadn't invested what we needed to invest to keep the brands alive, relevant and contemporary. And so we announced, as you know, at the end of January or so that we would reinvest $600 million into exactly that, into capabilities, marketing, into really our brands. And then as you also know, when our last earnings happened, we were encouraged by the progress, so we upped that to $700 million.

And the reason we did that is exactly the answer to your question, we've seen some early signs of trajectories changing. And so we ended last year with 21% -- only 21% of our business holding or gaining share. And at the end of last quarter and really up until today, that's now 35%. Is that good enough? No, it's not good enough, but it's much better than 21% to 35%.

And if you look beyond that or inside that and look at condiments, for example, condiments is an area where we started to invest last year before I joined, recognizing that the brands could use some additional investment, and we've continued that into this year. And we've seen a real trajectory change in North America in condiments.

Last year, consumption actually on the Heinz brand declined by 3%. And that shouldn't happen with a brand like Heinz. This year, consumption is now up 3% and gaining share. And so we're seeing that happen. We're also seeing in hydration and desserts, the same type of trajectory changes.

Equally, now this is, again, less bad news. But if you look at the totality of our portfolio, 90% has a better trend today than it did in 2023. Now that might mean it went from losing 200 basis points to losing 100 basis points. So still not good enough, but 90% has changed trajectory. So I think that's good evidence that what we're doing is working, and we'll continue to get smarter and work against that.

Equally, you look at areas like Away From Home. Away From Home was another challenging area for us last year. And this year, we're now back to 3% growth globally in Away From Home and even a little bit better than that in the U.S. And so seeing good progress there.

And then finally, like in emerging markets, which should always be a good story for us, it's a great story for us this year. So growing high single digits and gaining share in every emerging market country that we compete in, save for Indonesia, where we had some distributor challenges last year. So good evidence across the board that what we're doing is working, but not good enough yet. We remain hungry. We know we have a lot of work to do, but I think the evidence is there that the brands and geographies and the people respond with the right level of investment.

Given the overdelivery in the first half of the year, the company has the flexibility to now invest an incremental $100 million this year, so a total of $700 million, while still delivering on the initial EPS outlook. Understanding that this year is clearly, again, a stated reinvestment year, what do you think this implies for 2027?

Well, it's too early to talk about 2027, obviously. But when we say that we're investing to win in the marketplace. Let me be clear, when we say win, we mean growing consumption and growing market share. So that's the path that we're on, investing to win. We've got an Investor Day, which you know coming up in November, and we're working hard to continue to build plans for 2027 and hope to be in a position to provide even more insight into what 2027 and beyond will look like. But winning for us does mean growing consumption and growing share.

The $700 million of spend this year is across consumer marketing, R&D, sales and marketing hires as well as some price investments and promotional investments. As you've leaned into some of these investments, I guess, where have you seen the strongest response from consumers and retailers and have competitors reacted in any meaningful way?

So we've seen great response from our customers. And so let me start there. I've had a number of conversations, really constructive conversations where retailers are very pleased that we're leaning into this. We're in 50 categories. We matter a lot to them. I've said to 1 or 2 of them, look, we know that you can win without us, but we want to be helpful in your winning. And the response they usually get is, well, actually,"It's hard to win without you guys. You're big, you're in every category, and you could provide growth for us."

So when we made the announcement of $600 million and then $700 million, that was met very favorably because it shows an intentionality around what we're trying to do and what we aim to do, and that's in complete overlap with their strategy and what they want to do. So that's been very positive.

And as I already mentioned in some of the big brands, investing behind brands that really have resonance, saliency and equity has proven that they can turn around fairly quickly. And internationally, I already mentioned emerging markets, but even in international developed markets, we're seeing a much better performance and a trajectory turn versus where we were last year. So again, continue to be encouraged by the decisions that we made, absolutely convinced they were the right decisions, but with still more work to do.

Got it. In the key North America segment and putting aside some of the timing puts and takes on organic sales, the expectation is that underlying consumption and share trends for U.S. retail specifically continue to improve sequentially. What do we need to see in the back half of this year to give you confidence that you can sustainably grow in North America?

Yes. I think seeing incrementally improved performance category by category. As I've already mentioned, we've seen it in condiments, hydration, desserts. We need to see it in the broader -- in the rest of the portfolio. And in fact, if you look at the share losses that we've had this year through the first half of the year, 60% of them are in Oscar Mayer alone.

And so we've got an issue in Oscar Mayer. We have to fix that. We have new packaging for Deli Fresh where the vast majority of the problem was. We had a resealability issue. We did not do the job for the consumer and the retailer that we needed to do. We fixed that. All that product is now in distribution. We started shipping at the beginning of August. The declines have lessened, which is, again, you have to get to not as bad before you get to good. We're kind of on that journey.

And if I look at sales per point of distribution because when Deli Fresh had those big problems in the last year, we lost a lot of distribution, understandably. We need to earn that back. But when we look at sales per point of distribution, it's actually now growing. And so that's showing that where it's still in store with the same shopper coming in, we've earned the right to at least get retrial. And then we have to build on that. We have to tell that story and continue to build distribution. So I'd say you should look at market share, what we've talked about and see in North America, are we making the types of improvements that we've talked about, and that's what we aim to do.

On the second quarter earnings call in early August, it sounded as though sequential share improvement continued through July. As you move further into the third quarter, what are you seeing both from category demand and from Kraft Heinz's relative performance within some key categories?

So I think I said at the beginning of the year, and I'll underscore here, a turnaround like this, the path is never quite linear because there's things that are in our control, things that are not in our control. I'd say the consumer in the U.S. and around the world still, despite some competing headlines about great jobs growth and other things, is still under pressure. And so we're seeing the industry not quite improving in terms of volume performance that we'd like to see.

We continue to see incremental improvements in our own market share. It's interesting, Labor Day just happened. So we'll see what happens on Labor Day, and we're getting into the holiday season, where we're quite excited about that. And a lot of what we're doing activation-wise is really only starting. And so if I just touch on one, the NFL, right? We've got an exciting new NFL partnership, which is a really big deal. NFL season kicks off tonight. And so it's just beginning.

Got my fantasy football draft just last night.

Excellent.

Feeling good.

I wish you well. I don't do that because I know I would like it and waste a lot of time on it. But the NFL is really -- if you look at the top 100 TV shows every year in the U.S., it's like 98% of them are NFL games, right? It's just a great partnership. It speaks to our portfolio in terms of activation, Lindsay Night Football, Saturday, Sunday, it's kind of round the clock for the next many months.

And it's a great way to bring families together over meals and our condiments and Kraft Mac & Cheese and others play a vital role. And -- but it's not just about that. It's about how you activate in store. And I was just looking at the last 4-week read, our displays are up 150% versus same time last year. And I attribute a lot of that to the activation on the NFL partnership. So a lot to look forward to still in the back half of the year with a lot of this investment just being deployed.

Global Away From Home is now back to growth, as you mentioned, with an expectation that this trend can continue. Specific to the U.S. Away From Home segment, what's driven this outcome, particularly in light of what is still sort of QSR traffic that's still hovering around, call it, flattish?

Yes. So we've had some good customer wins. We've had some good wins outside of tomato ketchup as well. So we've had some good wins in mayonnaise. We're growing share in both tomato ketchup and in mayonnaise in U.S. Away From Home, which we're pleased about. And so that's been good.

And our up-and-down-the-street business, we really want to own the caddy. And so we lead with Heinz. Heinz is the best. Heinz Tomato Ketchup is the best front-of-house brand, I believe. And I believe this before I joined the company, it's a quality restaurant wants to put Heinz ketchup if they're going to have a front-of-the-house offering.

We need to leverage that to do more around the rest of our condiments to really own the caddy up and down the street as well, which is an initiative that we've had in place. And we had something called Heinz Verified, which is part of the program to really drive exactly that, and that's shown some good early traction.

Great. Emerging markets have been, as you mentioned, a bright spot for the business. Now that you're lapping the distribution change in Indonesia, the growth is really starting to show through more fully. Where are you in your sort of emerging market journey? And sort of what gives you that confidence that this can be nicely accretive to overall growth for an enduring amount of time?

I think we're in the very early innings of emerging markets, and I think it's a tremendous growth opportunity for us. And I'll give you some examples. I was just down in Brazil 2 weeks ago, which is one of our largest emerging markets, and they're doing some really exciting things and growing very well. They launched Heinz Zero just at the beginning of this year. Heinz Zero's numbers are fantastic. I don't think I've ever seen an 80% incrementality in too many markets, but that's what Heinz Zero is in Brazil, 80% incremental.

And so we've had lots of successes there. And just looking at the Heinz brand, which is 50% of our international emerging markets business, it's such an incredible brand. And just 2 stats that I learned that blew my mind. As you know, I spent a number of years with Coca-Cola, a great company, a great brand undoubtedly. Coke's worldwide awareness is 94%, Heinz is 96%. Their household penetration is 50%, ours is 20%.

And so there's a lot of room to drive distribution and household penetration on Heinz tomato ketchup. And we're growing distribution in the first half of this year at a 5% rate. And it's quality distribution. So it's not putting it everywhere. It's determining the right accounts in the right geographies, having the right capability and driving that distribution, which will drive household penetration.

And so I think as I look at emerging markets, I see years and years of what should be high single-digit, low double-digit growth for us. And I think that's going to be a growth driver. And as it gets bigger, it will become even more meaningful just from a mathematics perspective, but it's exciting for us.

You've previously stated that all of the $700 million in incremental spend would be in the base in 2026 as we think forward to '27. I think there are some aspects, though, like costs associated with adding some of the additional talent as this year progresses that will flow into next year. So what are some of the potential offsets to that as we think forward to 2027?

So big offsets are in other areas of SG&A that are not sales and marketing related. And so think about shared services, captive shared service centers, the whole advent of AI and all that we're doing, exploring what that can give us.

And so as we add incremental headcount, which is the $700 million we said is in our base. It's really easy to understand that when we're talking about marketing spend and pricing and activation, less clear when you're talking about adding headcount because you add headcount in the back half of the year, that becomes the wraparound that you're talking about. But we'll look to offsets in other areas of SG&A, not in cutting the $700 million, which is in our base and part of our commitment to turn around the business, but other areas where we can drive efficiencies.

You recently discussed your expectation for 4% to 5% inflation as we look forward to next year and the desire to offset as much of that as possible through productivity. Historically, how successful has Kraft Heinz been in doing that? And does the evolving cost outlook really change your confidence that '26 ultimately will prove to be the margin trough, as you suggested?

We're going to get Andre at some point, right?

Now is the time.

Look, we -- as you said that it's critical and our Northstar, is all about what is the top line growth and sustain. [indiscernible] But we also understand that it's important for us also at some point to start to grow earnings again. So for us, if you think about the value creation, the value do not only come from...

Can everybody hear Andre, by the way? I want to make sure. Yes, let's make sure that's green lights on, maybe it's a flip the switch there. Because it's an important question, so we want to make sure we get to that.

Okay. Can you hear me now?

Yes. Sorry to interrupt.

Yes. Okay. So maybe I'll start again. So for us, as Steve said, our North Star is clearly drive top line volume-led growth. But for us, it is as important as well is to also grow earnings. And the equation of growing earnings will be led by top line, but also involves gross margin expansion. And over the years, we have been successful in expanding gross margin. Gross margin is still higher than pre-pandemic levels despite all the investments we have done in the business last year and this year.

There is a path for that to continue to happen moving forward. Productivity has been the main driver for that. We have now for 5 years, delivered north of 3.5% of COGS. In fact, the last 3 years, more than 4% of COGS. There is always some element of pricing there, but the more we can do with productivity to drive that gross margin expansion, the more we are doing.

We've just concluded an extensive exercise to see how we can further step up productivity to 4.5% or so. I think there is -- there are a lot of opportunities still ahead of us on the productivity front. And price, if required to be, we try to do as minimal as possible. But again, we understand that we need to deliver the top line growth with gross margin expansion over time as well.

Do you believe KHC has other levers, is kind of what you just touched on a little bit, if need be to help bridge any gap between cost and productivity next year, whether it be pricing or others. And some other food companies have been fairly explicit in their need for some pricing as we move forward. Obviously, you've been making some price -- investments as part of the $700 million of reinvestment. So there's some tension there, obviously, between those 2, given the rising cost environment.

So look, aside from productivity, again, which is the #1 and price in selected places, price becomes like the optionality for us. And if you see the whole market moving because in some categories, there will be significant inflation pressure, we will just go along. But again, we are trying to prioritize on the productivity front.

Now mix is another important driver as the business continues to grow more through sauces, cream cheese, mac & cheese, those business have all -- pretty much everything that sits in the one big part of our portfolio growth, those have much higher gross margins. So there is always a mix component that contributes as well.

There are -- still seems to be this narrative, I think, among some investors that some of the company's legacy brands in large categories as well as some other food companies as well are simply less relevant to consumers these days, almost no matter what is done to shift the product and the messaging. I guess what have you seen thus far that would help sort of maybe debunk this sort of thinking?

Yes. I would personally push very -- push back very hard on that type of narrative. There are certainly brands that become irrelevant. But in my experience, those brands become irrelevant because they've been not managed in the way that they need to be managed, right? There's certain nostalgia that exists with brands, and I joke with people sometimes, nostalgia might help you sell the T-shirt, but it won't get you into the pantry and the type of experience that you're trying to drive.

To do that, you have to drive relevance for the next generation of consumers. And so I already mentioned Heinz, but Heinz Zero in Brazil is a great example of that, but Heinz Simply in many countries around the world and Heinz Organic are great examples of that. Maintaining your relevance because you're investing in what consumers want will keep brands alive and keep them vibrant.

Another great example in our portfolio that I've told some people about is what's happened with CapriSun. And Capri Sun is a really interesting brand. It's a great brand. But for many years, once a child turned 11 or 12, they were out of the Capri Sun franchise because it's just not cool to have that pouch that you had when you're 8 years old and poke a little straw on it and relive your glory days when you're 8 and 9 on the soccer pitch when you're at 12 and 13.

But consumers, that young consumer still love the brand and moms and dads who are doing the shopping still love the brand. So the team innovated around a very simple resealable plastic bottle, which did a couple of things. It made it cool again, to have the brand that people love into their tween years, and it opened up all sorts of distribution in c-stores, tens of thousands of new distribution points. And the brand is growing nicely on the back of that.

Then we've just innovated most recently this year with Capri Sun Hydrate. And so think about electrolytes and a new innovation that's not new to the world, but new to Capri Sun that makes it more of like a junior level sports drink, doing very well. You could make the argument that Capri Sun was one of those brands that had seen its best days. But if you really keep the consumer insight at the heart of everything, you build the right innovation platform around it and you invest in the brands and you believe in them, and you have the conviction, 20 years from now, the world is not going to be littered with just a handful of little brands and private label everywhere.

That's just not going to happen. But it doesn't guarantee that a lot of the brands that are here talking over the course of the next couple of days are going to be around. There's absolutely no guarantee because you have nostalgia and salience that you're going to remain relevant. You have to turn that salience into relevance through innovation and other consumer connections that make you relevant to the next generation.

And I firmly believe that. I think the history has shown that. It may be more difficult than it's been in the past. I would acknowledge that. But the same type of things, the fundamentals that drive people wanting to really try your product, desire your product and winning at the point of sale and delighting them when they take it home through absolute product superiority and performance remain the most key elements of what it takes to keep a brand alive generation to generation.

I guess regarding cash flow and the balance sheet, there's been maybe building concern around balance sheet flexibility and capital allocation sort of optionality in the broader packaged food space of late. Can you update us on where KHC is at this stage on cash generation, dividend policy and sort of capital allocation priorities?

Sure. So look, our cash flow generation continues to be very strong. There's a lot of efforts that have put into it in the past, especially in the past 3 years. We adjusted the incentive structure for the whole organization as part of the short-term and long-term incentive linked to cash flow. We have invested a lot in technology in the past years to continue to unlock working capital efficiencies.

So -- and we have done a good job there. There's still more to do, especially on the inventory front, and we feel confident about the path there. We have taken advantage of the excess cash and being able, despite investing $700 million in the business, continue to generate a solid free cash flow after dividends, which has allowed us as well to continue to pay down debt.

So we paid this year $2.9 billion of debt, including $1 billion that's maturing -- was maturing next year. We're able to refinance part of our expensive debt maturities that were in the future to cheaper that, like with $1 million of refinancing that save us $250 million interest expense over 10 years.

So there is a lot of activities that we continue to do that really put us in a different spot compared to a lot of other, especially center of store companies in terms of having a robust cash flow generation, being able to comfortably protect a strong dividend that we provide and I think the ability to maintain so.

You've talked about emphasizing fewer bigger bets. Where are the bigger bets being placed? And what kind of discipline and information maybe have you built around your internal processes to make sure that where you're making those investments is the right place?

Yes. So we look at the returns for all our investments vigorously and doing that before I arrived. So I think we have the internal capability to really understand returns against investment very well. Critically important when you invest in an incremental $700 million because that money will be fungible, right? And so we'll measure where it's working, where it's working very well and where it's not working so well. And we won't be cutting the $700 million. Where it's not working well, we'll reinvest in areas with a higher ROIC. And so that's an important discipline that we will continue to build and bring forward.

In terms of the biggest bets, you should see us continue around our biggest brands. And so I've mentioned a number of times, Heinz and the Heinz innovations, but Heinz outside of tomato ketchup as well. So Heinz, we know plays in sauces very well and even beyond sauces. And so Heinz mayonnaise is a big opportunity around the world. Heinz pasta sauce has shown that it's a good opportunity around the world. Heinz can be Heinz Beanz in the U.K., obviously, for generations, very successful. So innovating and expanding around Heinz and what Heinz can be will be really important.

Philadelphia is another great brand for us. Ultimately, we can get out of cream cheese and into other kind of cheeses. Our initial innovation this year is lactose-free Philadelphia Cream Cheese. There's a huge lactose-intolerant population in the U.S. that we were not addressing, and we're addressing that now. So that's out now. I mentioned Capri Sun, big innovations around that. Oscar Mayer, where we need to get it fixed and get it right. There's a whole protein movement out there, right? And so we've got a lot of protein forward opportunities in our portfolio.

Convenience and affordability are 2 other areas where we'll be investing very heavily because nutrition, convenience and affordability are important elements. But think about our big brands, Kraft Mac & Cheese, another one, a fairly straightforward innovation, Kraft Power Mac & Cheese out earlier this year; 17 grams of protein, 6 grams of fiber, affordable, more affordable than some of its competitors off to a great start, got really 100% distribution where we pitched it because retailers saw the value in the brand. I mean we own Kraft Mac & Cheese, Mac & Cheese and Kraft go together and doing that Kraft in Canada and Kraft Ramen, big opportunities there. So think about our big brands and areas where they're not in, where they can comfortably travel with the right level of innovation and investment behind it.

I know a year ago, there were a number of brands that were sort of, as you mentioned, losing share simultaneously. I guess as you sit here today, how much smaller is that list? And is the challenge increasingly concentrated in really just a handful of businesses rather than maybe what was more broad-based across the portfolio at one point?

So that list is much smaller than it was this time last year. I mean I already mentioned last year, we were even losing share of Heinz ketchup. And so that's clearly something that is -- shouldn't be, and we've fixed that and are in the right direction. If -- I'll get back to the U.S., but if I look outside the United States, our international developed markets are back to consumption and share performance, which is really good. I already mentioned our emerging markets a number of times.

And so you come back to -- and Canada has proved a terrific performer over a number of years and are having another good year this year, growing consumption and share on the back of the right level of investments behind big brands like Heinz and Kraft.

So then you zero in on the United States and say, okay, so how is the U.S. doing? And I already mentioned Oscar Mayer being 60% of the issue that we have, and we have a path towards fixing that, and we need to get that fixed. And then we look at frozen, and we've got some opportunities to do better and fix our frozen business.

So the list is much shorter. While we do that, we'll also be investing in the big brands. But the other interesting thing in our portfolio that we have to remind ourselves of and we have and we're putting capabilities in some of the headcount we're investing is in some of these small gems that we have. You think about Lea & Perrins and think about A1 Steak Sauce, you think about Grey Poupon. These are little gems of brands that with the right level of investment that we've been -- are doing very, very well.

And so the list of brands that are doing well, we want to make that bigger and bigger. And we've isolated the areas of subpar performance to areas that need to get fixed. And encouragingly, we more and more have the right insights into why the brands are declining, what the issues are. I already talked about Oscar Mayer and resealability to be in Deli Fresh. So part of fixing a problem is acknowledging it, #1; and then #2, understanding it very well so that you can put together a robust plan to make the turnaround. And I think that's the path that we're on right now.

Oscar Mayer and meals have been areas of greater pressure as you've talked about, whether it's resealable packaging and Deli Fresh or innovation like Power Mac. I guess what have you learned about how much of renovation can sort of move the needle versus situations where maybe more fundamental changes are required?

I think renovation in this day and age is incredibly important, right? I mean you look at where the consumer is going and the consumer is increasingly going towards better for you, whether it be protein, fiber and that type of thing. They want cleaner label. There's no question about that. And then they still want affordability. And so that really requires renovation and looking at your portfolio and saying, okay, without making consumer compromise, how can I have a cleaner label? How can I have less of what the consumer doesn't want and more of what the consumer wants?

And a brand like Oscar can absolutely -- has the right to go there. I mean making Oscar less perceivably processed is not going to hurt the brand. It's going to help the brand. And so renovation is incredibly important, probably more important in this era right now than it ever has been because what used to be a little bit more talk on the East Coast and the West Coast is becoming more of a national and international dialogue around I want to understand what's on my label. I want a clean label. I do want to eat better.

And so oftentimes, that requires renovation, and we've been on that path of renovation. One example, we said by the end of 2027, we'd remove all FD&C artificial colors, and we're on our path to doing that. And it's the right thing to do, but it's also what the consumer wants. The consumer wants a cleaner label and renovation is a way to get there.

Maybe as we wrap up, Steve, if there's one thing that investors should remember and I guess, hold Kraft Heinz accountable for to judge success over the next year, what would that be?

I think it would be more than one thing. High on the list would be our market share performance. And there's a reason we've been very vocal about that. We're holding ourselves accountable to growing in the right way. So growing volume-led market share, being a good steward of our categories, but making sure that we can grow faster than the category is very important. And you've written about this. I mean, if we just held share in the weighted global business that we have, we'd be back to growth. And so that's really important.

Andre talked about productivity, getting 4% of COGS productivity year in and year out is equally important, making sure that our innovation pipeline is robust and that we're doing enough to gain distribution and grow our distribution over time. Our emerging markets business growing at high single to low double digits over a long period of time and making sure that we manage the volatility in emerging markets will equally be important.

And then finally, our international developed markets remaining stable and a share grower over time. You put all those things together and think about those 4 or 5 simple metrics, you'll have a really good understanding of the trajectory that we're on, the progress that we're making towards the promised turnaround that we've told our shareowners that we're on the journey and committed to doing.

Okay. All right. I think this is a really good point. We'll break here. We'll head it to the breakout. Please join me in thanking Steve and Andre for being here.

Greetings, and welcome to the Kraft Heinz Company Q2 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Anne-Marie Megela. Thank you. You may begin.

Thank you, and thank you all for joining us today. Welcome to the Q&A session for our second quarter 2026 business update. During today's call, we may make forward-looking statements regarding our expectations for the future. These statements are based on how we see things today, and actual results may differ materially due to risks and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release and our most recent SEC filings for more information regarding these risks and uncertainties.

Additionally, we may refer to non-GAAP financial measures. Please refer to today's earnings release and the non-GAAP information available on our website for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. Joining me today to answer your questions is our Chief Executive Officer, Steve Cahillane, and our Chief Financial Officer, Andre Maciel.

Operator, please open the call for the first question.

[Operator Instructions] Our first question comes from the line of Andrew Lazar with Barclays.

It's encouraging to see some of the incremental investments starting to pay off. I know much can still change by the time we get to 2027. In the prepared remarks, you mentioned expected inflation next year in a 4% to 5% range and that Kraft will try and offset as much as possible through incremental productivity. I know you had mentioned previously that '26 would also be the margin trough year. So I'm trying to get a sense of whether we should read that inflation commentary for next year, maybe is implying that perhaps this year won't be the margin trough. And I guess some of the incremental investment now planned for next -- for the second half of this year will also have to [ lap ] in the first half of next year, too. So I'm just trying to get a sense of how we should sort of read the commentary about next year in the prepared remarks?

Yes, Andrew, this is Steve. Thanks for the question. I think what we were trying to get across in those comments was that despite the macroeconomic uncertainty, despite all the challenges that we're facing, that the inflation outlook for next year is not anything that we're fearful of. In fact, we can absolutely manage it. But as always, our first line of defense is productivity. If we could cover all of the inflation with productivity, we would do that.

But we are looking to maintain and strengthen our margins over time. So that's the way we're looking at it. It's a manageable year next year despite all of that. We like the way we've set ourselves up. It's more than halfway through the year with this incremental investment coming in. We like the setup. We like the momentum, and we like the way we're setting ourselves up for 2027, including on the COGS line.

Our next question comes from the line of Peter Galbo with Bank of America.

I wanted to ask a little bit about just the consumption rates. I know there's a bit of noise with the inventory pull forward in Q2 that's also kind of disrupting Q3. But I think if I back all that out, your consumption was something like down 2% in the second quarter. I think the 3Q guidance implies it improves to something like down 1% in 3Q. So I just want to make sure I understand that cadence correctly. And then maybe just as a follow-up, like what that says about how you feel about the exit rate on the year from consumption? So are we going from this down 2% to down 1% to something improved in Q4? I know there's comparables to think about. So there's a lot in there, but maybe you can just speak to the consumption more broadly and the cadence over the balance of the year.

Yes. Thanks for the question, Pete. I'll start and Andre can certainly fill in. But you're reading it right. We had obviously first quarter that was flattered by Easter, second quarter that reversed. We had snowstorms that we tried to adjust for in the first quarter as well. But by and large, the consumption rate is improving. And the amount of our business that is maintaining or holding share is also improving. And we're seeing real green shoots in part of our Taste Elevation portfolio, certainly in Capri Sun, even in Mac & Cheese in terms of consumption rates.

And so we hope to exit the year with the best consumption rates in the fourth quarter and enter 2027 with real momentum. Now it's too early to give guidance, obviously, and talk about 2027, but you're reading the consumption puts and takes exactly right. And the momentum is growing. Nobody is doing a victory lap that we're declining less than we anticipated, but it is moving in the right direction, and that's what gives us the confidence to invest even more to double down on improving consumption and improve on our share performance.

Yes. I think just to complement, Peter, I think directionally, you are right in Q2, with about 2.5% decline on the consumption. As we are ramping up -- starting to ramp up investments at the end of Q2 and now we're going to be a lot more intense in the second half. We do expect a gradual step-up. I don't want to set up an expectation about the specific sellout we're going to be in Q3 and Q4, but we should expect an improvement in Q3 and then a further sequential improvement in Q4.

July, just to put in perspective, we were about minus 1%. So there is already an improvement that we observed in July and the market share, even more important. We were in the first half, we lost 30 bps, which is, in a way, is good because we go back to the historical levels. Remember that in 2025, at some point, we're losing 90 bps of market share at the beginning of the year. So it's a very significant improvement. Look at the most recent weeks, we are now 20 bps, even a little bit better. So it's good to see that things are moving in the right direction.

Our next question comes from the line of Steve Powers with Deutsche Bank.

Great. Actually, I want to kind of follow up on that and just get a better sense of how you're thinking about the market share progression? Because as you say, Andre, down 30 bps in the first half, certainly improved versus where we were in '25. But if I compare kind of where you were coming out of the first quarter, it looks like there wasn't a whole lot of progress made in the second quarter. And certainly, percentage of WIN BIG gaining or holding share went down, especially versus the March exit rates that you shared coming out of 1Q.

So just maybe a little bit more perspective on how you're seeing progression. And then as we look to the back half, if there are specific pockets of the business where you expect to see the most traction that we should look for as specific proof points, that would be helpful to be able to highlight.

Yes. And you are correct. The share trend Q2 and Q1 is similar. And if you remember the last earnings call, we already anticipated that. We said that we do not expect in part because, as we said, we built into the year 100 bps headwind from SNAP and part of that would be a share pressure. So in a way, it's good that we were able to offset that share pressure coming out of SNAP because we are seeing the SNAP headwinds, and we were able to protect the share as we anticipated.

Now as the investments ramp up and have all the innovations that we put in market getting traction, you saw in prepared remarks, I think there is very encouraging early signs coming out of Capri Sun Hydrate, out of the PowerMac & Cheese, out of Ore-Ida Shapes. So there's good momentum there. And I think that's also contributing for the share improvement we are seeing. So you should expect Mac & Cheese to continue to improve. We should expect Taste Elevation in general to continue to improve from where we are right now. We should expect momentum on the desserts business. We should expect cold cuts to start to improve the trends given now that we're going to lap the decline that started in July last year. So all those things would be signs of progress.

And if I just build on that, and Andre mentioned this, if you look at the last 4 weeks, we are seeing proof of that. So we're seeing that. And only 1/3 of our incremental first $600 million has been spent. So we still have a lot in market to go, including the additional $100 million that we announced this morning.

Our next question comes from the line of Scott Marks with Jefferies.

I wanted to just dive in a little bit on the meats and meals side of the business. That's one area where you specifically called out plenty of work to do, talked about the targeted actions. Just wondering if you can kind of help us understand how you're approaching those actions and what we can expect in terms of timing for the improvements beyond just the lapping dynamic that you mentioned.

Yes. So I'll start, and again, Andre can build on it. One of the biggest issues that we've had are with our Oscar Mayer brand and specifically in Deli Fresh. We have new packaging, which is almost now completely in the market, and we're seeing better performance based on that. And some of that has to do with lapping the big declines that we saw. So we know we have work to do clearly on the Oscar Mayer front, but the new packaging is in place and early signs are encouraging. And we want to plug that leaky bucket for sure.

On bacon and hotdogs, better performances, better -- much better than Deli Fresh. So it's really isolated around Deli Fresh. Lunchables, we've also had some innovations coming in the market, Lunchables Snackables. We made some product improvements in Lunchables as well, which is showing early encouraging signs as well.

And you mentioned meals. So Mac & Cheese, obviously, we already mentioned, is showing improved consumption -- significant improved consumption. And PowerMac is -- continues to be off to a good start. I think we mentioned on the last call, terrific distribution, 35,000 stores out there with PowerMac and its consumption is in the first quartile of innovation. So feeling very good about that. And the early read is it is very, very incremental to us and to the category. So retailers have been quite pleased with that. So all in, work to do, but progress being made.

Our next question comes from the line of Michael Lavery with Piper Sandler.

Just was wondering if you could help us understand a little bit of what's working and between some of the product investments, the price investments, the marketing, what are you seeing the most effective that's running ahead of your expectations? How much can you transfer it across brands and categories? And how does it inform how you deploy the incremental $100 million?

Yes, I see it's working virtually everywhere we're putting it. And so condiments is probably the first area where we've seen really marked improvement. Heinz is back to growth as it should be, strong growth -- strong consumption growth, which is terrific. So across the board in the U.S., we're seeing better performance. We haven't even mentioned though, emerging markets and what's happening there. Emerging markets had a terrific quarter. Heinz is up 12% in the quarter in emerging markets, driven by distribution and consumption.

And so if you look at the totality of our portfolio, we've said the investment is largely in the U.S. to turn around the U.S. business. We're seeing early green shoots on that. But the rest of the portfolio is performing well in emerging markets, as I already mentioned, and global Away From Home is back to growth as well. That's a very strategic channel for us, one that we were not performing well in last year, and we're performing well now. And so we're investing there in product, in customer and in distribution, and it's paying off.

And just a couple of quick complements. Heinz is really having a very strong year. Worldwide, we grew 3% year-to-date and with the expectation to accelerate from where we are right now. Condiments in the U.S., which last year was flat, and that's one of the places where we started the step-up investments in the second half of last year. Condiments in total in the U.S. is also growing 3% year-to-date, which is very good. And again, with prospects to continue to improve.

Our next question comes from the line of Tom Palmer with JPMorgan.

I wanted to follow up a little bit on Andrew's question on 2027 and maybe focus it a bit more on the investment side. You noted earlier in the call that only around 1/3 of the spend had kind of stepped up in the first half of the year. So I think that would imply like a $200 million step-up, $500 million then comes in the back half of the year. One, any help on kind of how much of that step-up comes in 3Q versus 4Q? And then when we start thinking about next year, is a reasonable starting point looking at kind of the 4Q run rate and then extrapolating what that would imply for kind of the step-up next year? Or are there more meaningful considerations on top of that?

Yes. Again, I'll start. I think you should think about the third quarter and the fourth quarter being broadly even in terms of how we spend that money. And then as you think about 2027, again, too early to give guidance, but you should think about not necessarily a fourth quarter run rate, but think about 2026 being the base year in terms of getting the investment level right. And we mentioned this in the prepared remarks, but I would like to underscore that we're spending the additional $100 million because we can from a position of strength.

And if you're a shareowner, would you rather we spend too much or too little? And it's not an exactly precise science, but we felt $600 million was the right number, a very good number and a strong number. The fact that we can add $100 million to it really helps us think about 2027 being the year that we've got it really right with a very strong marketing spend in order to drive our volume-led sustainable share type growth. And so we like the way we're setting ourselves up for 2027. When we get to the fourth quarter results, we'll obviously give guidance against that. But I like where we are, and I think we're in a differentiated position versus some of our peers in terms of the investments that we're making and the momentum that we're starting to build.

And just to be crystal clear, like we do not expect any wraparound of investments into next year. So this '26 is the base.

Our next question comes from the line of David Palmer with Evercore.

From a category and brand perspective, I wonder, is the best ROI on spending the brands you highlighted in the slides, Capri Sun, Heinz, Ore-Ida, Mac & Cheese and Philly, those are getting the majority of incremental gross spending. If those are the highest ROI, why do you think that is? I can imagine some of it is the category responsiveness from a top line perspective and some of it's the incremental margins of the category. But also, I would imagine a lot of this comes down to your own readiness with ideas and innovation and the marketing messages. So any color on why those guys -- those particular brands are getting the incremental spend would be interesting to hear.

Thanks for the question, and I think you already answered. So it is a combination of all of that, right? Those categories that were highlighted, they do have very strong brand equity. They do typically have very high gross margins, pretty much all of them. We did start earlier. Last year, if you remember, the first place where we started to step up investments in headcount, innovation, marketing was Taste Elevation. That's why you see those plans already coming to fruition in a stronger way.

And we said in the earnings call, I believe, in February that some of these other categories, we were catching up. And that's part of where the incremental headcount investments and marketing and R&D were for us to be able to build bolder plans. And that's why we're starting to see some of those starting right now, but even more strongly towards the end of the year and into next year. So you're right.

Yes. And I guess if I had to have a follow-up, it's really a follow-up not just on that one, but some of the other questions as well because I think your -- the incremental spend is $500 million or so versus $200 million so far or 1/3 of the $600 million. So if you're going to be doing that sort of spending and that $0.5 billion works, I wonder how much you would try to keep the flywheel going into next year and make that $1 billion or more if you just keep that run rate. How -- what -- how should we think about how you're thinking about that and those decisions on incremental spend in '27?

Yes, you should think about 2026 being the year where we got our base right. And the incremental $100 million just gives us that much more confidence that we've got the right amount of investment behind our brands, and we'll continue to turn our attention to getting the maximum ROI from those investments. And we'll always be dynamic in the way we think about allocating that investment as we go forward. But we feel like this has given us a great opportunity being ahead of plan to put the incremental $100 million in to just bolster our confidence that we've got the right amount of investment behind our brands to win in 2027.

I think having all these investments in the base now in '26 gives the optionality next year. If you need to dial up marketing and do a little less in price or if you need to do more product and less marketing, I think we have the flexibility, but I think we're going to have a very solid base to invest. And I don't want it to go unnoticed. We show in prepared remarks that at the same time, we continue to work on ROI. So we saw progress in both marketing and promotional ROIs year-to-date, which is also good.

Our next question comes from the line of Chris Carey with Wells Fargo.

I certainly don't want to belabor the investment point, but maybe just one final follow-up here. It's -- there's like this dynamic where you've made the decision to increase investment because you're running ahead of plan, which is certainly a great thing. As we mature in this strategy, ultimately, you're going to want to get back to organic sales growth, I would imagine. And so what if organic sales trails for longer than expected? Would you lean in more? Or is this more about making sure that your market shares are back to healthy levels? And then, of course, the categories will always do what they do. So just that context between top line evolution versus getting your market shares back to a good place, which I think was a core premise of the initial investment.

And then just as a kind of second question, that would be more of a follow-up. You've got better momentum in the business, Steve. You've been there for a bit now, getting your arms wrapped around the business. Does a bit better underlying momentum give you more ability to consider portfolio reshaping? Clearly, there's been headlines in recent quarters and years about potential avenues for portfolio reshaping. Does this better trend line give you a line of sight into maybe being a bit more proactive about making those decisions that are going to put you in a good place for the longer term?

Yes. So on the first one, I'd just reiterate that we have increasing confidence that we're doing the right thing to drive better share performance and better organic sales growth. I feel very confident about that, that we're doing the right things. And with the investment announced today, again, just bolsters our confidence.

In terms of the second question, I think you're always wanting to operate from a position of momentum and strength, and we'll always continue to look at what's right for our shareowners as we think about our portfolio. So we're very comfortable in looking at the portfolio. And if the right opportunities come to make moves that add shareowner value, we'll absolutely be in a place to do that.

And I just want to add a comment that's not directly linked to your question, but I think it's worth mentioning as well. You might -- you have noticed that at the same time that we are stepping up the investments, we also protected the cash flow. So we increased cash conversion expectation for the year. So free cash flow is the same dollar amount essentially that we have committed at the beginning of the year. That's -- we keep a close eye on the free cash flow.

Our balance sheet remains very strong. You have seen that we have paid down $1.9 billion of debt in the quarter. After the quarter closed, we also paid another $1 billion in 2027. We did a very successful refinancing of an expensive debt maturity that we have also that was very successful. So it is great for us to be in a position to step up the investments, get those returns, position the company for growth while at the same time, preserving a very strong balance sheet and cash flow.

Our next question comes from the line of Robert Moskow with TD Cowen.

Andre, I just want to make sure I understand the guidance range, like what's in the low end and what's in the high end, because it sounds from the tone here that you're pretty confident that things will keep accelerating from a sales perspective in third and fourth quarter. But if I just go to the midpoint of the guidance, the total organization would have weaker sales growth in the second half than the first half just at the midpoint. So just to be consistent with the tone, it sounds like you have more confidence in the high end than the low end. So just -- do I interpret that correctly?

Yes. So first, on the tone, yes, I think you are hearing confidence, and I think we are stepping up investments because we are seeing early signs of traction. We do feel good about emerging markets, and we believe our ability to continue to accelerate the growth from where we are, Away From Home back to growth, we believe this might be sustainable.

And on the U.S. Retail, we already talked about the places that we still have work to do in the places of strength. Industry is still a bit volatile, right? So the industry, if you normalize by cost inflation and tariff-related inflation, the industry is still soft. So that's always a point of pause for us. So that's why what we've been focusing a lot in the U.S. in particular is the share improvement. And the industry, we believe over time, will go back to where it was.

Now in terms of the guidance, you are totally correct. At the midpoint, the second half implies worse performance than the first half. However, remember that we did have in Q1 a relevant benefit related to snowstorms that in the first half represents about 0.7 percentage points, and we did have 0.8% in the second quarter that is shipment phasing into Q3. So if you normalize those 2 effects, we're actually improving the performance -- the underlying performance in the second half compared to the first half, approximately 70, 80 bps, but you are right.

Our next question comes from the line of Leah Jordan with Goldman Sachs.

So I understand that more of your investments are still expected to ramp from here. But curious where you've already made investments on the pricing side so far. How do you view your price gaps? What are you seeing in terms of any competitive response? And then ultimately, how are you thinking about maintaining the right gaps in the back half as we're also hearing retailers have recently stepped up price investments in their own private label and have plans to do even more in the back half? So risk that those gaps could widen. And that's really incremental versus what you initially -- versus when you initially laid out your plan. So how are you thinking about maintaining that with that change in the marketplace?

Yes. So, I'll start, and Andre can certainly fill in. We feel very good about the investments in price that we've made, and we've been very surgical. So it hasn't been just base price adjustments. It's been maintaining distribution. It's been opening price points. It's been price package architecture. It's been making sure that our gaps to private label and competitors are appropriate. And so we've done all that, and I think we've done it effectively.

The incremental $100 million that we announced this morning is going to be almost entirely in marketing because we feel like we've done the right thing on price, even given some of the commentary that you just made about what the future may hold. So we feel like we've made the right investments in terms of that surgical pricing that we've done, and it gives us the confidence to spend the $100 million in incremental marketing against our brands in the back half of the year.

Operator, we have time for one more question.

Our last question comes from the line of Rob Dickerson with U.S. Bancorp BTIG.

I think all my questions have been answered. So I'll ask maybe a fun one. Could you just talk a little bit about the Disney partnership, just kind of the magnitude of that? Is that partnership such that maybe even as soon as Q4, I would assume in '27 that we should be seeing some co-branding? And if so, where would we expect to see that?

Yes. So we're very excited about the Disney partnership. And you think about all the things that we can do with the Walt Disney Company, the iconic characters that they have and the things that we can do in co-branding and merchandising and licensing, things that we can do to activate in their parks and their cruise lines in their hotels. And so there is a multitude of really exciting things that we can do with Disney. They're great partners. They're brilliant marketers, and they just -- they mean so much to consumers in such a meaningful emotional way.

So making that emotional connection with Disney in partnership is something we're really excited about. We're also really excited about the NFL partnership. So I think we're showing up in a very different way with consumers and with our retailers, and we're going to use both of those properties to really drive consumer emotional connections and something we're very excited about. So thanks for the question.

And we have reached the end of the question-and-answer session. Therefore, I'll turn it back over to management for closing remarks.

Thank you, and thank you, everyone, for joining us.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation. Have a great day.

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 risks and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release, which accompanies 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 overdelivery 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. And 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 helps 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 3 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 desserts. That said, we still have work to do to address declines across meats and meals where we are taking targeted actions.

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're making will continue to translate into stronger performance in U.S. Retail. As a reminder, we're prioritizing investments by market share goal, where we aim to hold share in brands like Oscar Mayer and Maxwell House, we're spending to defend, where we aim to win brands like Lunchables and Jell-O, we are investing selectively and where we have the right to win big, like our Taste Elevation brands, Heinz and Philadelphia, we are distorting investments accordingly.

Now 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.

As we overdelivered 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 functions 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 second half of 2026, we expect Emerging Markets growth to further accelerate. Now 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 second 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. And within our portfolio, where commodity costs have come down, we are passing those savings on to 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, It Has to Be Heinz and Philadelphia is 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 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. And just a couple of weeks ago, we also announced a landmark multiyear 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 brands, 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.

Capri Sun Hydrate is another innovation we've talked about and one that I'm really excited about. This is one of the first-to-market drinks with electrolytes designed specifically for kids. We rolled out to major retailers early in the second quarter, and it has quickly become the fastest-turning innovation in kids single-serve beverages with top flavors turning at second quartile velocities and driving incrementality.

And just now, we are starting to ship Philadelphia Lactose Free Cream Cheese. With lactose intolerance affecting up to 50 million Americans, Philadelphia is well positioned to deliver our signature creaminess and taste without compromise. Customer sell-in has been strong, and we expect distribution to further ramp up as customer resets continue to roll out. Targeting a new set of consumers, we expect sales to be highly incremental to our base business.

Now turning to our international markets. Our focus remains on growing the core through our Heinz brand and distribution expansion in our emerging markets. Heinz grew approximately 12% in emerging markets in the second quarter. Around the world, we are expanding Heinz across new occasions and geographies while catering to local preferences and trends. Early in the second quarter, we launched Heinz Zero ketchup in Brazil with no added sugar, 50% fewer calories, 25% less sodium, a higher proportion of tomatoes and selling for the same price as the original version. This is a great example of how we are meeting the consumer where they are.

In the short time since launch, we are already capturing market share and with media support just turning on, we expect to further accelerate sales velocities. We also continue to grow in emerging markets through increased distribution with distribution points up approximately 4% in the second quarter. This includes continued expansion into the Away From Home channel, which grew over 5% in the quarter.

Taking a closer look at our Global Away from Home performance, we grew organic net sales 2.9%. This was driven by a return to growth in the U.S. and continued growth in our Emerging Markets. This growth reflects an approximate 150 basis point benefit in the U.S. from World Cup-driven demand in addition to lapping a prior year inventory deload. Outside of those impacts, which we do not expect to repeat, performance was driven by ongoing net new business wins. Away From Home remains a strategic channel for us where we see significant opportunities, including growing beyond ketchup, expansion into noncommercial channels and increased penetration in QSRs.

As we look at the second half of the year, we anticipate continued growth in our Global Away from Home business. As you can see, we have built momentum in the first half of the year. With the bulk of our investments set to be in market in the second half, we remain focused on execution and delivering against our updated 2026 outlook. With that, Andre will now walk you through our second quarter financial performance in more detail and our outlook for the year.

Thank you, Steve. Starting with our second quarter results. Organic net sales for Kraft Heinz declined 1.3%. Price contributed 1.3 percentage points, while volume/mix declined 2.6 percentage points. Higher pricing was primarily driven by our emerging markets and North America coffee and kids single-serve beverage categories. Declining volume mix largely reflects softness in meats and in addition to a 100 basis point headwind from the timing of Easter.

Our top line performance came ahead of expectations driven by U.S. Retail, Emerging Markets and Global Away From Home. In U.S. Retail, we also benefit from a pull forward of inventory by customers related to summer grilling and in anticipation of strong 4th of July holiday activations. We estimate this benefit to be approximately 80 basis points for total Kraft Heinz.

Now breaking down performance by region. North America organic net sales declined 2.7% versus the prior year. Growth in Canada and Away From Home was offset by declines in U.S. Retail, which were primarily driven by meats. In our International Developed Markets, organic net sales declined 0.7%. This was driven by market share pressure following customer negotiations in select regions in addition to promotional phasing. These headwinds were partially offset by growth in Benelux and in the U.K., where we also gained share in the quarter.

In Emerging Markets, organic net sales were up 8.5% with positive contribution from both price and volume mix. This was driven by solid growth across most countries in the region and was partially offset by a 100 basis point impact from the decline in Indonesia. We expect to further accelerate growth in the second half of the year, having fully lapped the headwind in Indonesia by the third quarter.

Turning to the next slide. Kraft Heinz adjusted operating income declined 18.4%, and our adjusted operating income margin decreased 350 basis points. Of the 18.4% decline, over 8 percentage points was driven by the increased marketing investment and nearly 7 percentage points was due to higher variable compensation expense. In North America, adjusted operating income declined 15.8% versus the prior year. This was primarily driven by investments in marketing and higher variable compensation.

In International Developed Markets, adjusted operating income declined 9.1%. This was primarily driven by increased investments in marketing and higher variable compensation with strong productivity offsetting inflationary pressures. Heading Emerging Markets, adjusted operating income increased 6.7%. This was driven by strong top line performance, productivity and a onetime gain from indirect tax recovery. These impacts were partially offset by inflation and investments in marketing.

As you may recall, in the second quarter, we announced a change to our global operating structure. Effective July 1, 2026, under this new structure, the European countries currently included in Emerging Markets will move into Europe and Pacific Developed region. The results we cover today are in our previous structure, and we'll begin reporting under the new operating structure in the third quarter.

Now going deeper into how we are tracking against some of our investments. We have generated improvements in our return on promotions. Year-to-date, we have increased ROI by 3.4 percentage points versus prior year and have increased the percent of promotional spend with net positive ROI by 6.6 percentage points. As Steve mentioned, we are allocating an incremental $100 million investment on top of the $600 million that was already in our plan. These incremental dollars are primarily going to marketing. We are seeing good returns on our marketing spend, which give us the confidence to step up our investments here.

Based on our latest data, return on ad spend grew 6 percentage points globally. For the full year, we expect marketing to be at least 6% of net sales. In the first half of the year, marketing was up approximately 36% versus the prior year. Our plan also contemplates increased investment in R&D. In the first half of the year, R&D was up 22% versus the prior year, which is relatively in line with our full year expectation.

Moving to adjusted gross profit margin. In the second quarter, our margin was flat versus the prior year. This was driven by productivity initiatives helping to offset inflation, mostly across manufacturing and logistics and a positive impact on price. Our inflation outlook for the full year remains slightly above 4%, reflecting current macroeconomic volatility and ongoing geopolitical conflicts. We are well hedged on energy and edible oils, providing coverage throughout most of 2026. We also have hedges in place on certain resins and metals through mid-Q3. But as those roll off, we expect greater exposure to spot prices in the fourth quarter.

Helping to mitigate these inflationary pressures, we continue to drive strong gross efficiencies that support our gross margin. We delivered over $330 million year-to-date, representing at least 4% of COGS, a pace that we expect to continue throughout the rest of the year. In terms of adjusted EPS, we declined approximately 18.8% or $0.13 versus the second quarter of 2025. The decline was driven as expected by increased marketing and variable compensation expense.

Looking at free cash flow, year-to-date, we generated approximately $1.7 billion, a 10% increase versus prior year. Free cash flow conversion of 123% represented a 27 percentage point increase compared to last year. The increase in free cash flow was driven primarily by improvements in working capital across payables. These improvements reflect improved payment terms through collaborative supplier negotiations. Our free cash flow conversion also benefited from marketing accruals with the impact to cash expected in subsequent quarters. In the second quarter, we also recognized a noncash $7.4 billion impairment charge.

Turning to capital allocation. Our priorities are unchanged and remain very clear, sustaining the dividend and protecting our investment-grade credit profile. With a strong balance sheet and solid free cash flow generation, we have the flexibility to navigate volatility while investing in the business and continuing to fund the dividend, reduce debt and manage leverage in a disciplined way. In the second quarter, we used excess cash to pay down $1.9 billion of debt at its June maturity, and we recently repaid another $1 billion due in 2027.

We also issued new euro debt to fund a [ cash ] tender offer for longer duration, higher coupon notes. The issuance was very successful as it reduced our interest costs and provided net deleveraging. We expect our 2026 net leverage to be no higher than 3.3x, with a clear path to bring this back down to our target in about 2 years.

Now looking at our full year 2026 outlook. We are raising our expectations for organic net sales, which we now expect to be down 2% to down 0.5% versus our previous expectation of down 3.5% to down 1.5%. This outlook includes an approximate 100 basis point headwind from declines in SNAP benefits, which remains unchanged. Our outlook now contemplates adjusted gross profit margin in the range of down 50 to down 10 basis points year-over-year. Previous guidance contemplated adjusted gross profit margin down 75 to down 25 basis points year-over-year.

Our updated expectation reflects targeted efficiencies of about 4%, inflation at slightly above 4% and investments in price, product and packaging. Our guidance assumes inflation that peaks as we head into the fourth quarter. While the market remains volatile as we see things today, we expect full year 2027 inflation to be between 4% to 5% -- in anticipation, we are proactively ramping productivity initiatives to offset as much of the impact as possible.

For constant currency adjusted operating income, we are now narrowing our guidance range to a decline of 18% to 16%. As a reminder, our previous expectation was to be down 18% to down 14%. Our new outlook reflects an additional step-up in marketing investments and an increased impact from higher variable compensation, partially offset by stronger top line expectations. As Steve said, we know that investing behind our brands is the right decision, setting us up for a stronger 2027. As a result, we expect adjusted EPS to be in the range of $2.03 to $2.09 versus our previous expectations of $1.98 to $2.10. Our adjusted EPS expectation contemplates an effective tax rate of approximately 24.5%.

From a cash perspective, we now expect to generate free cash flow conversion of approximately 110% versus our previous expectation of 100%. Looking specifically at the third quarter, we expect organic net sales to be in the range of down 2.5% to down 1%. We expect the Global Away From Home to grow low single digits and for Emerging Markets to improve relative to the second quarter year-over-year performance. In U.S. Retail, while we anticipate continued improvement in share trends, we do expect that the inventory pull forward we saw in Q2 will be an 80 basis point headwind to our consolidated results in the third quarter.

We also expect a headwind from promotional timing, reflecting our planned step-up in investments. For adjusted operating income, we anticipate a decline in the range of down 25% to down 23%, primarily driven by a further step-up in investments. This contemplates an adjusted gross profit margin that is expected to be down year-over-year as we increase investments in price.

With that, let me pass it back to Steve for some closing comments.

Thank you, Andre. We delivered a first half that was ahead of our original expectations. Driven by early investments, we have built momentum behind consumption and share trends, and we are seeing improvements across key growth areas, including our Taste Elevation categories, Global Away From Home and across Emerging Markets.

As we have previously said, should we overdeliver our expectations this year, we reserve the right to invest more, and that is exactly what we are doing. With investments ramping up in the second half, there is a lot more to come. We are managing our portfolio of brands and geographies very effectively, and we remain focused on disciplined execution and delivering against our updated outlook. Thank you for your time, and thank you for your interest in Kraft Heinz.

Okay. Welcome back, everybody. Thanks for joining us, and thank you to the Kraft Heinz Company for being with us today. For the first time as Chief Executive Officer of Kraft Heinz, Steve Cahillane is with us today as well as Andre Maciel, Executive Vice President and Global Chief Financial Officer. So thank you both for joining us.

Thanks for having us.

All right. So we're going to use the balance of our time today for Q&A. And I thought, Steve, we would just start with you, and I really just get you to describe the updated Kraft Heinz story because I think a lot is underway, and I think investors are curious as to what's changing -- what's changing for the better.

Well, again, thanks for having me, and thank you all for your interest. I'd start by saying I joined Kraft Heinz in January, and I joined because I wanted to join. I mean I really saw the opportunity in front of us as being one that was real, it was tangible. It was exciting, and it was executable. And I draw a lot of parallels towards 2017 when I joined the Kellogg Company, and I joined there because I really wanted to. I saw the same opportunity.

So what we have at Kraft Heinz is we have some of the most iconic brands that I've been privileged to work on, starting with the Heinz brand. Heinz brand maybe only rivaled by the Coca-Cola brand in terms of its saliency, how it's known around the world. But compare the household penetration of a brand like Coca-Cola to a brand like Heinz and you immediately see what the opportunity is. The opportunity to grow the Heinz brand, both domestically and internationally is incredibly exciting.

And beyond ketchup. So you go to the U.K. and you see what Heinz does in everything from baked beans in ketchup, in now tomato sauce is really exciting. You see what Heinz does in the United States around condiments, it's really exciting. But we're -- even with a brand like Heinz, only scratching the surface, I think. But then you look at the vast majority of our portfolio and what you see is, again, tremendous opportunity.

The brands have been, I think, underinvested in for the last 10 years. And I always want to be very careful about talking about the past because I don't want to disparage the past or what happened, but it's clear that we did underinvest in the brands. And what we have now is a real opportunity to do something different to think about revenue generation as the most important North Star of the company, to think about our productivity as something that enables our top line ambition and not in an end of itself.

And so as we launched into January and announced the separation of the pause of the -- the pause of the separation, I think what we saw is a real opportunity to actually take the resources that were designed against the separation and put that towards a top line agenda to incrementally invest $600 million instead of spending $300 million in affecting the separation. So in effect, a $900 million turnaround towards resourcing a top line agenda.

And what you see, I think, coming out of the first quarter is early green shoots, early, I mean, no victory laps here. But early green shoots around our share progression that's more positive than it's been in 10 years. And so that's meaningful, but it's something to build on. And we still have the rest of the year in front of us and most of that $600 million is dry powder that hasn't really even been deployed yet.

So early days are encouraging. I got asked this morning, I think, a great question, what's the morale of the organization? Morale is incredibly high. When you talk about restructuring, that's an anxiety kind of infused thing. When you talk about a growth agenda, that's something different. And so I'm pleased I joined. I'm pleased with our early start, and I'm really excited about the future that we have in front of us.

Great. As you say, that $600 million of incremental spend, I think, is the most visible component of your new initiatives, your new agenda. I guess you talked a little bit about this in the past, but maybe to ground everybody in the room on it, why $600 million? Why is that the right level of spend? Why not more? Why not less? And how are we assured that it's not just spending for spending's sake?

Yes. So $600 million is a nice round number, right? And I don't want to ground anybody with -- or trying to convince anybody that there's a false sense of precision that's exactly the right number. But we did an awful lot of benchmarking around what would be the right level of investment for a company like ours. And so we think 5.5% of net sales against marketing is a good benchmark number. That's what we get to with $600 million. We think 1% of R&D is a good number.

We looked at our overhead as a percentage of revenue compared to our peers. We were underinvested. And just in my first few weeks in the organization, really talking to people in our commercial organizations around what they felt they needed, where we were lacking, that's led to our human resource plan as well. And so we think it's a really good number. We think it's the right number, and we reserve the right to get smarter.

And so as we embark on this year, we're ahead of plan in the first quarter, as we talked about, if we continue to generate healthy returns against this investment, perhaps we could go above $600 million and still meet the guidance expected in terms of profit. That wouldn't be a bad thing. And that would -- that's our priority. So our priority is getting the right level of investment and $600 million, I think, incrementally this year is the base mark. We might go above that.

Do I think we'll get to 2027 and say, oh my goodness, that's not enough. We're going to have to have a margin reset? No, I don't think that at all. I have -- based on the work that we did and based on the early green shoots and based on just my experience in and around this space for many years, I feel very confident. I feel very confident this is the right number, and I feel confident we might be able to overdeliver against that number.

And again, the early green shoots, I think, are early proof points, and we'll just continue to get smarter and build on that. And part of it is it's not just the number, it's how you -- it's the quality of execution, right? And so really focusing on the quality of execution, how we do things, how we measure them? And how we reallocate in fast ways? Really reallocate based on learning and the learning is happening faster than it's ever happened before, thanks to the technological revolution that we're in.

And so I believe it's the right number. I believe we might do better than that number. And I believe that execution is the single most important element in getting the execution right.

Okay. So Andre, maybe you can weigh in here just in terms of a little bit more detail as to where that spend is going? Where it's being prioritized? And to Steve's point, kind of the scaffolding that you've built around the organization to learn as you're spending to double down on places that are really working and also pare back on things that have less of an ROI?

Sure. So about 2/3 of the $600 million is going towards, I think what Steve was just describing, like the commercial levers that will drive sustainable top line growth, particularly on product packaging superiority, marketing investment media pressure and commercial headcount to improve the quality of execution. So 2/3 is going against that, 1/3 is on price.

This price is a combination of opening price points, which we believe is highly critical in this moment that the consumers are going through as well as a step-up on joint business plans with the retailers, so we can continue to protect and expand shelving where appropriate. The second part of your question?

Just what have you built around -- you put the spend in place, what disciplines or procedure processes have you put in place to learn as you're spending to be able to, as I said, double down on things that are working and then pare back on things?

How are you torturing your colleagues to make sure that the money is working, right?

I'm good at that. Look, we have a very strong routine in place where like pricing, for example, which is easier to manage in the short term, like we have very good controls on a granular level. You might remember, we said years ago, we have a very detailed promo system that allow us to track returns on like more than 100,000 events in the U.S. So we have very granular visibility on that.

And the revenue management team have a very strong team that continues to learn from what's just happened to be deployed into the future. So we feel very good about the price. Marketing, we have invested a lot in last year to have very good visibility on the returns we have on the marketing investment and get updated regularly as well.

So we feel good about that. That's our topic of discussion. We have Willem here with us that leads our European business. Like every month, we go through the dashboard and how we are deploying the money, what are new ideas I have, what things are not working, how we can actively redeploy the resources? So I think we're very well set up for that.

And as Steve said, most of that spending is still to come, right? It's back half loaded. So as the spending ramps, is this simple as market share and top line growth? Or are there other metrics that you're watching to define success?

I think the most visible metric for the investors will be the market share trajectory as well as our emerging markets growth. So on market share, look, at some point, last year, we were losing 90 bps of share, which was record high for us. We exited last year losing 50 bps. Now year-to-date, we are losing 30 bps and last 4 weeks, we're losing 20 bps. So things are moving gradually in the right direction.

And to your point, the bulk of the step-up in $600 million is concentrated in the second half, which is encouraging. And emerging markets, which we still have a high degree of confidence that we can deliver that high single-digit, low double-digit growth. And we have -- even in the first quarter, we are already -- if you exclude Indonesia, and we talked about Indonesia a few times already, we already grew high single digits. Once we left Indonesia, which we feel good about where we're going to stand. In the second half, we're going to see the growth in the print as well, which will be very solid.

Yes. Yes. Okay. So as Andre just alluded to, Steve, you mentioned earlier, good promising start to the year and through today. But you also highlighted along with the first quarter reporting, some timing benefits, Easter, some pantry loading benefits, et cetera. So I guess when you look at everything that you've seen so far, where do you see the strongest signs of real structural improvement versus other areas that might be a little bit more kind of flattered by those dynamics?

Yes. So Andre mentioned some of it, but if you just remember back to our first quarter, we did say we got about 100 basis points because of Easter. We got a little bit more than that based on winter storm stocking up and so forth. And so I think we're very transparent around, look, the number was still not a growth number. I think it was minus 0.4% or so, but we tried to equalize that so people really had a sense of what it was.

But we still felt good about it because of the market share progression that Andre just mentioned. And so we exited the year -- we put a new metric in place. We're talking about where we're gaining or holding market share on a weighted basis for our company. We exited the year last quarter -- fourth quarter of last year at about 25%. So we're only gaining or holding share in 25% of the categories.

And even in the U.S. Taste Elevation, which is where we really have a right to win with Heinz and Philadelphia and others, we were only at 24%. So we were not winning. And if you look at where we exited the first quarter, those numbers were dramatically different, over 50% and with U.S. Taste Elevation I believe, close to 80%. So a really dramatic shift in terms of that. And that's real because that's market share based on where we are.

And if you look at the last 13 weeks, we've held that U.S. Taste Elevation in the almost 70% range. So it's been holding. And it's based on the investments that were made in the back half of last year and continuing on to this year. And as Andre just mentioned, we're holding or gaining market share in more than half the categories. And we're going to talk about that a lot because it's a way to hold ourselves accountable that we are committed to growing the top line of the business.

And obviously, we're all about shareholder return. And one of the most important elements to companies like ours and most highly correlated to your stock price is your organic growth profile. And so we can't control the macroeconomics everywhere in the world, but we can control how we perform within the industries. In many cases, we're industry leaders. So part of it industry health is incumbent upon us as well. But what we can really control is our ability to compete well in the market and gain or hold in more than 50% and hopefully closer to 70%. And we're seeing early green shoots of that happening.

And so we're encouraged, but it's a high standard, and we're going to hold ourselves to that high standard, and we invite investors to question us about that, and we'll be very transparent about how we communicate what our performance is so that, again, we can hold ourselves accountable.

When you -- in terms of the investments you made, what percentage -- I mean, what percentage win against those Taste Elevation categories that have the highest future growth prospects versus shoring up the foundation of the kind of the formerly known as North American Grocery...

You have to do both. So there's an element of where -- if we've underinvested in certain brands in certain categories, and we've got some leaky buckets, think about an Oscar Mayer, for example, we need to make some investments in packaging to improve our Oscar Mayer performance. We know that. And so we will do those things.

But the highest returns we're going to see and where we're really going to push forward is in some of our really iconic brands, Taste Elevation brands. So Heinz, Philadelphia, clearly areas where we can invest. You saw us invest in PowerMac, our new Kraft Mac & Cheese, which when I came, it was already developed, but a comfort food like Kraft Mac & Cheese with high protein and high fiber is a pretty compelling offering, I think, for consumers and retailers certainly saw it that way.

And retailers got even more behind it when we upped our investment against it. So you have to have a balance. You have to do both. But as we charge forward, we'll want to have a maintenance level of investment around what we call hold and a winning level of investment against our taste elevation where we feel like we really have a right to win. And we've got brands that are very responsive.

Yes. And as you talked about, it's a multifaceted. You've got more marketing, more investment in that innovation pipeline to market around, more commercial abilities, some investment in value, which of those buckets and maybe there's more, do you think is the most important for the company to fix?

Yes. I'd say really our innovation and our equity brand building are 2 elements that are really very important because when you look at our portfolio, one of the things that you see is our brand awareness is very high across the board. So think about brand saliency, people know our brands, but how that translates into household penetration is not always as strong as it needs to be. And there's 2 elements to really drive that household penetration higher when you have the type of saliency that we have.

And that's through brand equity investment and innovation and getting both of those elements right. And so you've seen a lot of what we've done, and I've talked a lot about this. A great example is what we've done with Capri Sun. It's a brand that has got very high saliency, but you saw consumers, which are basically young children drop out at about age 12 because we weren't innovating around what it would take to keep a 12-year-old turning 13 in the category.

Now it turns out, it's a pretty simple innovation. It's called the plastic resealable bottle. And so I teased the team about that, but it was really smart because they took a real consumer insight, okay, when consumers, in this case, young children age from 12 -- 10, 11, 12 to 13, 14, 15, it's no longer cool to have that little pouch that they had on the soccer fields when they were young, but they love the brand.

And so coming out with a plastic bottle was a way to actually age with the cohort, and it's proved to be very successful. Oh, and by the way, it opened up 25,000 or so additional doors and convenience stores where we weren't. And so a really terrific thing. And now we're just launching Capri Sun in the plastic bottle with electrolytes. Again, a hydration for the mom, dad who's shopping for their child and doesn't want perhaps all the sugar of a sports drink, but they want something that they trust and it's got electrolytes.

So there's a lot of examples where we've got the brand, we've got the saliency, but we haven't had the right level of innovation and brand equity investment behind it and the $600 million in getting to 5.5% and 1% of R&D really helps us accomplish some of those things.

I'm sure there are a lot of people in the room who are listening to this and saying, okay, this makes sense, but the U.S. food industry is no growth, right? The brands have tried making investments, and we just haven't seen companies be able to sustainably bend the trend, health and wellness, GLP-1, all the things that we've talked about for a long time. Why do you think Kraft Heinz can be different?

So I think a couple of things. Andre reminded me that if you just look at the categories that we play in, in the United States, the growth standing still holding share would be 1.7% or so, okay? So maybe not the most exciting thing in the world, but it's growth. That's positive. And so how do we perform better within that? And that's all the things that I've just been talking about.

And I think a lot of times, not everybody, but there's an element at a high level where the center of store gets painted with one brush and it's not exciting, it's not growth. And I would advance the idea that there's going to be winners and losers for sure. And there's going to be differentiation between those center of store and between companies like ours that make groceries writ large, and there has to be.

And we will be and aim to be one of those that stands out among the top performers within that category. So what does that mean? It means north of 1.7% growth, which could be -- if you double that at 3.4%, that's the kind of the algorithm that existed in the past that can be quite exciting when you manage your middle line very well and you get high single-digit operating income returns, and that translates into double-digit total shareholder returns for businesses like ours.

And so I think that, that may not be NVIDIA, but it can be very exciting, and it can be very appropriate for an investor to think about companies like ours and center of store, don't look at everybody with the same brush and think about who's going to be, which companies have the potential to win within that. And I think our portfolio sets itself up very, very well to be one of those winners because we've got iconic brands that have been underinvested -- and as we get the investment levels right, as we get the execution right, as we get the organization really rallied around a top line agenda, I think it's going to be exciting what we can accomplish.

Great. One element, not the element that you've highlighted is most important, but one element is fixing value equations in pockets of the portfolio. And maybe you can both weigh on this one. We've seen other companies, food and otherwise make those value investments, see some volume response, but not necessarily see it translate into sustainable share or even a positive organic growth calculation. How have you approached that? What are your objectives in making these value interventions where you are? And how do you guard against just promotions to stimulate some volume, but not really getting the positive full ROI?

Well, I'll start and maybe Andre can weigh in. I think and I don't want to comment on what others have done, but we're taking a much more surgical approach to when we think about pricing. And we think about it from the consumer standpoint, of course, and we think about affordability. And so we analyzed where are our gaps relative to competition, where are our gaps relative to private label and where are our opening price points. And where do we have an opportunity to present to the consumer a more compelling value proposition and value writ large, not just price.

And so I think if you just look at price, it's going to be more difficult. And all the things I just talked about in terms of innovation and marketing and consumer communications, getting the whole bundle for the consumer exactly right, but making sure that we put a real focus on affordability at the same time, I think, is really important because there's no denying what happened the last 4, 5 years has been unprecedented.

I mean we had COVID, obviously, we had supply chain shocks. We had inflation likes of none of us in this room have ever lived through. We have to go back generations to see that. And so you have all those things, which has put the consumer under pressure, but the consumer still responds to brands that they love when they're presented with ideas that are value accretive to them. And so we've looked at price as an element of that, but only an element. And I think that's the important differentiator.

Andre, anything to add?

I think Steve covered like, I think, the key points here is surgical investment. And again, it's 2/3 of our $600 million is going against like sustainable long-term initiatives, like it's marketing R&D, so we can innovate better. We can show brands out there, continue to evolve the attributes and the product and you have a lot in strong marketing salespeople that can execute well.

Steve, you mentioned some of the retailer, not even acceptance, sort of excitement around the plan. Can you talk about how you're positioning the company to work with retailers? I guess, maybe the level of retailer engagement and what you're trying to do and just how you're positioning yourself to be more integrated with what seem to be increasingly powerful retailers where we're seeing consolidation.

I'm thinking of the U.S., but -- so just your level of -- as you're making all these changes, we've talked about what you're doing. We talked about what the consumer is looking for. But in between, you have a retailer who's a really important partner. So how are you trying -- how are you positioning to maximize that partnership?

Yes. I think the reception from the retailers around our paused transaction and our reinvestment has -- I don't think I know it has been extremely positive. I've gone and visited them and I've talked to them. And as big as some retailers have become, as important as they've become, as consolidated as they've become, we're still very important to them. We're in most aisles of their stores. We're in their omnichannel world. We're doing everything that we can to be a leader and a good participant in good category dynamics.

And I think to the extent when retailers really believe that and understand that your commitment is to growing faster than the rest of their box and therefore, being a tailwind to them and not a headwind is very well received. And that's what we've tried to do is build plans with this incremental $600 million that really speak to the consumer through the retailer, right?

And so that's been very well received because if we are not growing, then we're a headwind, and we're too big to be a headwind. And retailers don't want us to be a headwind. They want us to be a tailwind. And so it's finding that overlap with retailers with great consumer plans. And when you find that overlap -- strategic overlap and they understand that your absolute objective is to be good stewards of the category and grow your brands within a very healthy category, it leads to very good conversations.

And very iterative conversations where you have to be willing to listen, you have to be willing to take the pushback, you have to be willing to understand what their needs are. But I have found the retailer dynamic to be extremely positive, but especially coming out of the reset because they -- it's in their best interest to have a healthy Kraft Heinz.

Yes. Okay. Can we talk about the balance between more bets, more investment across more categories and more brands versus bigger bets? I think you have -- you're doing a little bit of both, but I think you've talked about emphasizing fewer bigger bets. Where are those bigger bets being placed? And how do you -- what kind of discipline and information have you built around your internal processes to make sure that where you're making those investments is the right place?

Yes. So we are trying to do bigger and fewer, particularly as it pertains to innovation because the focus of the organization and the resources of the organization can be best deployed when you really have that focus. And so think about the big brands like Heinz and Philadelphia and Kraft, Mac & Cheese, you're going to see -- continue to see some big investments around that. And some of the platform innovations that we're doing.

So think Heinz Simply and Heinz Zero. Those are platforms with a lot of potential that simply speaks to consumers who are looking for clean label, who are looking for health and wellness, who are looking for nutrition. So things around nutrition and convenience and our big brands are areas where we'll see some real focus against.

Now having said that, we can do both, right? We can't neglect when we have such a large portfolio. And I often think if a small family owned the Grey Poupon brand, would it be better performing? I think the answer is probably yes. So how do we do both of those things at the same time and take brands like Lea & Perrins, like Grey Poupon that are absolute gems and are small in our portfolio and give them the right level of focus. And that's part of the human resource investment that we're making in putting really talented people against that, giving them the right level of resource and letting them go run and win.

It doesn't distract the rest of the organization, and you can do both. So from a magnitude, you're going to see the big platforms against the big brands with innovation, but you're also going to see us look at some of these really unpolished gems in our portfolio that perhaps haven't had the right level of execution, get executed against. And I think they can grow a lot better than they have been in the past.

Okay. How far are you planning, right? I mean -- or how far out is the innovation pipeline being built, the programs being built? I think we're all looking at money being spent today and looking for the early green shoots and signs of progress. But in your own -- internally, how much work is being done to tactically put in place '26 plans versus building out a pipeline for '27 and beyond?

So we're just starting our 3-year plan right now. And so the minimum for the innovation pipeline will be the 3 years that we're looking at right now. But realistically, it's double that because a lot of the food scientist work and the real breakthroughs, you're looking at projects that may not come to fruition for 5 or 6 years. And so we're looking at really a 6-year horizon around realistically, what should we be working on that will take that amount of time. But with the real pressure against the 3-year horizon as we build our 3-year plan. And then in the fall, you get to like really finalize what a 2027 plan looks like.

Okay. When does the 3-year plan come to fruition in concert with the end of this year? Or when is the -- you're building it, when does it finish?

It really finishes before the end of the year because it transitions very quickly. The first year of your 3-year plan better be your 2027 budget. That's the way I've always focused on things. I know Andre thinks the same way. And a great 3-year plan always gets -- in my experience, you build it every year because you're just tacking on another year. And when you really get humming, the first year of your budget is the last year that you're working on.

Okay. If we zoom out a bit, Andre, in the past several years, and we've been on this stage, we've talked a lot about technology and capability building inside the company. And yet there's -- we're -- now we're back to kind of doubling down and investing.

So is part of the capability gap that is being filled? Is it technology? Or is the organization actually in a good spot from a technology and consumer insights foundation, and it's really the people and the marketing to be able to utilize that technology better. Where are we? Because it seems a little bit disconnected from all of the forward thinking of the past relative to kind of a reset and reinvestment phase now.

Technology continues to be an important pillar and technology is evolving so fast, we need to evolve together with it. As we have mentioned several times, we invested a few years ago in our revenue management structure. We feel very good about what we have in the U.S. alone have about 50 people fully dedicated to it. So we do have very good techniques on how to really identify the best type of tactics.

We made good progress as we have been reporting periodically. We improved our prom ROI 20 basis points from '21 to '24. We moved to a position of having net ROI positive the promotions. Last year was not a good year, as we have indicated as well. We believe that has a lot to do with sales execution. So we feel very good that with the investments we are doing headcount on sales, that will help tremendously. We have already got the lessons from last year and already put some of those in place this year.

So even year-to-date, we saw improvement versus where we were last year, still more to come, but I think we're moving in the right direction. But technology continues to be a main pillar, and we think we need to continue to evolve with that. We feel very good. We have a sizable organization that all they do is AI. And those -- this team is being -- is deployed by different functions. So there is a lot of effort right now starting from the top for us to have the organization embracing that faster and faster across the board.

Okay. Steve, when you came in the organization, did you -- where did you find maybe the organization was surprisingly ahead versus things that you needed to accelerate from a capability standpoint?

One of the really positive surprises was our level of awareness and consumer insights and technology that Andre just mentioned. And so there's a good capability. There's a lot -- we were not suffering from a lack of understanding what was happening. And so that was a very positive thing. If we had to rebuild our consumer insights, it would take a lot longer. So the consumer insights, the team, the capability, the technology, I think, was really -- I was impressed by -- I was really impressed by.

Okay. I want to hit on a couple of things before we run out of time. From a financial perspective, Andre, there's a lot of focus on SNAP reductions in the U.S. And you called it out as a real near-term headwind for you. I guess how are you -- I guess, how are you sizing that impact as you see it today? And then what are you doing more tactically to mitigate some of those impacts where you are seeing them?

Yes. So as we have said in earnings, we anticipate 100 bps headwind linked to SNAP reductions. And we are seeing some of that coming to fruition. Now if you look at the latest 8 weeks or so, it's a lot affecting the sector. The best mechanism defense is productivity, to be honest, because we continue to go through inflation, right? So despite everything this year, we are anticipating about 4% of inflation, which is twice the normal rates that we have seen in the past.

And I think because of the good work we have been doing in productivity, now we're going for the fourth consecutive year of being delivering 4% of COGS that has helped us a lot to alleviate avoiding having to take as much price as we normally do. So this year, we're only pricing 20% of the inflation. And productivity will continue to be a critical pillar for us moving forward as far as to protect the consumer in this moment.

Now with that being said, as Steve mentioned, like a portion of our $600 million is going against the opening price points very surgically. So in about -- there are very specific categories like salad dressing, pasta sauce, et cetera, that we are making sure that we have that particular SKU that we are offering to the low-end consumer to protect them at this moment.

Okay. What about from a cost perspective, in the background, we've talked a lot about this conference and in general, just about the rising cost backdrop. As you're looking to invest $600 million or more, costs are rising in the backdrop. How -- what's your level of confidence that you can withstand that rising inflationary backdrop in '26? And also your level of confidence that, that doesn't become an increasing headwind that requires a step down into '27?

So look, as I said in the earnings, we feel -- we are hedged for the short term. So I think our near term is very well protected. And the productivity will play a very important role as well. And if there is inflation that is currently expected to hit in 2027 as hedges roll off, productivity will be again the main mechanism of defense. And if you get to a situation where the whole industry needs to price because of the magnitude of the inflation, like we will do so. But again, in a smart way and trying to minimize this.

So I think there is a lot of effort on our side to do the best we can with productivity. We have -- we are currently working on how we can further step up from where we are today so we can protect the consumer at this moment.

Yes. Because you've said '26 is a margin floor and nothing at this point deters you from that outlook, correct?

Right.

Okay. I guess from a balance sheet perspective, Andre, you've got some maturities coming up, you're taking some steps there. I guess just how are you thinking about the capital structure and capital allocation priorities from here?

We feel very good about the cash flow generation of this business. Last year, we delivered way more than 100% of cash conversion. This year, we're well on track to deliver that against. And I think the excess cash that we have been generating and the strong balance sheet have allowed us to step up $600 million in investment and don't compromise any of our capital allocation priorities.

In fact, it's preserving the dividend that we have, which is very attractive, maintain investment grade. Those are table stakes for us, and they're very important. We have excess cash still generated even with the $600 million that we still have flexibility. If we want to do so to step up more investment, we can do that. So we're in a very good position. Our dividend is very well protected at this moment. As you alluded to, we just -- we are paying down $1.9 billion of debt now in this quarter.

We are actively now looking at the 2027 because we have another big maturity coming through, and we are strongly considering anticipating paying down that because we have a good position of cash on hand right now. We just issued a Eurobond that will allow us to get out of some expensive debt that we had in our debt. That alone was very successful. We are very oversubscribed.

We were able to reduce interest expenses $300 million over 10 years. It was very successful. So I think, again, we feel very good about the cash flow generation of this business. We feel very good about the cash flow discipline. Balance sheet is in order. The dividend is well protected. So I think we're in a good position.

Okay. We're almost out of time. I guess, Steve, as we wrap up, if there's one thing that investors should remember and hold Kraft Heinz accountable for to judge success over the next year, what would it be?

It'd be organic top line growth momentum building based on our share performance. And so we've been very specific about that. And this is not a cost savings story anymore. This is a collection of phenomenal brands that have been underinvested, that are now going to be appropriately invested in and that will win share, win consumers, partner with retailers to create something that I think is going to be differentiated from many of our peers.

Okay. With that, we're out of time. We'll end it there. We look forward to hearing and tracking success over the next coming quarters, and we'll see you back here next year. Thanks so much.

Thanks, Steve.

Thank you.

Greetings, and welcome to The Kraft Heinz Company First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Anne-Marie Megela. Thank you. You may begin.

Thank you, and thank you all for joining us today. Welcome to the Q&A session for our first quarter 2026 business update. During today's call, we may make forward-looking statements regarding our expectations for the future. These statements are based on how we see things today and actual results may differ materially due to risks and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release and our most recent SEC filings, for more information regarding these risks and uncertainties.

Additionally, we may refer to non-GAAP financial measures. Please refer to today's earnings release and the non-GAAP information available on our website for a discussion of our non-GAAP financial urethane reconciliations to the comparable GAAP financial measures. Joining me today to answer your questions is our Chief Executive Officer; Steve Cahillane and our Chief Financial Officer, Andre Maciel. Operator, please open the call for the first question.

[Operator Instructions] My first question comes from Peter Galbo with Bank of America.

Thanks for the question. Steve, I was actually hoping to start with hold win and win big. Just comparing kind of what you said at CAGNY a few months ago to what you're presenting today, at least in the slides. I think there's been a few shifts of some of the platforms or subplatforms between kind of the different categories. So I was hoping you could kind of touch on the decision to make some of those changes and then kind of as a part B to that question, just whether that signals anything in terms of how you're viewing potential asset sales of different platforms.

Yes. Thanks for the question, Peter. As I said in the outset, we reserve the right to continue to get smarter. And that's what we've done, as we've made some of these changes. And a couple of examples we did downgrade our frozen from win big to hold, and we think that's based on what the category is showing us what our real opportunities are and really confronting the facts as they stand and being realistic about them.

Equally, if we look at hydration, we moved that from win to win big, we see strong category growth. We really like our brands in this space. We really like Capri-Sun its ability to go from following the cohort that's young and aging with them with our new hydration platform that's coming out now. So we see a real opportunity to win big there based on our brands and our place in the category. Equally, we've moved cheese from hole to win. We like the margins there. We like our brands. We like our opportunities. So those are some of the changes that we've made. I think they're all positive, and they point to the fact that we're continuing to look at our portfolio, challenge our portfolio, invest in our portfolio and look for those areas where we can grow.

Great. And Andre, maybe just as a follow-up, I know the guidance is largely unchanged after what was probably a better-than-expected Q1. You called out some timing factors. But maybe just you can expand a little bit on your prepared remarks from the commentary around Q2 and how you kind of view the evolving inflation outlook? I know you bumped that up a little bit today.

Look, we expect second quarter to have top line between minus 3%, minus 5%. This is a consequence of the Easter shift that we have -- a few times. Combined, we still anticipate and expect this NAP to be 100 bps headwind in the year, starting in the second quarter. There's nothing that we have seen so far that indicates otherwise. We do expect -- continue to see the market share improving like we observed in Q1. But given softness in the category, we still expect this to be a headwind in the second quarter.

This will be all partially offset by continuous improvement in away-from-home business online and in emerging markets. When it comes to inflation, we initially guided the year to be approximately 4%. In fact, our number implied in the outlook was a little lower than that. We are now seeing -- mainly because of the conflict inflation around energy and resins spiking up, we are well hedged in energy for the year. Resins, we are hedged through mid-Q3. So we do expect the situation remains the same. There's still a lot of volatility out there, which can get better or even worse, but we do anticipate in the third quarter to start to suffer the impact from that inflation.

Our next question comes from Steve Powers with Deutsche Bank.

Great. Steve, if we just look at the improvement you've started to show through in exiting the first quarter. I guess as you dig into it, are you able to parse out where there is more meaningful true underlying progress that you think can really -- this momentum that you can build on versus maybe some transitory impacts just areas where Easter timing or weather or what have you, flattered the quarter. Just is there a way to parse out what's most promising versus maybe where we should just kind of temper our thinking a bit.

Yes, Steve. Definitely, we benefited from Easter shift. There's no question about that. And the winter storms caused some pantry loading, no doubt about that. But underlying that, we've seen real improvement in our share trajectory and performance. As we said in the prepared remarks, the total business last year held or gained share in only 21% in the first quarter, that moved to 35%. And in March, that moved all the way up to 58%. And then if you look at our Taste Elevation, where we were investing earlier last year that moved from 24% holding or gaining share last year, all the way to 81% in the first quarter of 26% and exited March at 87%.

And that's really a function of the investments that we've made, the product improvements that we've made the distribution that we've been able to hold or gain based on the activities that were put in place. And the totality of the business and the good start to the quarter, I think can also be attributed to the fact that for the last at least 60 days, this organization has been maniacally focused on growth and execution, pausing the split freed up lots of resources as we said it would, and we turned our attention and the attention of this entire organization to get off to a strong start, and that's exactly what we did. So we're being very realistic about what flattered the quarter, as you said, but we also see the underlying strength that's building.

And that's important because that's where we're going to continue to invest. And the vast majority of our $600 million is still dry powder that is being deployed, as we speak from now through the rest of the year. So we're holding guidance, but we're very encouraged by the start to the year, and we plan on continuing our maniacal focus against our consumer and our customer and execution.

And to complement a little very quick with the numbers, so last year, we started the year losing 90 bps of market share mix adjusted, which was with the bottom in the last 10 years. We -- as we started to step up investment in the second half, we were able to exit last year, losing 50 to 60 bps of market share. And now year-to-date, we are at 30 bps. So that is definitely a good improvement happening right now, led by deceleration, but also by hydration, as Steve mentioned, and desserts. These places where we have step-up investments in marketing, in renovating the product, starting to show some signs.

Great. And Andre, while I have you, just on free cash flow, obviously, a strong quarter, but some more capital and marketing accrual timing benefits. Just obviously, you called you've maintained the free cash flow outlook for the year. But as you think about the balance of year to Q3, Q4, anything to call out in terms of timing of year-to-go free cash flow?

Look, our cash flow remains very strong. I think all the changes we have done to incentives a couple of years ago. We have another organization focused on really being disciplined in deploying CapEx and managing working capital better. So we are seeing that translated again in the first quarter because of the step-up in investments happening in the second half, we should expect cash flow potentially to go down in the second half of the year, but I mean, that's anticipated.

Now we exited the year, exited the quarter with a very strong cash on hand. So you will see us now in the second quarter paying down debt. The debt is maturing now in Q2, and we are strongly considering anticipating paying back part of the debt that is maturing next year, have $1.9 billion next year again. So we are considering anticipating a portion of that as well. And there are a couple of other things we are doing in terms of managing better our debt tower, which will allow us to reduce interest expense. But I think is a good position to put ourselves in and not allow us even to invest $600 million in business and to generate strong cash flow.

Our next question comes from Michael Lavery with Piper Sandler.

Thank you. Just curious how to think about the pricing environment. You've obviously started the year with plans that include price adjustments and it looks like there's early signs in this quarter that were they look like they're in place are that's working. But then there's, of course, shifts in the input cost environment. Does that do anything to change how you think about your plans or how kind of fluid and dynamic what your pricing expectations be?

Yes. Thanks, Michael. I'd say the pricing environment can be best characterized as very rational. We've come through this inflationary cycle, which was obviously unprecedented. The consumer is under a lot of pressure. And so our focus is very much on value, creating value and affordability and we have looked at opportunities to adjust pricing where we think it's gone a little too far and you're seeing some results on that. But we'll always look at the input cost environment and say our first line of defense is productivity. And we're really looking to ramp up our productivity and have a top-notch productivity year this year because it's really needed because the consumer can only absorb so much price.

And so we'll be looking at productivity. Ideally, a business like ours would take about half of input cost inflation in price and then the rest in productivity. And if we can do better than that, this is the year to do it because the consumer is under a tremendous amount of pressure. And we look at it as very much our goal to be affordable and be there for our consumers in an environment like this.

And I think the comment -- as Steve said, in the guidance for the year, we have contemplated initially that would price only 20% of the inflation. Okay. So this was already anticipated. And I think to Steve's point, we are relying on another strong year of productivity. We started Q1 strong, again, above 4% of COGS, and we do expect to be able to maintain that pace.

That's really helpful. And related to that, I just wanted to follow up on -- I think it's Slide 8, you flagged a simplified operating model as part of the turnaround for the U.S. And I guess, I want to make sure we understand kind of some of what that means. And it has the right of logo there. It could be referring to the Simplot, but how much opportunity is there to simplify the operating model?

And I guess part of the question is through the lens of district knowing the cost cutting can obviously go too far. So how should we just think about what opportunities there are and maybe the risks and how you think about that approach?

Yes. We made a terrific hire in bringing Nicolas Amaya to run our North American business, and he has been hard at work looking at the operating model as have we all, and we see real opportunities to have stronger accountabilities, stronger empowerment at the people who are running the business. We also see big opportunities to supplement our commercial activities, our commercial people, and we've been doing a lot of that hiring people in sales and marketing, but really with a focus on the consumer and the customer and very strong objectives that are aligned around our business objectives. The Chief 1 is growing organic sales and improving market share performance. And so simplifying everything that we do in service of the consumer and the customer and our goal to drive profitable volume-led value market share.

Our next question comes from Chris Carey with Wells Fargo.

Thank you, everybody, for the question. If you just think about the back half acceleration in top line that you're embedding for the year. Can you just unpack that a little bit across the most meaningful drivers as it pertains to the lapping of Indonesia, the step-up that you're expecting from investments, the improvement and the subsequent improvement in market share that you're expecting perhaps some of this acceleration in Western Europe post pricing.

Can you just give us a sense of how to think about the complexion of the major contributors to the back half improvement that you would expect in the top line?

Chris, I'll start and Andre can help with more details on the numbers. We're not really calling for an acceleration. We got off to a very good start, and we're being prudent about the way we think about the rest of the year. Of course, we'd always like to over-deliver on our top line goals, definitely would like to overdeliver on our market share objectives. But we're being prudent in the way we think about the rest of the year and not embedding the first quarter over delivery into our guidance for the top line.

In terms of the building blocks, you mentioned Indonesia, that's certainly a contributor. Like in the first quarter, for example, Indonesia alone was a 70 bps headwind to top line growth and do expect that all to go away in the second half, as we lap all the adjustments we have made in the business. Market share in the U.S. as we step up the investment, we should see an improvement versus where we are today.

Similarly, we feel good about our European brands, everything that we're doing behind Heinz, there is a lot of step-up investments as well as part of the $600 million that is going against Heinz in Europe, we're going to see that also helping improvement performance over that. And away from home, even though there is still overall softness in the category, we are now seeing a sign of market share improvement in the U.S., which is quite encouraging, especially in the sauces portfolio. So I think all of those factors should allow us to see the step up. So there will be a balanced contribution across those levels.

Okay. And it's been touched on a bit. But just as you think about the inflation exposure in Q4, obviously, this is going to imply bigger exit rates going between '27. Just -- and Michael kind of labor, you touched on this a bit, but what does the toolkit look like for you to work through a sustained higher inflation environment. Obviously, there's a pricing discussion, productivity sustaining relatively high levels. Would you look at maybe harvesting some of the investments that you've made in G&A to protect the bottom line going to '27. Obviously, this is a fluid environment and inflation can certainly change. But can you just give us a bit more insight on how you'd be planning from a cost offset perspective if we kind of look out 18 months.

Yes, Chris, so we wouldn't look at our investments, the $600 million and otherwise as a way to protect profit. In fact, we're looking at opportunities to even invest more as we see good returns against those investments and good outcomes in terms of the top line. So we'll protect that and in fact, even lean into it. As we said earlier, the first line of defense is always going to be productivity, but it's unknown what the fourth quarter and 2027 will bring. It could be that the whole environment moves towards needing to take more price. I mean we can't predict what the outcome will be in the Middle East and how that will affect. But it's going to be something that affects the entire environment and we would be looking to go with that.

But again, first line of defense is productivity, investing in our brands and driving a good top line outcome is what we'd be looking at.

Our next question comes from Thomas Palmer with JPMorgan.

Maybe I could just start on the marketing side, you noted the 37% increase in the first quarter on a year-over-year basis, also the plans for 5.5% spend. But maybe any framing on where that level of increase in the first quarter kind of takes you relative to that annualized percent of sales? And then when we think about the magnitude of the increase, are there any timing considerations such as kind of having that earlier Easter impacting how that marketing spend flowed through? And last detail on kind of where that spend has really been focused. And if you're seeing when we look at the share improvements disproportionate spend in kind of the areas that have inflected the most?

Yes. So as we said in our prepared remarks, we do expect marketing for the year to be at least 5.5% of revenue. And Steve mentioned, we have been looking very closely on how our performance is shaping up and if things end up better than we anticipated, we will be -- will truly need more on the investments, marketing being 1 of the key drivers. The reason why we see 37% in the first quarter. You might remember last year, we stepped up market investment in the second half of last year. So then you have this effect of now we have, in a certain way, easy comp on the marketing front.

So year-over-year, we're going to see that gradually reducing that impact because of the step up in the second half. But overall, in the year, we do expect at least 20% of increase. In terms of where this money is going, we have been prioritizing our win big category. So there is a proportionate amount started last year that went against sauces, cheese, Mac & Cheese hydration. But the reality is we do have the opportunity to step up marketing across the whole portfolio. So we have been gradually stepping up the investments across different parts of the business to different extents, but we do believe that will be healthy to the whole portfolio.

Okay. On the Snap side, you've noticed expected headwinds, especially ramping this quarter. I know it's still early in the quarter. Are you already seeing signs of this incremental impact as we think about the second quarter. And just to confirm, there was not really impact in the first quarter. I know it wasn't a call out.

Yes. So we definitely see an impact from SNAP already happening in February and March. So if we look SNAP transactions, they are already down in line, if not even a little more than expected. On the other hand, we saw strength in the non-SNAP households, which helped to offset that in the first quarter. but it's hard to predict at this point, if that strength that you saw in the non-SNAP households will hold into the remainder of the year. So what we are anticipating is that we're going to start to see that more -- that SNAP household impact more producing to sell out a year to go.

And that's why we have been calling for 100 bps headwind. Obviously, they're not sitting on the problem, right? So we do expect that have been space for a while. So that's why part of the price investments that we have deployed in the $600 million were put against opening price points because this part of the consumer base is definitely under a lot of pressure.

Our next question comes from Megan Clapp with Morgan Stanley.

Maybe to pick up on Tom's first question on the marketing investments. And Steve, some of the comments you've made, clearly, you're seeing some benefits from things that were done kind of prior to making this new plan? And Steve, I think you mentioned $600 million is still dry powder. So as you see the improvements you've made in the first quarter and then some of the areas you highlighted meets in particular where there's still opportunity. Can you just talk about whether anything you've seen so far has changed how you're thinking about concentrating some of those investments particularly as we've talked about a lot, the macro continues to shift and perhaps the cost inflation outlook gets more challenging as we go into the back half.

Yes, Megan, what we've seen is good returns on the investments that we've made, and that's where we're leaning in. I mean if you look at some of the exciting things that we have going on right now, you can you can follow our investment against those. So for example, Power Mac and Cheese, which just came out in April, too early to see any sell-out data, but the sell-in was outstanding, 35,000 accounts right now as we speak. And I think that's a function of the commitment that we made to increase our investments substantially led to better distribution, and we're going to be investing against it. And so we anticipate a good launch there.

We've got in -- business nice shapes innovation that we're investing in. The Capri Sun hydrate that we mentioned earlier, I think a big opportunity to continue the momentum that was built last year on Capri Sun and new distribution and new doors there. So investing against that. We've got a Lunchables renovation, which is coming next month. We'll be investing against that. We've seen a good turnaround in Lunchables, which started at the end of last year. And we've got things in the back half of the year, like Philadelphia lactose free, which is, as we mentioned in the prepared remarks, we think a big opportunity given the number of people who suffer from lactose intolerance in the U.S. and a great innovation there that we'll be investing against.

So the brands where we think we have a real right to win, we'll be investing in. And you mentioned meats, where we have things that we need to turn around. Clearly, we need to make some investments there. We don't like leaky buckets and we're going to look to plug those at the same time as we lean against our biggest and best opportunities.

Great. And Andre, maybe just a quick follow-up on the gross margin performance. It was down in the quarter, but significantly better than I think what you were expecting, certainly what -- the Street was modeling, I understand there was probably some fixed cost leverage benefits there just on the top line. But anything else in the quarter just in terms of the upside maybe versus your expectations to call out?

Sure. That is about 40 to 50 bps of gains in the quarter that are nonrecurring. A portion of that is selling excess by products so we don't expect that to be repeated a year to go. There is a small contribution from -- were expected to do a maintenance in a certain factory and then have to production to a copacker temporarily. We decided to move that to later in the summer. So that's like a phasing thing. Cheese commodity came a little better than what anticipated.

So we did see the peak in inflation that we expected across most of the commodities, including coffee and meats, but we had those other upsides that help in the quarter. But that's why we are maintaining also our expectation for the year of a headwind of 25 to 75 bps.

Operator, we have time for 1 more question.

Okay. Our last question comes from Scott Marks with Jefferies.

In the interest of time, I'll just ask one. Wondering if you can give us a lay of the land in terms of the away-from-home environment. I know you called out some pressures in the U.S. business have certainly some clear paths to growth there. Just wondering if you can kind of help us understand what's happening both in the U.S. and abroad and how you think about the improvements within that part of the business.

Yes, Scott. So I'd say from a macro perspective, away from home is under a fair amount of pressure based on the macroeconomic environment, both in this country and around the world. Having said that, we see tremendous opportunities for us in away from home based on the strength of our brands and the opportunities in front of us. And this is 1 of the areas we're investing in. So we see away from home as a strategic outlets. We see it as a strategic opportunity for us. We like the momentum that we're building early this year, and we see a lot of opportunities, both in this country and especially around the world to continue to gain share in away from home.

And we've got 1 of the greatest away-from-home brands in Heinz and we can do a lot more in leaning in to Heinz. And not just in catch-up. Heinz has been successful in mayonnaise and other spreads as well. So big opportunities for us to continue to leverage our brands, especially Heinz as we think about the away-from-home opportunity.

We've reached the end of the question-and-answer session, and this concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Hello. This is Anne-Marie Megela, Head of Global Investor Relations at the Kraft Heinz Company. I'd like to welcome you to our first 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 risks 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 first quarter results and will conclude by discussing our 2026 outlook.

We've 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. We've made steady progress in the first quarter, and I'm encouraged by the early signs of momentum that we're building. At the same time, we remain grounded in the necessary work ahead, particularly against the backdrop where consumer sentiment remains low due to current macroeconomic and geopolitical conditions. What gives me confidence is the alignment and commitment I see across the organization as we execute against our 2026 plans, which will position us to ultimately return to sustainable and profitable growth.

Beginning with the first quarter, I'm pleased to share that we delivered results ahead of our expectations. Organic net sales declined 0.4%, outperforming our initial outlook for a low single-digit decline. This better-than-expected top line was driven by an estimated 150 basis point consumption benefit from winter storms in January and February, and to a lesser extent, outperformance in market share recovery. While the storm impact reflects a onetime benefit in the quarter that we don't expect to repeat, we're encouraged by the underlying share momentum.

Adjusted gross profit margin of 34.1% was down 30 basis points versus the prior year, primarily driven by inflation, partially offset by productivity gains. Our top line and adjusted gross profit margin performance, in addition to our planned increase in SG&A primarily in marketing, contributed to a constant currency adjusted operating income decline of 12.5%.

Adjusted EPS was $0.58 for the quarter, a decline of 6.5% compared to the prior year. This was driven by our adjusted operating income performance, partially offset by a lower effective tax rate. We continue to generate strong free cash flow, up 59% versus the prior year, driven largely by improvements in working capital. This, along with the strength of our balance sheet, positions us to confidently sustain our dividend and manage debt levels.

As you may recall, we started increasing investments in the second half of 2025. I am pleased to share that we're seeing those investments start to pay off and drive early market share traction this year. In 2025, 21% of our total Kraft Heinz business was gaining or holding share. In the first quarter, that number improved to 35%, with an even more pronounced improvement in March at approximately 58%. As we look at this through the lens of our market share goals across Win Big, 28% of our business was gaining or holding share in 2025, with an improvement to 51% in the first quarter and 59% in March.

Driving majority of the improvement across Win Big is our performance in U.S. Taste Elevation, where we have a portfolio spanning categories in which we hold strong market share positions and have a clear right to win. Here, the percentage of sales gaining or holding share in the first quarter was over 80% and reached 87% in March. We have made product and packaging improvements to drive superiority across Taste Elevation categories, including ketchup and cream cheese. We increased marketing and optimized allocation across media types, while at the same time, launching new product-focused creative, and we invested last year to bolster our U.S. Taste Elevation team, with approximately 50% more head count supporting core brands like Heinz and Philadelphia. This is proof that when we make focused consumer-driven investments, we can improve performance. And as we have recently announced, our plan for this year calls for meaningfully more investment.

In our U.S. retail business, we are moving in the right direction, from 29% of our portfolio gaining or holding share in the first quarter, to 54% in March. In addition to Taste Elevation, we are driving market share improvements across both hydration and desserts. That said, we still have much work to do, particularly in categories like meats and meals, where we are taking targeted actions including price investment across Oscar Mayer and stepping up innovation and marketing across Mac & Cheese. We believe the investments we're making this year will translate into stronger performance in U.S. retail.

Now let me take you through our specific plans for the rest of 2026 and how we will continue to build on this early momentum. As I said, our goal is to drive volume-led, sustainable and profitable top line growth while continuing to generate attractive free cash flow. We plan to do this by turning around our U.S. business and by accelerating the momentum in our international markets across both retail and away-from-home channels.

Starting with the U.S. We are building upon investments we started to make last year. We announced a $600 million investment across product superiority, select pricing, marketing, sales and R&D, of which the majority will be focused on turning around our U.S. business. We know that our brands respond well when we invest behind them. Building on 2025 learnings, we are improving how we allocate spend and are sharpening our execution. We are deploying these incremental dollars in a highly disciplined manner. Our strong balance sheet and robust free cash flow capabilities position us well to fund the investments.

In addition to the investments, we are improving and simplifying our U.S. operating model, including new leadership, refined incentives and a renewed focus on rewiring core processes. I will share more details on this shortly. Internationally, growth will be led by our Heinz brand, along with distribution expansion in emerging markets. In the second half of 2026, we expect emerging markets to accelerate to a double-digit growth pace.

Let's dive a bit deeper into the $600 million investment. Our focus is on delivering value to consumers, not only through superior products and meaningful differentiation, but also by providing affordable options while at the same time protecting distribution. 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. For example, we added frequencies to our Capri Sun 10-pack in the first quarter, which is performing very well. And we just introduced new promotions on our 5-pack Kraft Mac & Cheese. We're also introducing smaller pack sizes at more accessible entry price points, such as in pasta sauce. And will drive value through optimal price curves across select condiments, including Heinz ketchup.

To drive consistent execution, we are making investments in people, increasing head count throughout the organization, with a particular focus on our marketing and sales teams. This includes investments in e-commerce, where we grew approximately 13% year-to-date through the first 2 months of the year, with investments expected to accelerate in the second quarter.

We know that well resource teams will enable us to have better retail partnerships, better in-store and online execution, sharper consumer insights and better product launches. In the first quarter, we've made progress in pinpointing our hiring priorities and are actively working on bringing the right talent on board to complement our existing teams.

On the marketing front, we have been actively working to increase our return on marketing spend. We've reallocated dollars towards higher-return brand media, improving efficiency through fewer, more effective media partners, and launching stronger consumer-driven creative. Importantly, we're measuring direct sales impact, and we are seeing clear improvements. Based on our latest data, return on ad spend grew 8 percentage points globally.

As we are improving returns, we're also stepping up our investment, increasing marketing spend to at least 5.5% of net sales. In the first quarter, marketing was up approximately 37% versus the prior year. Importantly, we are doubling down on marketing in areas with good momentum. For example, across big bet innovations, including PowerMac, new partnerships, including our recently announced 5-year partnership with the NFL, and supporting Heinz globally.

And we also know that we need to invest more in R&D to drive both product superiority and value for consumers. Our plan contemplates increasing investment in R&D by approximately 20% versus the prior year, bringing it closer to 0.9% as a percentage of net sales. In the first quarter, our R&D spend was up 16% versus the prior year. 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.

As we invest more in R&D, we are strengthening the foundation of our innovation pipeline. Our innovation and renovation strategy is centered around 3 consumer-driven platforms: convenience, new occasions and nutrition. We have already done a lot of work on renovating the core, including product and packaging improvements, whether that be improved cookies and crackers in Lunchables with a new on-pack protein claim, or Crystal Light, where we refreshed the packaging to clearly highlight the zero sugar low-calorie positioning.

To complement that work, we are launching bigger innovation. This is highlighted by the recent launch of Kraft Mac & Cheese PowerMac, which is now on shelves at major retailers nationwide. PowerMac expands our blue box lineup with added nutrition while staying true to the taste, convenience and affordability that has made Kraft Mac & Cheese a trusted household favorite. Offering more nutritional value at a lower price than competition while maintaining attractive margins, we are really hitting on the value equation for our consumers. While it is too early to gauge sellout performance, distribution has come in very strong, selling into 35,000 stores, and we are ramping up in-store support and media to drive trial and velocities.

We also have an exciting pipeline ahead of us, including Capri Sun Hydrate, a functional beverage option that addresses the white space between kid beverage and adult sports drink. And we are expanding our Philadelphia lineup with lactose-free cream cheese offerings. Lactose intolerance affects up to 50 million Americans, and our Philadelphia brand is well positioned to provide the same signature creaminess and taste without compromise. You can expect to see Capri Sun Hydrate rollout on shelves throughout the second quarter, with lactose-free Philadelphia coming in early third quarter.

As we prioritize our investments across the portfolio, we are taking into consideration our market share goals. For those brands where we want to hold share like Oscar Mayer and Maxwell House, we will spend to defend share. In those brands where we're looking to win market share like Lunchables and Jell-O, we will invest selectively. And for those brands where we have the right to Win Big, like in our Taste Elevation brands such as Heinz and Philadelphia, we will distort our investments accordingly.

In addition to investing more across the business, the second major element of our U.S. turnaround is the simplification of our U.S. operating model. First, we brought in Nico Amaya to lead our North America business. Having worked closely with Nico, I've seen firsthand his ability to build strong teams, stay relentlessly focused on consumers and customers and translate strategy into results. I am confident in his ability to help drive our North America business forward.

Second, we have rolled out an incentive structure that better focuses the teams on generating market share gains, while empowering teams to be more flexible and adaptive to market conditions.

Lastly, we are making refinements to our business unit model. We believe that we have the right base to build upon, with an operating model that is BU-led and functionally enabled. But we are not fully living into this model today. We've launched an initiative to rewire core processes and management routines, such as integrated business planning, innovation and marketing and sales ways of working. This will help us streamline decision-making and build more consistent commercial capabilities with clearer processes and accountabilities.

We expect through our investments and simplified operating model in the United States, we can sharpen our focus on our brands and capabilities while reducing complexity and accelerating decision-making across the organization. As we progress throughout the year, we anticipate this will translate into more consistent and stronger execution in market.

Now turning to our international markets. Our focus remains on growing the core through our Heinz brand and distribution expansion in our emerging markets. Heinz grew approximately 11% in emerging markets in the first quarter. Around the world, we are expanding Heinz across new occasions and geographies, while catering to local preferences and trends.

Even in markets where we're already strong, there is substantial white space. Brazil is a prime example. Here, we are the leader in ketchup, with nearly 50% share. But despite our share position, Heinz is only in about 20% of Brazilian homes. This presents a meaningful opportunity for expansion. So this past month, we launched Heinz Zero Ketchup, which has no added sugar, 50% fewer calories, 25% less sodium, uses a high proportion of tomatoes, and sells for the same price as the original version. This is a great example of how we're leveraging the strength of our Heinz brand to meet consumers where they are.

We also expect to continue to grow in emerging markets through increased distribution, leveraging our go-to-market model, with distribution points up more than 25% in the first quarter. This includes continued expansion into the Away From Home channel, which grew over 8% in the quarter.

Taking a closer look at Global Away From Home, organic net sales have continued to improve relative to our performance in 2025. In the first quarter, our Away From Home business declined 0.6%. This was primarily driven by our performance in the U.S., which was partially offset by growth in emerging markets that I just mentioned.

As we progress throughout the year, we anticipate an improvement in our share performance despite our expectation for the U.S. food service industry to remain muted. We believe this will be driven by a combination of continued ramp-up of new business wins and further investment behind our Heinz verified program.

Away From Home remains a strategic channel for us where we see significant opportunity for growth, both across our North American and our International businesses. This includes growth beyond ketchup, expansion into noncommercial channels and increased penetration in QSRs.

Before I hand it off to Andre, as you can see, we are starting to see some initial momentum. Based on the strategic direction we have set and our first quarter performance, we are confident that we can achieve our expectations for 2026.

Andre will now walk you through our first quarter financial performance and 2026 outlook in more detail.

Thank you, Steve. In the first quarter, organic net sales for Kraft Heinz declined 0.4%. Price contributed 0.8 percentage points, while volume mix declined 1.2 percentage points. Higher pricing was primarily driven by coffee, with declining volume mix, largely reflect elasticities in coffee and softness in cold cuts.

Breaking this performance down by segment. North America organic net sales declined 1.1%, coming in better than anticipated due to 150 basis point onetime impact from increased consumption driven by winter storms as well as market share momentum. Growth in Canada was more than offset by declines in the U.S., which was driven primarily by cold cuts. As expected, we also experienced a benefit from the Easter shift of approximately 100 basis points, which we anticipate will be a headwind in the second quarter. At the same time, we are cautiously optimistic that the underlying improvement in share performance will hold and ultimately improve.

In our International Developed Markets, organic net sales declined 0.1%. This decline was primarily driven by pressure in Western Europe due to price negotiations. Heading to the second quarter, most of the discussions are behind us, with market share now recovering across the region. This headwind was mostly offset by growth in the U.K., where we gained 60 basis points of share in the quarter, growing share across our meals, sauces and pasta sauce categories, led by our Heinz brand. This is a true testament to the stretchability of the Heinz brand beyond ketchup.

In Emerging Markets, organic net sales were up 3.8%. This was driven by high single-digit growth across our LatAm and East regions, partially offset by the previously anticipated 400 basis point impact from the decline in Indonesia. Outside of Indonesia, we are generating volume growth in emerging markets, and we expect to start seeing recovery in Indonesia in the second half of the year.

Turning to the next slide. Kraft Heinz adjusted operating income declined 11.8% and our adjusted operating income margin decreased 250 basis points. In North America, adjusted operating income declined 11.6% versus the prior year. This was primarily driven by investments we are making in marketing, in addition to inflation, which was partially offset by our productivity initiatives.

In International Developed Markets, adjusted operating income increased 4.9%. This was primarily driven by a favorable impact from currency, strong productivity and lower commodity costs that were partially offset by incremental investments in marketing.

And in Emerging Markets, adjusted operating income declined 4%. Indonesia, which contributed 11 percentage point impact to the decline, more than offset growth in the rest of the business. Outside of Indonesia, we delivered growth driven by sales performance, particularly in our Heinz brand, and productivity savings helping to offset inflation.

Moving to adjusted gross profit margin, which declined 30 basis points versus the prior year in the first quarter. This was driven by inflation, particularly across manufacturing and logistics, which more than offset productivity initiatives and pricing.

Looking ahead, the macro environment remains volatile, driven by ongoing geopolitical conflicts. We expect our commodity hedging program to provide some near-term protection, particularly as it pertains to costs related to energy and edible oils. We also have hedges in place for certain resins and metals through mid-Q3. But as these roll off, we would expect increased exposure to spot prices in the fourth quarter.

Helping to mitigate these inflationary headwinds and support gross margin performance we continue to generate strong growth efficiencies. We delivered approximately $160 million in the first quarter, representing roughly 4% of COGS, a pace that we expect to continue through the rest of the year.

In terms of adjusted EPS, we declined approximately 6.5% or $0.04 versus the first quarter of 2025. The decline was driven as expected by lower results of operations and was partially offset by a lower effective tax rate.

Looking at free cash flow, we generated $800 million in the first quarter, a 59% increase versus the prior year, and free cash flow conversion of 111% represented a 46 percentage point increase compared to Q1 of last year. The increase in free cash flow was driven primarily by improvements in working capital across both inventory and payables. These improvements reflect our continued focus on excess inventory reduction, digital integration and demand planning and improved payment terms through collaborative supplier negotiations. Our free cash flow conversion also benefited from marketing accruals booked in the first quarter, with the impact to cash expected in subsequent quarters.

Looking at capital allocation, our priorities remain very clear, sustaining the dividend and protecting our investment-grade credit profile. We have a strong balance sheet and solid free cash flow generation. We have the flexibility to navigate potential volatility while investing in the business and continuing to fund the dividend, reduce debt and manage leverage in a disciplined way.

In the second quarter, we are deploying excess cash to reduce debt and continuing to optimize our debt towers by finding opportunities to reduce our cost of debt. We would expect our 2026 net leverage to be no higher than 3.3x. We have a clear path to bring back this down to our target in about 2 years.

Now turning to our full year 2026 outlook. We are reiterating our expectations for the year. We continue to expect organic net sales to be down 3.5% to down 1.5%. This includes an approximate 100 basis point impact from incremental SNAP headwinds. Our outlook contemplates adjusted gross profit margin in the range of down 75 to down 25 basis points year-over-year, reflecting inflation as well as investments in price, product and packaging. This is expected to more than offset targeted efficiencies.

We expect the inflation within our full year outlook to be slightly above 4%. As I mentioned, the macro backdrop continues to be uncertain amid geopolitical tensions. We are maintaining a heightened focus on supply continuity, and while we expect our commodity hedges to help mitigate near-term cost volatility, we would expect to see some incremental costs in the second half. Importantly, we have the capacity to absorb these costs within our guidance.

We continue to expect constant currency adjusted operating income to be in the range of down 18% to down 14%. This includes approximately 13 percentage points from incremental investments and an approximate 3 percentage point impact from lapping lower variable compensation in 2025. We continue to expect adjusted EPS to be in the range of $1.98 to $2.10. Our adjusted EPS expectation now contemplates an effective tax rate of approximately 25%. From a cash perspective, we continue to expect to generate free cash flow conversion of approximately 100%.

Looking specifically at the second quarter, we expect organic net sales to be down between 3% to 5%. This includes an approximate 100 basis point headwind from the Easter shift and a 100 basis point headwind from lower SNAP funding. In the U.S., we do expect to hold our underlying share improvement seen in the first quarter into the second quarter, and a slight sequential improvement in both Global Away From Home and Emerging Markets. Moving into the second half of the year, we expect further improvement in our top line as we lap the headwind in Indonesia and our investments ramp up.

For adjusted operating income, we anticipate a decline in the range of 18% to 20% in the second quarter. This is driven by our top line expectations, a slightly worse adjusted gross profit margin year-over-year relative to the first quarter and increased level of investment.

With that, let me pass it back to Steve for some closing comments.

Thank you, Andre. Our 2026 plan is focused on building momentum in the business, to drive profitable growth through share recovery and volume improvement, while continuing to generate attractive free cash flow. We believe this is the single most important thing we can do to position ourselves for the future.

Investments we made in 2025 are now driving early traction, with improving market share trends, particularly in must-win parts of our portfolio like Taste Elevation. We've seen that our brands respond well when we invest behind them. This year, we will build on those initial investments, applying learnings from 2025 to improve how we allocate spend, sharpen our execution and drive stronger returns. We believe that with the right level of investments, a simplified operating model and continued opportunity in our international markets, we will be well positioned to drive sustainable growth.

While I am encouraged by our start to the year, we are reaffirming our 2026 outlook amid market volatility, with increasing inflationary pressures and low consumer sentiment. At the same time, we are retaining flexibility to increase investments in areas that are delivering attractive returns.

That concludes our comments for today. Thank you for your time, and thank you for your interest in Kraft Heinz.

Good morning, everybody. If we could find our seats, we'll kick off our first presentation of the day, and thanks, everybody, for being willing to make an early start today. So it's my pleasure to introduce Kraft Heinz. Please join me first in thanking the company for sponsoring breakfast this morning. Kraft Heinz has made a significant commitment to stepping up investments this year with a focus on contemporizing brands to align with consumer preferences, enhancing commercial execution and delivering a more balanced value equation.

Please join me in welcoming Steve Cahillane, Chief Executive Officer; and Andre Maciel, Chief Financial Officer. Over to you, Steve, and thanks for being here.

Thank you, Andrew. Andre and I are very excited to be with you here today. Thank you for braving the 7:00 a.m. hour. Very, very impressive. Before we begin, please keep in mind that today's presentation will include some forward-looking statements. Now let's kick things off with a short brief clip.

[Presentation]

That right there is why I am here. These brands are so iconic, so special, so well known. But unfortunately, for too long, we have been relying too much on only that. We recognize that it is imperative to drive volume-led, sustainable and profitable growth. and to do this while continuing to generate attractive free cash flow. We can't do that by continuing to rely on old ads on the nostalgia of the brands alone. Instead, we need to make these brands relevant for today. We need to contemporize them and I am very excited to be here to do just that. When I joined Kraft Heinz earlier this year, I quickly saw that in addition to these iconic brands, we have some very powerful proof points or blueprints, if you will, in pockets across the company. These blueprints have led to volume-driven top line growth and share gains.

Today, I will share with you some of these examples. You will see why I am so energized about this turnaround and why we are confident that we can do this. I'll show you what is possible with a simplified operating model. This is what we did in Canada. The new model, along with investments across innovation and renovation, helped to grow the business at a 4% CAGR over the past 3 years with consistent sales growth and market share gains. You will also see how in the U.K., we returned a nostalgic brand, Heinz Beans to share growth through innovation, renovation and a more balanced value equation after suffering from a decade of share declines. And we will look at how we are leveraging the power of one of the most recognizable brands in the world, the Heinz brand.

With more and improved marketing and sales support, we help to grow the brand by 13% in emerging markets. These are tangible repeatable blueprints and just a few examples that we can replicate and we can scale. So we will be making a meaningful step-up in investments this year. approximately $600 million in total. With this incremental investment, along with the insights and capabilities we've gained, we can fix those places that need fixing, particularly the U.S. market as well as accelerate momentum in those markets and brands in which we already have initial traction, including Heinz across the U.K., Europe and emerging markets and our portfolio of brands in Canada. In fact, I believe in this so much and see that so much is within our control to fix that as we announced just last week, the entire organization will be 100% focused on doing just this.

After I share these reasons to believe and show you how we will replicate and scale them to turn around the U.S. business, Andre will give more color on the necessary investments to make this happen and how we are self-funding these investments. He will also cover our capital allocation priorities. So let's get started. First with Canada, which represents approximately 7% of total Kraft Heinz net sales. From 2019 to 2021, Canada's top line and market share declined each year. When we looked at the business, when the team looked at the business, the primary hurdle was our operating complexity. We were buried in a matrix that slowed us down. So our first move was to simplify the operating model. We traded that complexity for decision speed and clear ownership. We increased investments and prioritized our resources on our core businesses, particularly committing innovation to a few big bets.

But a strategy is only as good as its delivery. Because we kept the plan simple, we were able to get the entire organization aligned and moving in the same direction. We backed that up with a maniacal focus on execution and clear channel priorities. The result is a business that is now faster and built to win. The organization is focused on 2 big bets currently. The first was winning with Heinz through expansion beyond ketchup and better-for-you offerings such as Heinz Zero, which doesn't have any added sugar or salt. The second is nutrition, where we are accelerating our core through benefits led growth, including adding protein to some favorites, including our KD Mac & Cheese and our Kraft Peanut Butter. As a result, over the last couple of years, we grew net sales in Canada at a 4% CAGR, and we gained market share with core brands delivering about 80% of the growth.

Now turning to our international developed markets in Europe and the Pacific region that represent approximately 14% of our total net sales. Here, our teams have been successfully leveraging our global Heinz campaign, scaling innovation and focusing on building stronger, mutually beneficial customer relationships. In these markets, we are successfully leveraging the strength of the Heinz brand in large and competitive categories. For example, we have expanded into a new occasion with the introduction of Heinz pasta sauce which is nearly 60% incremental to the category. And we continue to gain market share. In under 4 years, we have gone from not playing in the space at all to earning 7% share. We are also broadening our sauce offerings, focusing on the large and fast-growing Mayo segment. This is a $2 billion market and 2x the size of ketchup.

Leveraging our brand power and unique appeal with younger consumers, we launched a superior Heinz Mayo recipe. And as a result, we reached 20% market share in the U.K. and 13% in Germany. And a final example, Heinz Beans, where we contemporized an old favorite. Let's dive a little bit more into what we specifically did here because I think it's truly an exciting story. While Heinz Beans has been an iconic brand and a staple in British culture for decades, we have been losing share consistently for the last 10 years. The brand was suffering from a lack of investment, inferior product quality and packaging, price points that were too high and insufficient media support.

To address this, we used insights from the brand growth system analysis to make targeted investments. First, we focused on contemporizing the core product. We optimized the formulation to reduce water migration from the beans into the sauce. This resulted in a thicker sauce, firmer beans and better overall texture. We also changed our revenue management strategy and introduced new price pack architecture to rebalance our value equation. We worked alongside our customers and developed more constructive joint business plans. We then rebooted the innovation engine and expanded into new flavors. We knew that over 70% of consumers were adding flavors to their beans already and that 50% of consumers were looking for bold flavors.

The team didn't stop there, expanding into heat-to-eat pouches that are healthy with functional benefits provide convenience and create another moment for flavor exploration. The heat-to-eat pouches segment has been growing at a 130% CAGR over the last 2 years as consumers are looking for flavor, convenience and better-for-you solutions. Our heat-to-eat pouches are delighting consumers as an excellent source of protein made from natural ingredients and with no added sugar. And importantly, these pouches are nearly 70% incremental.

With a better product better value offering and exciting innovation, we then added 30% in marketing to support the brand. Impressively, not only did we reverse course on 10 years of market share loss, we did so while preserving the brand's very attractive margins. I think you can see why I'm excited about our future. Our teams have shown that we can turn around nostalgic brands that had lost their way to go from market share loss to market share gains.

Now let's turn to emerging markets, which is an area for great growth potential. Today, it represents only 11% of our business. We expect the Taste Elevation industry to continue to grow double digits. And with half the penetration in emerging markets as we have in developed markets, there is a lot of white space available for us to capture. Plus with only 11% of our business in emerging markets, you can see that we have a long runway in front of us to reach just the levels of other CPG companies. We have been using 3 proven levers to drive growth in emerging markets.

First, through Heinz. It represents over $1 billion of revenue in emerging markets and delivered an impressive organic net sales growth of 13% in 2025. Second, our go-to-market model. as we continue to drive distribution in existing markets while exploring white space opportunities. Through this proven model, we expanded distribution points by 13% in 2025. We and third, through Heinz-led innovation. We will continue to accelerate the growth of our Heinz brand through flavor exploration, driving value through the right portfolio and pack size and expanding usage occasions.

Let me share an example that comes from China, where we are expanding into a new occasion and growing Heinz by educating and encouraging more families to cook with Heinz ketchup. Today, in China, only 30% of households use ketchup. However, tomato scrambled eggs is an extremely popular dish, so popular that it is often the first dish that people learn to make with over 10 billion batches made each year. Our social media analytics showed us there was one critical pain point with this dish. It was that imperfect tomatoes that are under ripe, watery or just too firm can spoil the entire dish. So we decided to introduce a new way to make it with ketchup. Heinz Ketchup is made with 10 sun-ripened tomatoes in every bottle, and it is an ideal replacement for tomatoes and eggs. Its consistency and reliability make it a perfect ingredient.

We educated and met consumers where they were with end-to-end execution. Online, we set out on a campaign to share with consumers that Heinz Ketchup is the reliable ingredient they were missing. We also showed up very strong in store, displaying ketchup next to eggs. And we showed up in their everyday lives, making billboard advertisements out of diner shutters during the Chinese New Year with ketchup packets and recipes taped directly to them. And we tailored our messaging, communicating the pain point and doing it creatively. And the results, well, they speak for themselves. We generated approximately 170 basis points of share improvement and reached 32% market share in ketchup, our highest ever. We also gained 18 basis points of household penetration and grew e-commerce sales during Chinese New Year 30% year-over-year. Let's take a look at this video. You'll see how the team executed extremely well against this very sizable opportunity.

[Presentation]

And by the way, there are so many more ways families can incorporate Heinz Ketchup into their traditional dishes. Take the favorite sweet and sour flavored dishes. Yes, that's right. We're showing our consumers how to show off their cooking skills this Chinese New Year with a Heinz sweet and sour recipe. As you can hopefully see, from Canada to the U.K. to China, we have proven that we can recover market share, whether it be by simplifying an operating model, improving our renovation and innovation or leaning into sales and marketing. Through our investment plan, we now need to accelerate the momentum we are seeing outside of the U.S. as well as bring these insights and capabilities into the U.S. business. Let's take a look.

It is in the U.S. where the bulk of our issues exist today. It's also where 67% of our total business resides. And while it is our largest and most mature market, there are still plenty of opportunities. We have iconic brands with category-leading share positions. In retail, 70% of our revenue is from brands that have a #1 or #2 share position. And we are in nearly every household with 96% household penetration. And when you look at household penetration by brand, the market share opportunity becomes very evident. In the Away from Home channel, we are in a unique advantaged position in that this $2 billion business is evenly split between front of the house and back of the house. Front of the house provides powerful brand awareness with tens of billions of impressions. And we have significant opportunity for growth, whether growing beyond ketchup into other condiments, dips and spreads or expanding into a higher growth, higher-margin channels like entertainment and travel and leisure. We also have runway to expand our distribution in QSRs, delighting more consumers with more choices and varieties.

But here's the problem. Despite this opportunity in both retail and Away from Home, our U.S. business has consistently lost share during the last 10 years, with trends further worsening in 2025. These results are primarily driven by a complex operating model, underperforming innovation and a lack of necessary funding. The good news is that today, we are beginning to see traction from last year's stepped-up investments. In the fourth quarter of 2025, we generated a 20 basis point improvement relative to the full year. We are also significantly ramping up investments, as I mentioned, by approximately $600 million to improve our competitiveness across marketing, sales, R&D as well as price and product superiority.

Lastly, we only need modest recovery today to make a meaningful difference. You see the business has been losing on average, 30 basis points of share for the last 10 years. And as I mentioned, we recovered quite a bit as we progressed throughout 2025, ending the fourth quarter with improved trends. By continuing on this path and returning to even just the historical but disappointing 10-year average, we can improve our North America top line performance by 2 percentage points. This is clearly very doable. But let me be very clear. This is not a level that we will be happy with, but reaching our guidance is a very realistic and meaningful first step. The initial share recovery can be seen in a few areas of the U.S. business.

One is Taste Elevation. By the fourth quarter of 2025, over 70% of our Taste Elevation categories in the U.S. were gaining share. This includes ketchup, salad dressing, cream cheese and mustard. We have also generated sales recovery in those categories that were creating the most headwinds at the beginning of 2025, including Mac & Cheese, Lunchables, Mayo and Capri Sun. Through product quality improvement, better communication on packaging and value offerings, we saw improvements across each of these brands by year-end. One that gets me very excited is Capri Sun.

Let's take a closer look at this example. Even though 1/3 of all beverages are purchased in the convenience channel and on-the-go shelves, we did not have a solution for this channel and this occasion. But we knew what we needed to do. We needed to reposition Capri Sun for families on the go by selling in the highly incremental convenience channel while maintaining profitability and competitiveness. We know that parents prefer single-serve bottles that are portable and resealable for their kids. In other words, we simply needed a new package for the occasion. So for the first time ever, we took Capri Sun out of its iconic pouch and into a format that's single-serve, resealable and fits in cooler shelves. And we did it in a way that drove both sales and profitability. The bottle has a higher margin than our base Capri Sun business and is 60% incremental.

We generated 11% ACV growth in C-stores, adding 16,000 new stores since its launch. We also gained new Capri Sun consumers as the single-serve offering over indexes to households with kids between the ages of 12 and 17, an older age group compared to our core Capri Sun consumers. Capri Sun is a great brand, and the teams have done a great job capturing this opportunity, but there are many more opportunities across our brands in the U.S. One of these opportunities is within innovation. Innovation is a huge priority for me personally. And while I am excited about what we've done so far, we need to strengthen the pipeline going forward. With the incremental investment, we expect to increase our percent contribution to consumption from innovation, closing the gap to competition.

Our innovation strategy is centered around 3 key consumer-driven platforms: convenience, new occasions and nutrition. Let me give you one example that I'm really excited about. In nutrition, we are committed to providing consumers with products that offer functional benefits to meet their dietary needs. Take Kraft Mac & Cheese Power Mac, which combines the comforting taste of our iconic brand with the protein and fiber that consumers want, offering more nutritional value than competition at a lower price point. By focusing on these consumer-driven platforms, we are confident we can build superior consumer experiences with our brands. As I said earlier, our goal is to drive volume-led, sustainable and profitable top line growth and generate attractive free cash flow. To meaningfully change the course of the business, we need to drive positive volume growth through better in-market execution, better products and better innovations that consumers love.

This is the first step that will restore a virtuous cycle in our business model, leading to margin expansion and healthy long-term top and bottom line growth. We will continue to build on the great momentum we are already seeing in parts of the business, whether that be across Canada, Heinz and European markets or in our emerging markets. And we will replicate and scale the blueprints of this success to restore growth in our iconic leading brands in the U.S. To be successful, we are committed to make the necessary investments. Fueling our plans is an approximate $600 million investment that we will invest across key commercial levers.

And that's where Andre comes in. I'll pass it off so he can talk more about those investments and the sources of funding. Over to you, Andre.

Thank you, Steve. Good morning, everyone. So as Steve mentioned, there are pockets of success across our business. We now need to make certain investments and adapt our incentives to scale the success across more markets and brands faster. We are going to invest to accelerate the things that are working and scale those blueprints to address what is not. But to support this, we are making investments across pricing, R&D, innovation, marketing and sales. Starting with price. In the U.S. market, we see pack sizes evolving across value and affordability. More and more consumers are seeking value through bulk pack sizes, which offers a lower price per unit. We also see an increasing number of consumers prioritizing affordability opting for smaller pack sizes to stretch their budgets and provide flexibility. And to cater to these needs, we will focus on providing optimal opening price points for consumers to drive trial and brand entry.

Currently, we are not participating as much as we should be on the opening price points strength. We are not looking to make widespread material price investments. Rather, we intend to invest in opening price points across categories that represent about 40% of our U.S. portfolio. We will also be refining our price pack architecture to meet consumers where they are. And we will do this in a way that we also capture margin-accretive upside via small pack pricing while preserving purchase flexibility. In addition to a strong focus on opening price points, we will also work to maximize our return on promotions. Over the years, as you know, we have made progress in optimizing our promotional spend with a higher percentage now generating net positive return on investment. But to build on this in 2026, we are going to reallocate funds towards promotional activities that deliver the highest returns. And we are also going to plan with longer lead times.

One of the reasons why we're going to concentrate our investments in the second half of 2026 to ensure a more strategic approach to our promotional efforts. And our incremental investment in infrastructure will also enhance our trade planning and execution capabilities. On the R&D front, we are increasing our investments by approximately 20%. We will focus our core and big bet innovations, much like we did in Canada. The elevated investments, along with disciplined prioritization will enable us to meet evolving consumer needs, drive superiority across both product and packaging improve our speed to market in addition to supporting our future productivity pipeline.

On the marketing front, we are increasing our level of investments to approximately 5.5% of net sales -- 5.5% of net sales this year, up from 4.9% in 2025 and targeting investments towards our biggest growth opportunities. And at the same time, we will be focused on driving higher return on our ad spend. We increased our return on advertising spend by 12% in 2025, and we have more opportunity to close the gap to benchmark levels. With this incremental investment, we are strengthening our brands by improving consumer relevance and creating brand-centric experiences during key seasons. And by doing so, we aim to drive improvements in base velocities and brand equity, ultimately resulting in measurable incremental sales.

And to further support both marketing and sales, we are growing both functions and increasing the size of our teams to close the gap with our peer benchmark. Doing so, we help to improve our retail partnerships and execution, allow us to be better equipped to drive demand through sharper consumer insights and strengthen brand positioning and better support product launches. When deciding which brands will be investing more in, we take into consideration our market share goals.

For those brands where we want to hold like Oscar Mayer and Maxwell House, we will spend to defend market share. In those brands we are looking to win market share, like Capri Sun and Lunchables, we will invest selectively. And for those brands where we have the right to win big, like in our Taste Elevation brands such as Heinz and Philadelphia, we will distort more of our investments. Now to ensure that the organization is aligned on one common goal, we have refined our incentive program with an increased focus on market share milestones, particularly for our sales and marketing teams. We want to motivate our team to create momentum that aligns with the investments that we are making. And to help fund these investments, we need to continue to unlock efficiencies and productivity like we have done in the past several years. We are well on our way to exceeding our target of $2.5 billion in gross efficiencies by the end of 2026, which is 1 year ahead of our original plan.

While we are proud of our progress and have proven to be an efficient operator, we have a lot more opportunities identified for improvements across manufacturing, logistics and procurement. This includes the use of digital tools to improve yield loss, automation within our factories, network optimization and further unlocking supplier efficiencies. Over the past 3 years, our productivity program has regularly generated over 4% of COGS. And we continue to make progress on other operational metrics, including OEE and waste, all of which are moving towards or exceeding best-in-class benchmarks. In addition to operational efficiencies, we are also capturing significant cost savings through the expansion of global business services. Over the past 3 years, we have grown our centralized service team and delivered an impressive $62 million in savings. We have also expanded scope to strengthen our collaboration with commercial teams driving value across the business.

Consistent with investments we have outlined, our outlook remains unchanged from what we communicated on the last week's earnings call. Our goal is to deploy these investments to generate share momentum in the second half of the year to position the company to grow in 2027 with expectation that 2026 is the margin floor. We also continue to generate solid free cash flow conversion with expectations to generate approximately 100% this year. Our ability to improve working capital, maintain disciplined CapEx spend, recent strategic treasury initiatives and better aligned incentives have all contributed to these healthy conversion levels.

Turning to capital allocation. Our priorities remain the same. First is to continue to step up investments in the business. Second is to maintain net leverage around 3x. This includes prioritizing deployment of excess cash to reduce debt in 2026. Third is to actively manage our portfolio and fourth is to return excess capital to shareholders. As Steve said, our goal is to drive volume-led sustainable and profitable growth while continuing to generate attractive free cash flow. This year, we will continue to build on the great momentum we are already seeing in parts of the business in our emerging markets in Canada, Kraft Heinz in Europe and Taste Elevation in the U.S. We know that when we make the right investments, it works, and we can drive improved performance. Our collective focus this year will be on replicating and scaling these blueprints to restore growth in our leading iconic brands in the U.S. We have started Heinz, and we'll be scaling to more brands across more markets faster. Take a look.

[Presentation]

Great. So with that, I believe we have a few minutes left to take a couple of questions.

Michael Lavery, Piper Sandler. When you look at the promo chart, we've heard from Kraft Heinz management before how you'd almost maybe think they were reinventing the wheel, the degree to which they were confident they could increase return on shift to higher return promotions. And it looks like historically, it's only been 40% to 50% of the time. So can you give us a sense of what some of the structural limitations are and how you're confident now that you can really hit what would appear to be all-time highs?

Yes, Michael, I'd say we're not relying on just price and promotion. The $600 million incremental is on top of a slight step up last year, as we mentioned. So price and promotion are a part of it, but it's the entire mix. It's product superiority, packaging superiority, innovation, all of that working together. And I can't talk and don't want to talk about what they -- what was claimed in the past. But in the future, we've got some very realistic plans with really good investments behind it and proof points that we tried to show today looking for what's working, what has worked well in the past, where is it repeatable and where is it scalable, and we'll do more of that. And we'll continue to learn in price and promotion on what's most effective and lean into that but we'll be leaning the whole $600 million into what works the best across price, product, package, marketing sales, SG&A capabilities.

So the whole mix to create a better outcome. And the other thing I'd say is part of probably the answer to your question is we acknowledge we have been more than lean the last 10 years. So if you don't have the people and the capabilities, it's really difficult to deliver, and we've been operating too lean, and we acknowledge that, and we're going to fix it.

Just to build on what Steve said is, as you know, we have talked throughout the years, we have invested a lot on the revenue management capability. And we did have 3, 4 years of consecutive improvement in ROI to the point that now we have the net ROI is positive. That is different than where we were back in 2021. Last year was not good, and we talk about that in the different occasions. And part of that is what Steve is saying. It is driven by execution continues to inherit our ability to do things the right way. I think the extra investments we're going to do in headcount on the sales front is going to help us a lot to improve the execution. Planning for longer lead time is also important. When we deploy resource in the last minute, we get suboptimal execution. I think that's one of the reasons why also we decided to concentrate a lot of the step-up in investments in the second half of the year, so we have proper time to plan.

Pete Galbo.

Steve, now that you've hit pause on the split, but Andre had in the capital allocation slide, actively managing the portfolio. And if I think if we rewind to CAGNY from 2 years ago, we were talking a lot about potential for asset sales. So just with the pause in mind and that kind of commentary around actively managing, maybe you can expand a little bit on what the go-forward might look like from a managing of the portfolio.

Yes, sure. The pause was really important. As I said, getting the company into a healthier position preserves optionality on the portfolio and any other strategic things that we may look at. And said a different way, the work to separate the business is so enormous. I know that as well as anybody. And the work to turn around a business that is declining is also an enormous task. Doing both of those things at the same time is very difficult, if not impossible, to do the way that you want to do them. So pausing the separation work and focusing 100% on fixing the business is where we are right now. And it preserves optionality because we'll be a stronger company, a healthier company that can decide to separate into the future and have 2 healthy businesses or something else or continue. But job 1, 2 and 3 is what we talked about right here today, which is fixing the business and stopping being a donor of market share.

We'll cut it there. We'll head over to the breakout. Please join me again in thanking Kraft Heinz for being here and for breakfast.

Greetings, and welcome to The Kraft Heinz Company Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Anne-Marie Megela, Vice President of Investor Relations. Please go ahead.

Thank you, and thank you, everyone, for joining us today. During today's call, we may make forward-looking statements regarding our expectations for the future. These statements are based on how we see things today, and actual results may differ materially due to risks and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release and our most recent SEC filings for more information regarding these risks and uncertainties. Additionally, we may refer to non-GAAP financial measures. Please refer to today's earnings release and the non-GAAP information available on our website for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures.

Joining me today to answer your questions is our Chief Executive Officer, Steven Cahillane; and our Chief Financial Officer, Andre Maciel.

Operator, please open the call for the first question.

Our first question is from Andrew Lazar with Barclays.

Welcome back, Steve.

Thanks, Andrew.

Maybe to start off, Steve. In the prepared remarks, you mentioned a bunch of times how Kraft Heinz is sort of underinvested in its brands. And the incremental $600 million is an effort to sort of correct that. I guess, how much of this is simply the company catching up to where investment levels should have been, so more company specific versus maybe acknowledging the currently more challenging industry environment in which other food names have also raised investment levels, including making price investments.

And then following on that, how do you see this level of investment? Or do you see this level of investment as sort of the right base of spending to be able to grow from or will you have to reassess that as you go?

Yes. Thanks for the question, Andrew. What I'd tell you is when I came in, I knew that the company was underinvested, that had been widely reported, you guys have all written about that. We know the history of Kraft Heinz over the last 10 years. So I came in with the expectation that I would find underinvestment. And indeed, I did find underinvestments. But I also found a lot of opportunities. And I think the biggest change over the last 6 weeks has been the exploration that I've been on and what I have found in terms of brands that truly respond to investment green shoots that the company was already working on and areas where we could do a lot of self-help and fix the business and point ourselves in a more positive direction.

And I'm talking about meaningful things that I've seen. And so we went through that exploration and did a lot of work around what would be required in order to invest appropriately against the business to return it to organic growth. And so I'd say the bulk of your question -- the real answer to your question is we're really getting back to where we ought to be, not necessarily looking at the challenging environment and saying we need to do something different. We're getting back to where we ought to be in terms of sufficiency against our brands, capability, building in the commercial area to really put ourselves in a position of competitiveness. And that led to the decision to pause the spin because we want to put 100% of our focus, 100% of our time, our people, our investment against returning the company to growth and not be distracted by the massive amount of work that's required in the separation.

And obviously, I know what it takes to have a successful separation. You need stable businesses. You need a lot of things that we're going to be working on right now to preserve the optionality that we have going forward. And so the real answer to your question is we're getting back to where we ought to be. And I do think it's a level of sufficiency that is appropriate for us going forward. And I have a lot of confidence that we're going to be able to return this company to solid, profitable organic margin enhancing growth.

Our next question is from Peter Galbo with Bank of America.

I guess, Steve, just going back on your comments in regarding to Andrew's question just now, when we all met a number of weeks ago with you I think your commentary was, "Hey, I had to sign off on the spin before coming on board." And obviously, today, you're announcing a pause. So just maybe help us understand a little bit more even what's happened in the last 4 weeks to kind of caused that change in terms of the thinking.

And then as a secondary kind of follow-up to that, just how should we be framing a temporary pause versus maybe a more indefinite pause would be helpful.

Yes. Thanks, Peter. So when I was in discussions with the Board of Directors to come here, I came with eyes wide open and recognizing that there was a lot of opportunity and endorsing the strategic rationale around the separation. And what I said to you guys when we met a couple of weeks ago, 4 weeks ago or whatever it was, that I fully endorse and understand the industrial logic of the separation. And I still do. I think it makes logical sense. And I think the Board came to the right conclusion at the time.

What I've since learned is how much opportunity there is to fix the business in the short term and to turn the business around in a more positive trajectory and because resources are finite, I came to the conclusion that this was the best outcome for us. And I should back track because when I agreed to come on Board and the discussions I had with the Board they said, we reserve the right to get smarter. And as you get under the hood and really explore everything from what's in the perimeter, how we could go about the separation, everything should be on the table. And so it was an iterative process that we came to. And I understand that when you're not going along with us through those 4 or 5 weeks of process, it can seem rather sudden.

But this was something that was explored in depth. We've all been working 24/7 to come to this conclusion and build a plan that we're very confident in and it preserves optionality for doing any other portfolio optimization things that you might imagine in the future. So I wouldn't put an end date on anything that we're going to say, this is the date when we're going to reexplore whether or not a separation is the right thing. We're going to get smarter each and every day. We're going to turn the business around organic growth. And that will, as I already said, preserve optionality to do any number of portfolio optimization activities in the future.

In companies like ours, we have to evaluate and reevaluate on a regular basis, where we are and where we want to go and where we want to go right now is this investment against the business to drive organic growth.

Our next question is from David Palmer with Evercore ISI.

Thanks. Good morning, Steve, and welcome. I wanted to ask you about the investment and maybe what we're going to see in the market in the scanner data. How -- first of all, how did you arrive at $600 million being the right number. But but also perhaps discuss the phasing of that spending and maybe even categories and brands we could expect to see results earlier versus maybe later.

Yes. Thanks, David. So you're going to see the spend really start to ramp up in the second quarter. We've been in the planning process right now and we would hope to see meaningful results in the back half of the year, meaning when I say meaningful results, I mean a change in trend and bending the trend in market share. And we're going to be talking a lot about value market share and holding ourselves accountable to that.

I think we said in the prepared remarks that about half of this would be against price and product and packaging, improving the way we show up for our consumers at store. That's going to be very important. It will be across the portfolio, but a lot will be against what we heretofore have been calling the North American Grocery Company, where we've got some opportunities to really do better. But equally, brands like Heinz and Philadelphia Cream Cheese have already been showing in the last 13 weeks and the last 4 weeks, some meaningful improvement based on things that the team had started to do in the back half of last year. So we'll continue against that.

And we arrived at the $600 million really through as much science as we could and then a lot of experience in the company and the experience that I bring as well. So we'll be about 5.5% against a ratio of our top line in terms of what we're spending against the brands. We'll put meaningful investment in SG&A. We're lean, you can look at any metric and understand that Kraft Heinz is lean. We don't want to be lean in the commercial organization so we'll be hiring sales and marketing professionals to beef up our capabilities there. That takes some time. So that will be more like a third and fourth quarter spend.

But altogether, the $600 million, I think, gives us a lot of confidence that we've got what it takes against the entire company with half of that being, as I said, against the brands and showing up for consumers with the right opening price points, the right price, the right promotional opportunities and the right brand marketing against what are really a collection of iconic and wonderful brands that I've already said, do respond to investment.

Maybe to build on that, I think we will continue -- we have seen, as Steve pointed out, good momentum in our Taste Elevation business, [indiscernible] Cream Cheese. We -- in the last 13 weeks, we flip it to market share growth and 70% of the revenue in Taste Elevation is now gaining market share, which is very solid in the U.S. And as we look at even at early reads into January, we see the momentum continuing.

We expected a total portfolio in the U.S., we have seen a market share now back to where it was until from 3 years ago. So it's good to be in that position. I mean, obviously, we have work to do. I think the objective with all these investments, which are positioned to grow the company to be delivering volume-led profitable growth and have a much higher percent of the portfolio gaining market share like it was back in 2017, '19.

We should continue to, as Steve pointed out, where going see to this ramp-up happening in the second half of the year. You should see emerging markets continue to deliver strong results. If we look in 2025 [indiscernible] for Indonesia, we grew close to double digits, [ doing ] with volume growth. We're going to continue to serve emerging markets delivering that level of growth apart from Indonesia from Q1 and building from that, a very good momentum there you're going to see our Canadian business continued to deliver growth as we had delivered the last 3 years. So there are good parts of the portfolio that have good momentum. We are also part of that investment to further accelerate those bright spots. But as Steve said, there is a good portion of this investment as well is on the opportunities that we have seen on the North American grocery portfolio.

Our next question is from Steve Powers with Deutsche Bank.

Great. Steve, so I wanted to just follow up on Peter's earlier question. You talked about how this decision to postpone the separation was kind of premised by or premised on the opportunities you've uncovered to turn around the business in the short term. And I guess the natural follow-on question to that for me, my perspective is what -- how do we define short term? Is that -- do we need to see results in the next couple of quarters in the course of 2025? And therefore, the separation has postponed sort of until '26? Or is there a different time line associated with sort of the short-term response that you're expecting?

And then if I could, then the second question would be, you talked about where these investments will be focused kind of by brand. I'm assuming these are disproportionately focused on the U.S., but maybe just a little bit of elaboration if there's investment, whether brand or commercial investments that you see overseas as well?

Yes. So I'll start with the second one. These will be disproportionately against the U.S. where we need a level of investment in order to turn the trends that we've had, Andre, I think just outlined very well the rest of the world where we've got a lot of strengths. But there will be opportunities to invest outside the U.S., but predominantly, this will be in the U.S. And we would expect to see, as I mentioned, a change in trend in the back half of this year. You see our guidance. We would hope to do the better end of that guidance always. But these investments take time and they take commitment and they take a level of sticking to it and reallocating as necessary as we learn what's working better than what may be not optimized.

And so as we think about 2027, we would aim to be in a position where we return the company to growth. We exit 2026 with the best trends that we've had during the course of the year. That would be our expectation. And we go to 2027 with an eye towards growth. In terms of any kind of separation in the future, as we announced today, we're pausing and not putting an end date on that. When this business is successful and growing organically in 2027, we'll have all sorts of optionality to think about portfolio and the way we want to think about our portfolio going forward. But job one right now and why we've made this decision is to put all of our attention and resource against this stepped-up plan to return the company to organic growth.

Great. I think I had said 2025. So thanks for correcting me on what year we're in. Appreciate that.

Our next question is from Robert Moskow with TD Cowen.

Thanks for the question. Steve, you mentioned that you want to put the resources against brands that respond to investment. And I was wondering in the work you did internally. Did you find brands that have not responded well to investment as well? Because I think the nagging concern among many investors is that the portfolio has a lot of antiquated brands, the quality gap with competition has widened too far. And that they just -- they just won't respond.

And then secondly, I wanted a follow-up on comments on the last earnings call from Carlos about investing in better coordination for your commodity exposure like I think he said that he thought the company had fallen behind vertically integrated players and meat, coffee and cheese. And I just wanted to know if -- I didn't see that in the comments, do you feel like you have to invest in that, too? They're kind of related.

Yes. Thanks, Rob. I'll let Andre take the second part of the question. I'll take the first part of the question. We focus more on what's working, where the best investments are. But I've said in the past, when you have a portfolio as broad as ours, you're never going to be in a situation where every brand is growing. We all know that. So we're focusing our attention on where we can get the best responses. And then obviously, those are some of the brands that have already been invested in like Heinz and [ Philly ] Cream Cheese, which we've already mentioned. But we've got Mac & Cheese, a huge brand of ours that I have seen does respond very well. We've got a great innovation in 17-gram protein [ Super Mac ] coming out this year.

We're going to make sure that, that is more than sufficiently supported in the marketplace. And we're going to look for other opportunities, and we have other opportunities like that so we can get the totality of the portfolio growing, which doesn't mean there might be a 20% of the portfolio that is that is more challenged. That's going to be the case in a portfolio like ours, but we need to make sure that we're doing portfolio management and optimization, such that the winners far outpace the ones that are more challenged.

And Andre, you want to take that commodity?

Yes, sure. And to build on what Steve just said, like we are seeing good momentum in our Taste Elevation portfolio in worldwide, including the U.S., with turn hydration desserts back to share gain, which is good. So it is responding well to investments. So there is much to get there and it's a very profitable part of the portfolio. Mac & Cheese there is a lot of investment we put in the back half of last year. We're starting to see some on signs of traction and have an innovation that we feel very strongly about. So there is a lot that is about fueling those places where we have good momentum.

But it's also about, as you pointed out, Rob, deploying some of the resources to improve the rest of the portfolio as well. There are opportunities continue to invest in the product and in packaging, that's where a portion of the [ $500 ] million is going to get deployed against. So I think all of that will allow the whole portfolio to start to move in a more positive trajectory.

Regarding the commodity question, look, nothing really changes, Rob. Like we have been, over the years, very disciplined about following the commodity and when we price and we should -- we want to continue to remain disciplined. We cannot control how other competitors might do react to commodity curves and how they do or not. I think what we can do is what we can control, which is continue to be disciplined around following the commodity.

Our next question is from Michael Lavery with Piper Sandler.

Just wondering if you could give us any sense of where you land long term? Do you think the long-term algo changes? Is this plan set to put you on algo and if so, with what timing? And then maybe just a follow-up on this year, would you have any repurchases considered in the guidance? And how should we think about that?

Yes. Thanks for the question. We're not prepared, and it's too early to talk about long-term algorithms. I would just underscore what I said in terms of bending the trend and exiting the year with momentum and looking at 2027 as a year where we can turn to organic growth perhaps at that time, we'll be in a position to talk more about long-term algorithms. And the second part of the question was...

Yes. Look, on the capital allocation priorities, we have stated for a long time that our #1 priority should deploy excess cash on the business, and that's exactly what we are doing right now, followed by maintaining our net leverage at approximately 3x. And we were expecting EBITDA to land in '26 with the guidance we're providing, we will deploy excess cash to pay down debt this year. And we will deploy part of the excess cash next year to pay down debt as well because we want to -- our policy does not change. So we continue to target the net [ average battery ] times.

So once we believe we have now the sufficient level of the business is on the organic front, and we reinstated the debt to our target leverage. Then if we have excess cash beyond that, it can deploy in alternative forms.

Our next question is from Leah Jordan with Goldman Sachs.

I wanted to ask about SNAP, given you added a headwind to your outlook this year. What is your SNAP exposure today? How much have the recent SNAP changes impacted your business so far? And I think, ultimately, how do you think about addressing the needs for this customer cohort versus balancing the broader needs we've talked about so far this morning across your portfolio?

And I guess, ultimately, how does this impact your view on the need to invest in base prices versus promotions as well?

Yes. Thanks, I'll start, and I'm sure Andre can build on it as well. SNAP is obviously a headwind in consumer goods because the consumer that's under the most pressure is having money removed from their household budget. But it also presents an opportunity for us to compete for that consumer with opening price points with small pack sizes with all the things that we talked about doing. And so there is a headwind, but that's before we work against mitigation and how we mitigate against those headwinds. And so we're all in the same boat in terms of this particular issue, but we've got a lot of plans in place and we'll continue to develop plans to meet that consumer where they are with the right price points, the right entry price points, the right pack sizes.

Yes. Our exposure today, about 13% of the U.S. retail business comes from SNAP compared to 11% in the industry. So we do over-index a little bit. Part of the $600 million investment is on opening price points. And we do anticipate roughly 40% of the categories not of the SKUs. 40% of the categories will have some specific strategy around opening price points, and that's part of what's in the plan right now. We do expect and is contemplated in the guidance of 100 bps headwind coming from SNAP as a function of the level of funding being reduced. But we I think a part of the investment, as we said, is about getting that being deployed throughout the year, more concentrated in the second half of the year, so we can mitigate or partially mitigate the impact.

Our next question is from Chris Carey with Wells Fargo.

Hi. Good morning, everyone. I want to ask about the investment into the concept of value pricing. In the prepared remarks today, you talked about leaning in on promotional activity. You talked about opening price points. You talked about revisiting base prices where necessary, those all kind of have different lead times associated with them. I was just curious how this -- how you envision this playing out? Will you lead with more promotional activity early starting in Q2? Should we expect price rollbacks beginning in Q2? And it feels with the packaging investments, it certainly feels like there's going to be some revenue growth management associated with this, which tend to have longer lead times. So maybe price pack is a bit later in the curve, right?

So obviously, I'm just trying to understand how the implementation of the concept of value is going to happen as you phase through this between promotions, price rollbacks and some of the price pack architecture initiatives you might have? Any clarity there would be helpful.

I think you did a very good job answering your question because you're exactly right. Some of the price package architecture takes some time. We're working on it already right now. the company understood about the importance of opening price points and pack sizes and so forth before I got here. And so we're working to accelerate some of that work. We can make very quick adjustments, though in pricing and opening price points and nothing crazy or irrational here. You've heard me talk in the past maybe about the importance of earning price in the marketplace, giving consumers a reason to pay more through innovation, through product, through performance.

And what's happened over the course of the last several years, industry-wide is because of the massive amount of input cost inflation, we busted through 4 or 5 levels of price points in a very accelerated fashion. And the consumer was left very disappointed in that, and that's been very well understood and obvious. And so as we continue to work on our productivity programs, the company has done a very good job at delivering productivity. We aim to do that again. And between the productivity between the investment, we believe we can get back to price points that are more friendly to consumers, and we can do that pretty quickly.

Andre, if you want to build on that?

Yes. So to be honest, the same, disproportional amount or the majority of the $600 million is really deployed about what we believe are healthier way to grow the business in the long term. So that is about more marketing, more R&D, investments in the product and packaging and increasing the infrastructure on headcount around sales and marketing, so it can show up with better execution.

So -- but there is a portion of the investment that is geared toward price as you expected, given that we're saying that we expect a bit share momentum heading to the second half. Most of the incremental resources related to price will show up more later in the year, later in Q2. However, you remember that we did step up investment on price in 2025, not everything working the way we anticipated. There was a lot of lessons learned there. So there is a portion of that investment that is starting earlier in Q2, that is already about optimizing the tactics that we have deployed last year, okay? So you could expect us to see improvement in what we have deployed last year, but then the incremental really focused on the second half.

And in terms of base price versus new price points, that should clarify on that. So as I just said a moment ago, the opening price point is expected to impact about 40% of the categories, not 40% of the revenue, okay, 40% of the categories. We do have very selected places where base price makes sense. So we don't want to talk to the specific categories here on this call, but there are a couple of spots where it makes sense to do that because we cross some thresholds, and we believe it's not in a healthy level. But again, this is very selective. You should expect that majority is really around building momentum in e-commerce. I think we had a lot of traction in the second half, show up in betting store execution and deploy on the opening price points.

Our last question is from John Baumgartner with Mizumbo Securities.

Thanks for the question. Steve, I'd like to ask about the reinvestment. You're ramping the financial resources. But if we could focus on the softer skills, how you connect with consumers? How you stand out to retailers on merits other than just maybe scale and trade promotion? Are the soft skills, those consumer-facing skills. When you improve those, is it a matter of like technology and insight at this point? Is it a matter of augmenting personnel, changing the culture? Just where do you see the company needing to improve aside from financial support in the P&L? And how much of a heavy lift do you anticipate that to be?

Yes. Thanks for the question, John. This company has great capability and great people. We're just very lean. And so we need to supplement and bolster the people that we have against our commercial activities, and we need to continue to invest in technology and where the world is going. It's document and AI is changing everything. And we need to be on the forefront of the way we think about technology and deploying it against our brands and with our customers.

We start with a consumer-first mindset. No question about that. This investment is against making sure that we can attract consumers and drive greater household penetration. And I'm very confident that when our customers here today, what we're doing, reinvesting against this wonderful portfolio, I've had lots of conversations with all these customers already. I think this is going to be a very welcome news. And so that's perhaps what we haven't talked much about. But this means a lot to our customers when Kraft Heinz shows up with this type of investment plan against brands that matter. And so we're excited about the future, and I appreciate everybody's interest in the call today.

This concludes our question-and-answer session. I'd like to hand the floor back over to Anne-Marie Megela for any closing comments.

Just want to thank everyone for your interest today, for your questions, and we will see you all next week at [ CGNY ].

This concludes today's conference. We thank you again for your participation. You may disconnect your lines at this time.

Hello. This is Anne-Marie Megela, Head of Global Investor Relations at The Kraft Heinz Company. I'd like to welcome you to our fourth quarter and full year 2025 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 risks 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 overall strategy and business performance. Andre Maciel, our Chief Global Financial Officer, will then provide a financial review of the fourth 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. I'm excited to be hosting my first earnings call today with Kraft Heinz. This company has great potential with well-known brands, a team of passionate, talented people. And as I've built my understanding of the company from the inside over the last 6 weeks, I am even more confident that together, we can unlock the company's full potential. We have a clear opportunity, and we are building a pathway to meet the consumer where they are by contemporizing our brands, differentiating our products, strengthening our value proposition and improving our commercial execution, all necessary steps to return to growth. Today, I will walk you through a couple of key points. First, I will discuss our 2025 full year financial performance, and Andre will later provide specific details for the fourth quarter.

We will also dive deeper into our 2026 operating plan and the steps we're taking to return the company to organic profitable growth, followed by an update on the separation. Lastly, Andre will detail our 2026 guidance. So beginning with 2025. To say the least, it was quite a challenging year for the sector and Kraft Heinz. We saw a meaningful year-over-year decline in both top line and bottom line results. Organic net sales were pressured by market share losses, primarily in the United States retail. Efficiencies and limited pricing partially offset inflation and tariffs, resulting in an adjusted gross profit margin decline of 120 basis points. The pressure on gross margin, coupled with incremental investments in marketing led to a constant currency adjusted operating income decline of 11.4%.

These dynamics, along with an anticipated higher year-over-year effective tax rate resulted in an adjusted EPS of $2.60, a 15% decline compared to 2024. Despite these challenges in our P&L, we generated strong free cash flow with improvement of nearly 16% versus prior year. Our ability to generate significant cash flow continues to provide us with healthy capital allocation optionality. Now looking at our full year 2025 results through the lens of our 3 strategic growth pillars. Organic net sales in our North America retail Accelerate platforms declined by 5.2%. This was driven by a combination of share loss and industry-related headwinds. The majority of the decline came from 3 areas: Lunchables, Spoonables and Frozen Meals and Snacks.

Moving on to our next strategic pillar, Global Away From Home. Organic net sales were down 1.5% in 2025, driven primarily by lower traffic trends in the U.S. and market share pressure as propensity to trade down remains high, particularly in the back-of-house business. This was partially offset by growth in our international away-from-home markets. Despite the slowdown in the U.S., we made progress in diversifying our channel mix increasing the percent of our North America Away-from-Home sales in noncommercial channels over 150 basis points in 2025. We also continue to expand distribution in our emerging markets Away-From-Home business with organic net sales growing approximately 9% this year. And our final pillar, emerging markets. Organic net sales were up 4.6%, driven by double-digit growth in our LatAm and East regions, partially offset by a decline in Indonesia.

Growth in emerging markets is coming primarily from our Heinz brand with organic net sales up nearly 13% in 2025 versus the prior year and continued expansion of distribution through our Go To Market Model. The decline in Indonesia is primarily a result of the need to reset inventory levels with distributors, in part due to the financial distress of one of the largest distributors in the country. Recovery will take some time as we work to rightsize inventory levels, transition to new distributors and reduce pricing instability. As a result, we don't expect meaningful improvement until the second half of 2026. Now let's talk about our plan and expectations for 2026. Our ultimate goal is to drive volume-led, sustainable and profitable top line growth while continuing to generate attractive free cash flow. This is the single most important thing we can do to position ourselves for the future. I said on Day 1 that my #1 priority was assessing the 2026 plan and making any necessary adjustments to return to profitable growth.

When I decided to join Kraft Heinz, I knew that this was an exciting opportunity to contemporize iconic brands, better serve consumers and customers and build meaningful shareholder value, and that is all true. As I have examined the business, I clearly see how much is fixable and how much is within our own control. I have spent considerable time with the team understanding what will be required to realize this opportunity. Successful execution of our operating plan will require a meaningful investment of approximately $600 million. We do not take this level of investment in 2026 lightly, and we will deploy these incremental dollars in a highly disciplined manner. Thanks to the financial stewardship by the team and the Board, our balance sheet is strong and our free cash flow capabilities robust, positioning us to fully fund the incremental investments the team and I have identified.

I am convinced that with these investments and improving U.S. operating model and stronger resources and capabilities, we can do a lot better and generate solid market share momentum in the second half of the year, but it demands the full attention and engagement of every person in this company. Our resource allocation decisions, time, people, money need to be singularly focused on the execution of our operating plan. At the same time, market conditions have gotten noticeably more challenging since the decision was first made to separate the company last summer. Consumer sentiment has worsened, industry trends have softened, and there is increasing volatility in the geopolitical landscape. These shifts make the path to recovery steeper and heighten the importance of restoring momentum in the business, most notably those brands in the North American grocery company portfolio while accelerating trends in our Taste Elevation platform.

Accordingly, we are prioritizing our resources to execute the operating plan and are pausing the work related to the separation. As the investments in our operating plan drive recovery and momentum in the business, we will then be in a better position to make a decision regarding next steps for the separation. We recognize that the portfolio does need to evolve and by investing in and turning around the business, we improve optionality for future portfolio optimization. I know what it takes to deliver on a successful separation of a business, and I also know that this success is greatly helped by the glidepath created by the underlying performance of the separated business. As such, I am confident that this is the right decision at this time. So let's talk more about what we will be doing this year. It is clear that we have historically underinvested in our brands and in the business, resulting in persistent share loss over the last decade.

To drive market share momentum and ultimately sustainable profitable growth, we need to meet consumers where they are. To do this, it is imperative that we align our brands and products with consumer preferences, that we show up with better commercial execution and that we provide a more balanced value equation for our consumers with a focus on opening price points. This requires focused investment across marketing, sales and R&D as well as product superiority and price. Let's dive into some specifics. It all begins with the consumer. Our goal is to build superior consumer experiences with our brands. Historically, we have had a gap in innovation due to underinvestment. We haven't been successful in launching scalable, profitable products on a consistent basis. To turn this around, we are increasing investments in R&D by approximately 20% in 2026 compared to 2025.

Our innovation and renovation strategy will have an emphasis on value across 3 key consumer-driven platforms: nutrition, convenience and new occasions. Let me give you some examples of what the team are working on. Within Nutrition, we will be focused on providing value through healthier offerings without sacrificing taste. One example I'm excited about in this space is the launch of Kraft Mac & Cheese, PowerMac. PowerMac provides benefits consumers are looking for with 17 grams of protein and 6 grams of fiber. We are offering more nutritional value than competition at a lower price point. This is a great example of us doubling down in areas we are most excited about. PowerMac is a big idea, and it will be well funded. You will start to see PowerMac on shelves in the second quarter. Within convenience, we are going to build on the initial traction we established in 2025 with Capri Sun single-serve bottles. Here, we are unlocking value by expanding in formats, channels and occasions.

Being nearly 60% incremental to the category, this presents a tremendous opportunity for us to capture within convenience stores, front-end displays and other on-the-go new occasions beyond the pouch. Across our innovation platforms, we will be focused on expanding our globally iconic Heinz brand. Heinz is a $5 billion-plus brand with amazing brand equity and the opportunity to drive further household penetration. Around the world, we are expanding Heinz across new occasions and geographies while catering to local preferences and trends, whether that be across nutrition through our Heinz Simply platform that spans categories and expands access to natural ingredients without compromising on taste or across new occasions, through our expansion of Heinz into the kitchen with pasta sauce like we did in the U.K., Brazil and Chile with plans to scale further.

We are also broadening Heinz beyond ketchup through a host food-led strategy, launching modern condiments aimed at protein categories like chicken and fish across Europe, the U.K. and Canada. As you can see, there's a lot of excitement around the Heinz brand across the globe, and we have a huge opportunity to bring even more energy around the brand into the U.S. We will also strengthen commercial execution through improved infrastructure with stepped-up investments in resources and capabilities across our marketing and sales organization and incremental marketing behind our brands. We acknowledge that our current teams are too lean, and this is limiting our ability to execute consistently. The investment in our sales organization will enable us to build stronger joint business plans with better execution.

Across marketing, we will be better equipped to drive demand through sharper consumer insights, stronger brand positioning and better supported product launches. We will increase our marketing investment to approximately 5.5% of net sales, targeting investments towards our biggest growth opportunities. In 2025, the marketing teams have done a lot of work to transform our approach, which now prioritizes investing behind product-focused creative, leaning into relevant moments in culture where our brands make sense and unlocking value at must-win consumer moments. We will continue to build upon this strategy. And finally, to ensure we are providing a balanced value equation, we will be investing in price. As I have said before, great consumer goods companies need to earn price. In this cycle, we've been through over the last couple of years, prices were not earned.

We took pricing to address double-digit inflation, recognizing that these actions were not accompanied by incremental benefits for our consumers. We need to earn our price by providing consumers with more value and product differentiation. To do this, we will be executing against the plans I just mentioned as well as refining our pricing strategy. In 2026, we will pursue a 3-pronged disciplined approach, beginning with improving the ROI of our promotional spend. We will do this by redirecting funds from programs that have underperformed in 2025 to those that have demonstrated a higher return. Second, we will have a relentless focus on opening price points, ensuring that we are providing consumers with affordable choices and protecting distribution.

And lastly, where necessary, we will revisit base price to ensure we are passing on any savings to the consumer. This will be in select categories on a case-by-case basis. While we certainly have a lot of work in front of us, we are investing to build capabilities to win with our consumers and our customers, and I am encouraged by the groundwork the team has laid across several key categories this past year. In Taste Elevation categories, including cream cheese, salad dressing, ketchup and mustard, we went from losing share in the first half of 2025 to improvements in quarter 3 to gaining share in the fourth quarter. In fact, we ended 2025 with over 70% of our Taste Elevation platform gaining share, fueled by this initial traction. Across these categories, our execution was grounded in consumer insights, resulting in measurable improvement.

Let me give you a couple of examples. In salad dressings, we attribute improvements to several initiatives, including a product-focused campaign and money back guarantee following a new and improved ranch formula and recognizing the growing number of consumers who value affordability, we launched an 8-ounce bottle at a lower entry price point. And take mustard, where we are meeting the rising demand for health benefits. With its clean nutritional profile and the shift toward more meals at home, this created an opportunity for us to highlight its versatility through social engagement, showcasing uses such as marinades and dressings. And we've seen positive momentum in other areas as well. The team identified 4 critical categories that were driving the majority of our U.S. retail decline as we entered 2025.

We have applied additional focus in these areas and saw significant progress throughout the year. We mined our insights and executed against those insights, whether it be improvements in our core Lunchables products and packaging or our new targeted regional approach in Mayo. Relative to the first half of 2025 to where we exited in the fourth quarter, we saw consumption improvement across each category, Lunchables improving by 11 percentage points, Capri Sun by 7 percentage points, Mayo by 13 percentage points and Mac & Cheese by 2 percentage points. These impressive results and the great work the team has done in these specific instances give me even more conviction that the investment plan we are announcing today is the right path forward for Kraft Heinz. We have a clear view of how we will invest these funds, and we will do so smartly with a close eye on long-term returns.

Our goal is to drive positive volume growth over time through better in-market execution, better products and innovations that consumers love. This is the first step that will restore a virtuous cycle in our operating model, leading to margin expansion and healthy long-term top and bottom line growth. Now let me hand it over to Andre, who will walk you through our fourth quarter financial performance and 2026 outlook in more detail.

Thank you, Steve. In the fourth quarter, organic net sales declined 4.2% for total Kraft Heinz with price up 0.5 percentage points and volume mix down 4.7 percentage points. Breaking this performance down by zone, North America organic net sales declined 5.4%, led by declines in the U.S. primarily in cold cuts and away-from-home, which more than offset growth in Canada. As expected and previewed in our last earnings call, we also experienced an inventory de-load impact of approximately 150 basis points. In our international developed markets, organic net sales declined 2.4%. This decline was primarily driven by industry softness in the U.K., particularly in the meals categories, including soups and beans. Despite this industry softness, we gained 20 basis points of share in the fourth quarter.

In emerging markets, organic net sales were up 2.2%. This was driven by continued double-digit growth in LatAm and East regions, partially offset by a 740 basis point impact from the decline in Indonesia. As Steve mentioned earlier, we expect to start seeing recovery in Indonesia in the second half of 2026. Outside of Indonesia, we are generating volume growth in emerging markets entering the year with momentum. Turning to the next slide. Kraft Heinz adjusted operating income declined 15.9%, and our adjusted operating income margin decreased 280 basis points. In North America, adjusted operating income declined 16.8% versus the prior year. This was primarily driven by volume declines, inflation more than offsetting our pricing and increased marketing investment. These impacts were partially offset by our productivity initiatives. In international developed markets, adjusted operating income increased 6.6%.

Gains from strong productivity in operations and SG&A savings across Europe were partially offset by volume declines and inflation. And in emerging markets, adjusted operating income declined 28.8%. Indonesia, which contributed a 35 percentage point impact to the decline, more than offset growth in the rest of the business. Outside of Indonesia, we saw growth driven by sales performance, particularly in our Heinz brand and productivity savings. Moving to adjusted gross profit margin. In the quarter, we saw a decline of 130 basis points versus the prior year. This was driven by inflation, including tariffs, which more than offset pricing. These impacts were partially offset by best-in-class levels of productivity. In terms of adjusted EPS, we declined approximately 20% or $0.17 versus the fourth quarter of 2024.

This was driven by lower results of operations, a higher effective tax rate and higher interest expense, partially offset by favorable impacts from other financial income and share repurchases. Despite this pressure in the P&L, our ability to drive efficiencies and generate cash remains strong. We delivered gross efficiencies of approximately $690 million in 2025, representing our third year in a row delivering over 4% of COGS. Productivity savings continue to be a bright spot, reflecting disciplined end-to-end improvements across manufacturing, logistics and procurement. Looking at cash, we generated $3.7 billion of free cash flow in 2025, nearly a 16% increase versus the prior year, with free cash flow conversion of 119%, a 34 percentage point increase compared to 2024.

It was driven primarily by improvement in working capital, including better inventory management and demand planning initiatives, lower cash taxes, lower CapEx spend and reduced cash flows from variable compensation. Looking at our capital allocation priorities for 2026, they remain unchanged. First is to continue to step up investment in the business, as Steve shared. Second is to maintain net leverage around 3x, and this will include deploying excess cash to reduce debt in 2026. Third is to actively manage our portfolio. And fourth is to return excess capital to shareholders. We ended the year with a strong balance sheet with net leverage at our target ratio of approximately 3x. And in 2025, we returned about $2.3 billion in capital to stockholders.

Of the $2.3 billion, $1.9 billion was through our competitive dividend and approximately $400 million was through our share repurchase program. Looking at 2026, the incremental investments contemplated in our operating plan that Steve laid out will help us to better be equipped to align our brands and products with consumer preferences, show up with better commercial execution and provide a more balanced value equation for consumers. Approximately half of the investment is expected to be in price, product quality and packaging and the other half in SG&A across sales, R&D and marketing as well as in-store activation. We will be investing more heavily to stabilize those brands in the previously defined North American grocery company portfolio while investing sufficiently to accelerate recovery and growth trends we are already seeing in our Taste Elevation platform brands.

As we move throughout the year, we will monitor the efficiency of our investments and adapt the allocation of funds as needed to ensure we are getting the highest return. To monitor our progress, we will also be tracking the percentage of revenue gaining share. And while we don't expect to see improvements overnight, we do expect to see recovery as we get into the second half of the year. And since we are pausing the work on the separation, we will not incur any of the $300 million in dis-synergies or meaningful additional onetime costs in 2026. Now turning to our full year 2026 outlook. We expect organic net sales to be down 3.5% to down 1.5%. This includes an approximate 100 basis point impact from incremental SNAP headwinds. Our outlook contemplates adjusted gross profit margin in the range of down 75 to down 25 basis points year-over-year, reflecting inflation as well as investments in price, product and packaging that I just mentioned.

It is expected to more than offset targeted efficiencies. Constant currency adjusted operating income is expected to be in the range of down 18% to down 14%. This includes an approximately 3 percentage point impact from lapping lower variable compensation in 2025 and approximately 13 percentage points from the incremental investments I detailed earlier. We expect adjusted EPS to be in the range of $1.98 to $2.10. Our adjusted EPS expectation contemplates an effective tax rate of approximately 25.5%. From a cash perspective, we expect to generate free cash flow conversion of approximately 100%. Looking specifically at the first quarter, we expect an approximate 100 basis point benefit to organic net sales from the Easter shift. Excluding this benefit, we expect our top line results to be relatively flat to the fourth quarter.

This is primarily driven by a headwind from lower SNAP benefits. And as we progress throughout the year, we do expect sequential improvement in our top line, particularly in the second half of the year as we lap the headwind in Indonesia and begin to see the returns of our investments. For adjusted operating income, we anticipate a high teens decline in the first quarter. This is driven by increased investments, specifically those in marketing and price. While we will begin to accrue these investments in the first quarter, we expect a more meaningful top line improvement to come in the second half of the year. To wrap up, 2025 was a challenging year for us and the overall industry. It was marked by increasingly difficult market conditions and for us, ongoing market share pressure.

Looking to 2026, our plan is focused on building momentum in the business and to ultimately drive profitable growth through share recovery and volume improvement while continuing to generate attractive free cash flow. To successfully execute this plan, all resources will be singularly focused on it. That concludes our comments for today. We look forward to seeing many of you at CAGNY next week.

Thank you for your time and interest in Kraft Heinz.

Greetings. Welcome to The Kraft Heinz Company Third Quarter 2025 Earnings Call. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the conference over to Anne-Marie Megela, Head of Investor Relations. Thank you, Anne-Marie. You may now begin.

Thank you, and hello, everyone. Welcome to the Q&A session for our third quarter 2025 business update.

During today's call, we may 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 as well as statements regarding the proposed separation of Kraft Heinz into 2 independently traded companies. These statements are based on how we see things today, and actual results may differ materially due to risks 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 & Events for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures.

I will now hand it over to our Chief Executive Officer, Carlos Abrams-Rivera, for opening comments. Over to you.

Well, thank you, Anne-Marie, and thank you, everyone, for joining us today. I am encouraged by our progress in the third quarter, recognizing there's more work to do to navigate today's complex environment. We delivered a modest year-over-year recovery in the top line performance, showing progress versus the first half of the year. That said, the operating environment remains challenging with worsening consumer sentiment and ongoing inflation influencing buying behavior around the world.

To reflect our third quarter results and the expected continuation of these macro trends, we have updated our 2025 outlook. We remain on track to separate into 2 independent companies in the second half of 2026. And while we manage that transition, our priority is to drive performance today and position both businesses for long-term success. I want to thank our teams for their efforts and our customers, consumers and shareholders for their support.

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

[Operator Instructions] And our first question comes from the line of Andrew Lazar with Barclays.

Carlos, in light of the weaker consumer sentiment that you've talked about, we are seeing a number of food companies sort of lean in more aggressively on investment spend, both pricing related and broader A&C. I guess I'm curious how much of the '25 profit revision, if any, is due to more aggressive spending behind the brands than initially contemplated versus just the impact of sort of higher costs and volume deleverage. And if there's not significant additional spend, I guess I'm curious why wouldn't more make sense now to help jump-start volume improvement in a still tough consumer environment as you think towards next year?

Let me have Andre kind of give you a little bit of context how we think about the updated guidance and I kind of fill in some additional information.

Thanks for the question, Andrew. The profit revision is not linked to incremental investments beyond what we had previously communicated. The profit revision is a function of lower expectation on consumption in the U.S. which we can talk more about that, is a function of elongated recovery on Taste Elevation, which has been improving in a meaningful way, 70% of the revenue now is gaining market share. However, the recovery is still slower than what we anticipated. So there is a mix component to that. And we face incremental inflation in Meat and Coffee, and we didn't price certain elements of it due to competitive dynamics. And we had a few other one-offs affecting our supply chain results in Q3 that should not be expected to repeat in Q4. However, they stick in the year.

Remember, though, that for this year, we are increasing promotional investment around $300 million in the U.S. We have $80 million-ish of incremental marketing spending in media. We have more R&D investments, and we have incremental headcount in selected areas, mainly commercial-related functions. So we are adding relevant investments on the business. And we don't think that adding more price at this moment will yield results. The investments we have made already allow us to have opening price points in critical categories to the retailers and to the consumers. We have investments in Meat and Cheese, in Frozen Potatoes, in Mac & Cheese and a few others.

We don't believe adding more marketing at this point. Remember that the entire marketing investment increase is concentrated in the second half of the year. So we don't think going even further beyond that would deliver returns at this point. However, we are open in the future to add more marketing as we continue to go deeper in our brand assessments. But at this point, we don't think it's a matter of putting more investments.

I think the one thing I would add, Andrew, is, I mean, listen, we think about this at our company as a very much a consumer-centric brand-driven company. So for us, what is important is that we're building brand for the long term. So when we think about stepping up investments, we are thinking in terms of the -- what Andre mentioned in R&D, in marketing, continue to drive the renovation of our products because I think that is going to be the way for us to be successful over the long term.

I think the fact that we have concentrated our effort behind our Brand Growth System to make sure that we are continuing to bring distinct attributes that consumers value, that's going to be the way we continue to be able to be successful over the long term. And by the way, I think some of the pricing that we have done strategically in terms of promotions have worked.

If you look at our back-to-school campaign, we were able to actually be successful in able to drive great returns behind the key brands that we focused during the back-to-school campaign, Capri Sun, Lunchables, Jell-O. So I think we are going to continue to be tactical in our investments, but really building our brand for the long term. Thanks for the question.

The next question is from the line of Peter Galbo with Bank of America.

I wanted to ask maybe a more conceptual question around the spin. And really, if I think about it, one of your CPG peers is going through a similar dynamic right now in terms of kind of a split and you're living kind of parallel lives, I guess, for lack of a better word. In the case of your peer, right, there was an announcement, the market responded the way that it did, and there's been a pivot on their behalf, not in terms of pursuing the split, but in terms of how they're going about it, right? There's been an alteration in terms of the path forward.

I wonder just as you've solicited feedback from investors and as you've heard from investors since your announcement, has there been any thought as to a pivot for Kraft Heinz, whether that means the leadership isn't the way that you thought it would pan out, the brands that you announced at the spin now, maybe some of them move from one to the other. Just any thoughts, again, as you've heard feedback that you may potentially pivot versus the initial announcement?

Well, thank you for the question. And listen, I think that -- let me give you a little bit of the context of how we ended up with the decision. We have spent a number of months working with our Board of Directors to make sure we felt that we were going to do something that was going to be unlocking shareholder value. And we believe in the fact that we create 2 stronger companies that can be more focused for us to drive that unlock the shareholder value.

And if you think about our 2 companies, I think we have already shown that we have a playbook that we have focused on in a part of our business that will be part of the Global Taste Elevation. In fact, if you look at our Taste Elevation progress in the Q3, you are seeing already that, that playbook is working, that, in fact, we are improving our dollar sales that we're improving our share position. And in fact, in September, we gained share in 70% of the U.S. Taste Elevation business. So the playbook that we have has been working, and we want to apply it now to both companies with the right amount of resources and support.

Having said that, we also have said that we are going to continue to look at opportunity for us to think what is the right way to support this with the right amount of experience, capabilities and technical resources. So I think that's something that we'll continue to do as we think about the announcements that we'll have ahead of the second half of the year with the management teams and the way we're going to create the right operating model for us to grow.

So our focus remains on us doing the right thing by us creating these 2 companies. And really, in every situation, and you picked a particular peer that you had in mind, the reality is that there's many other examples of people who have done this. For us, what we're trying to do is, well, it's the right thing to do for both Kraft Heinz and our shareholders.

The other thing I'll add is, look, comments on perimeter and balance sheet. On the perimeter front, we -- as we said before, we decide this perimeter: one, to allow focus; two, based on growth history and growth potential of the different brands, the margin profile and the synergies. So as we go deeper now, we're doing all the bottom-up work. There's a lot of work going on, as you can imagine. If at any moment, we think it might create more value to shareholders to have some adjustments, we will. But at this point, we think we did the right thing because we put a lot of thought before that.

The second, the balance sheet. I know there was initially some maybe misunderstanding about what we intend to do with both companies, and we try to clarify that in the subsequent forums. So we said we are targeting both companies to be investment grade. We are committed to ensure that we keep the net debt at reasonable levels.

We put -- even the prepared remarks, we were very clear. Our capital allocation priorities have not changed. And the second one after organic investments is to maintain the net debt at or close to 3x, and we're committed to do that, which should allow both companies to have good balance sheets with optionality. And a clarification, when you say we want to have company investment grade, for us, net debt is below 4x. And obviously, the specifics, we're going to be still discussing in the coming months and discussing greatly in agencies, but we are committed for that as well.

Next questions are from the line of Tom Palmer with JPMorgan.

I wanted to just ask on Emerging Markets. It seems like excluding Indonesia, trends were more encouraging. I guess, one, and you did provide some commentary here on Indonesia from a sales overhang. But how big is Indonesia within Emerging Markets? And then when we think about the fourth quarter, the mid-single-digit growth guidance for Emerging Markets, what does that assume kind of for the business ex-Indonesia and Indonesia in terms of potentially seeing some improvement?

Well, thanks for the question. Let me start, I guess, with the point of the context of Emerging Markets. You're correct. There is great progress outside of Indonesia, and we have continued to see the -- not only the success in terms of growth, but also the continued improvement in terms of that growth. I think for me, what it also gives me confidence is the fact that we think about the $1 billion that we have in the Emerging Markets, that actually is accelerating and is accelerating because of our key brands like Heinz, where it continues to show a tremendous amount of growth. In fact, in emerging markets, our Heinz brand year-to-date is growing 13%. So I think for us is we continue to see that as a value piece of our portfolio and one of our key growth drivers as we think about the future.

In the case of Indonesia, top line is about $0.5 billion business. And frankly, what we have seen is a meaningful decline in consumer sentiment that has led then to the softening of demand. In fact, I think that the consumer sentiment in Indonesia year-over-year is about down almost 10 points in terms of consumer sentiment. So that has led to the sellout -- reducing the sell-out growth expectations and some of the challenges that we have seen in terms of our distributor -- particular distributor in the country and also how that has disrupted the overall our own business.

At the same time, this is something now we're taking actions to make sure that this is only something that we can correct into the future. So we are rightsizing the inventory to the right levels. We are transitioning to a new distributor, and we're also making sure that we're reducing the pricing stability that happen in the country, while we continue to invest in Indonesia in terms of our marketing of our brand and ABC is the largest brand that we have. And we believe that us continue to drive superiority on the brand equity, making sure we continue to drive the -- also penetration in a meaningful way is going to be the best way for us to getting Indonesia back to where we wanted to be in terms of contributing the growth to the business.

Just to add to that, we -- Emerging Markets aside from Indonesia grew 9.2%. So it did accelerate in a relevant way compared to the first half of the year, as we have said before. Indonesia, just maybe a little more specific, is close to $300 million revenue. So it's like 12% of the emerging markets business. So still relevant, but not massive. And we do expect the recovery in the P&L only to happen in the second half of next year because we still have adjustments to do into Q4. In Q1, there is Ramadan, which is very important for Indonesia, a big seasonality in that business, so -- which will affect Q1. So we really head into Q3, end of Q2, Q3, we're going to see the recovery there.

Yes, but I think what is good is we invested a lot in this business in the past 2, 3 years. There was a lot of marketing investment to put the ABC brand, which is the leading brand in several categories in a very good spot. So market share standpoint, things are doing well, but we have to make the adjustments on the distribution network.

Our next question is from the line of Steve Powers with Deutsche Bank.

I don't -- Carlos, I don't believe I saw it anywhere this morning, and apologies if I missed the relevant disclosure, but are you able to frame maybe pro forma the performance of Global Taste Elevation Co. versus North American Grocery Co. in the third quarter? And then also update us on how you see those businesses progressing into the fourth quarter, just so we can better assess momentum into '26 and eventual separation.

And maybe alongside that, Andre, I don't know if you -- where you're -- sort of where you are in this process. But as you think ahead towards separation, I'm just curious if you have a more formal estimate around any onetime restructuring costs or cash costs that Kraft Heinz is likely to incur in preparation for the split? I'm just trying to see how we should handicap those dynamics over the next 3 or 4 quarters.

Sure. Thanks for the question. Look, both companies -- both 2 big companies pro forma declined low single digits in the quarter. We see the Global Taste Elevation trajectory improving and in the very low single-digit territory at this point. And the expectation is for Q4 that to continue. So our main priority is to put the Global Taste Elevation back to growth in 2026 as it has grown for several of the last 15 years. And so that's the priority #1 to us.

The North American Grocery Company had a significant improvement in trends in the third quarter compared to the first half, but also declining low single digits, though more than the Global Taste Elevation Company. But the priority #1 for the North American Grocery Company now is to ensure that we have stable cash flows heading into '26. And -- but in parallel, we're working hard to make sure that this company also has the prospects of growing low single digits into the future.

In terms of one-off costs, I think it's [ a case ] to talk about that. There is a lot of work in motion right now. We are committed to be very, very disciplined with the use of cash like we have been. So you can see our results despite the EBITDA decline, our cash flow is up year-over-year, and it's going to continue to be the case here to go. So count on us to be very disciplined and do the right type of investments that are needed to put those 2 companies set up for success.

Yes. Let me just add then particularly as we think about the North America grocery company. I think if you look at our history, we have proven that we can be an efficient operator. So as we think about our separation, we're going to have the same level of efficiency as we think about how do we actually drive both of those companies. And I think that beyond that, we also have been a great and a confident company in terms of delivering strong cash flow for our shareholders.

Now I would also point out the fact that I mentioned earlier that we have a playbook that has worked. Some of that playbook, we actually already have deployed to some of the key brands that will be part of North American Grocery. So if you think back to Q3 and our results on Lunchables, on Capri Sun, those are brands that now in the future will be part of North American Grocery, and we were able to return to growth. What will happen as we go into these 2 separate companies and we can create 2 more focused companies, we can then put the right level of attention and resources to allow both of those companies and to fulfill their true potential. So I think as we go into the -- going forward, the attention of management remains in us making sure that we continue to see the progress of the company because that will support both companies as we exit into the second half of 2026.

The next question is from the line of David Palmer with Evercore ISI.

Great. In your slide presentation, you noted several of those key categories where you're clearly improving in terms of market share. Your guidance for the fourth quarter doesn't imply much improvement. And I just wanted to get your thoughts about maybe offsets. Is it categories that you're in? Are they slowing? Maybe there's some offsetting brands where you're seeing a little bit of deterioration?

And then separately, there's that story of the promotion spending that you -- those investments, the $280 million that you're making. that's maybe 2% of North America retail sales. When we track in scanner data, I know these are audited numbers, but it only shows like that your volume on promotion is only up -- is only down, I'm sorry, 1%, basically unchanged. I'm just wondering what is going on with your promotions? Maybe you could tell us better than what the data is showing us, which doesn't show us much in terms of what activity you are doing?

Sure. Thanks for the question. So first, regarding Q4, you are right. The outlook implies revenue in Q4 worse than revenue in Q3, about 100, 110, 120 basis points. We have inventory phasing in -- especially in North America, especially in the U.S. So we do expect this headwind of inventory to be north of 100 bps for the total company. It's a combination of inventory phasing Q4 last year to January given some timing of promotion and some September, October. We also do expect lower consumption in Q4. And that's -- so the inventory has been in our outlook for a while. There's nothing new.

The different aspect that also was one of the reasons why we adjusted the expectation for sales down year to go is related to the softness in consumption. So we saw throughout Q3, the industry decelerating further in the U.S. In October, aside from hurricane noise, it also started soft. So we do expect the market share to continue to improve, especially in Taste Elevation, but we should expect share to improve, but we expect the industry to get worse. So that results in the consumption overall in the U.S. to be relatively flat to Q3, but with the inventory then headwind impacting us.

The second part of your question?

The promotions.

On the promotions. So we concentrate promotion mostly about the key holidays. So our highest market share in the year historically is in Thanksgiving and Christmas. So we do have a lot more promotion activity around this upcoming holiday. Part of the investments we have made, they were to secure incremental distribution. So that's part of joint business plans that we do every year with the retailers, and we were very intentional in some cases to ensure that we expand distribution, which we have been generally getting. And in some other cases, we did invest deeper than what we would normally do during back-to-school to ensure that we can accelerate consumers trying the renovated products.

So we focus a lot on trying to drive units to have those household penetrations coming in. And the expectation that this will eventually generate repeat purchases, which will help with the sales in the future. Remember, we said that at the beginning in the last quarter that we will try to do different tactics to accelerate this consumer trial of the new products. So we see that. The ROIs of those are not good, to be honest, the lifts are low. And maybe that's why when you look at the syndicated data, you have this perception.

But I think let me add a couple of things. I think, first of all, we talked quite a bit about the U.S. because if you think about our total company, the reality is that while we're seeing some pressure in Europe in terms of the consumer, particularly in the U.K., we actually are holding our share in a moment in which the U.K. consumer also is seeing some challenges. And I mentioned earlier, Emerging Markets, where we've seen actually strong growth, whether it's in Brazil, the recovery in Mexico that we feel great about, the stability in China and really is Indonesia aspect that has been kind of holding us back in terms of getting to the double-digit growth that we can see in Emerging Markets into the future.

So I think from that perspective, it is why we spent quite a bit of time talking about the U.S. And if I do a double-click on what some of the things Andre mentioned, the reality is that we are seeing some inventory pull back from customers. And I think that's a response to what they're seeing in terms of the consumer sentiment. So the fact that we have now one of the worst consumer sentiments we have seen in decades, as we go into even a holiday season, we're already seeing how customers are pulling back on inventory, and that's reflected in our guidance as well, too.

So it is a unique moment right now in which this is getting -- the consumer negativity and the sentiment is extending longer than we had originally expected. And we are seeing already on top of that, that customers are also adjusting their own level of inventory to accommodate for that.

The next question is from the line of John Baumgartner with Mizuho Securities.

Just sticking with the promotional environment in U.S. retail. Despite the joint programming with retailers that you mentioned, Andre, and the larger investment dollars and the improving analytics, weak promos seem to be a theme right now across the center of the store. And Carlos, you mentioned some success with your lips around back-to-school, but lips have also been weaker in other parts of your portfolio as well. So I'm curious what you're finding that's working differently in the areas where the lips are stronger. Is there a distinction there? And then what changes are you making, if any, to your promo approach into '26 given the consumer environment?

I think there were about 3 different questions in there. So let me take one. I think there's a part of it you were getting at is some of the success we've seen in back-to-school. And for us, I think one of the things that we were playing in back-to-school, and I think we did that effectively is how do we make sure we are winning in those key moments in which consumers are going disproportionately to stores.

So back-to-school was actually one of our first pilot in which we kind of created a whole more executional approach of how we leverage the entire brands together during that particular moment. So what you saw is an improved in-store display and increased investment both in marketing, but also in the promotional aspects inside of the retail environment. And that actually helped us make sure that we have a cross-selling where brands cross-shopping purchase improved by 60 bps.

We also saw that improving in base velocity as a result of the investments that we make in back-to-school so that when consumers were going to the store, I mentioned the fact that we have brands like Lunchables and Capri Sun. So when they go to a back-to-school time period, they were actually experiencing a product that we had now renovated in both Lunchables and Capri Sun.

So that actually helps us for us to the long term to make sure we continue to build a stronger base volume as we go into the future. And I think those are key learnings that we'll take as we go into the holidays as we go into key also moments into the future. I think that was one of your questions. Andre, I think you want to address some of the other pieces.

And maybe just to complement. So what you have seen working better generally is more on higher frequency than deeper discounts. So -- and we see overall lifts coming down year-over-year. The ROIs are lower than they were last year, generally in part because of higher overall incremental activity, which dilutes the lift across different players, but also in our case, as I mentioned before, because we're going deeper in certain occasions to drive household penetration.

As we head into next year, we have a lot of tests running in selected places to see different type of tactics that could work well, including in some case, cross-merchandising and bundling products, putting -- adding more events in e-commerce, trying to maybe go less deep and less focus on key holidays and maybe spread these resources around in a more harmonic way throughout the year. So there are a set of different things that the teams are currently assessing to make sure that we can improve those returns into next year again. Carlos?

Yes. The one thing just to complete the thought on your question is, I think right now, we're also seeing some challenges with the consumer. But I think what we are looking to do and the game that we're playing for the long term here is to make sure we continue to invest behind our brands to drive superiority from a consumer experience perspective.

I do think that right now, the challenges we're facing are more cyclical in nature. So for us, it's important that as we get out of this particular era in which consumers are feeling with a down sentiment that we come out of it with a much stronger portfolio with stronger brands. So I do think that we are preparing ourselves not to just be victims of the moment, but actually stronger -- building a stronger company for the long term.

Our next question is from the line of Robert Moskow with TD Cowen.

I wanted to drill in a little bit on the commoditized categories, Carlos, like Coffee and Meats. And I guess, Cheese to some extent, these 3 categories are going to be like 40% of the sales of North American Grocery. And as you can see in your results here, Sliced Meats and Coffee have become really problematic. I guess I wanted to know, have you started rolling out the Brand Growth System to these categories? Is it harder to implement it in these than it is in the others? In your CAGNY presentation, you yourself said that you have a much lower right to win in coffee and meat. And as a result, does that make it harder to get traction with Brand Growth System than the others?

Hello?

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Please stand by ladies and gentlemen, we'll resume momentarily. Ladies and gentlemen, please stand by. We are experiencing technical difficulties. We will resume momentarily. Thank you.

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Hi. This is Anne-Marie Megela, Head of Global Investor Relations at the Kraft Heinz Company. I'd like to welcome you to our third quarter 2025 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 risks and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release, which accompanies 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 and Events for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures.

Today, our Chief Executive Officer, Carlos Abrams-Rivera, will provide an update on our overall business performance. And Andre Maciel, our Chief Global Financial Officer, will provide a financial review of the third quarter results and will discuss our 2025 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 turn it over to Carlos.

Thank you, Anne-Marie, and thank you all for joining us. I am encouraged by our progress and recognize there is further work to be done to successfully navigate today's complex environment. In the third quarter, we saw a modest year-over-year top line recovery versus the first half, driven by targeted investments and sharper execution. Our investments in marketing, R&D and technology are fueling the recovery, whether through Brand Growth System insights that are improving performance in Capri Sun and Lunchables or through advancements in technology that continue to drive efficiencies across the value chain.

We are continuing to generate attractive cash flow, remain committed to our net leverage target and have returned $1.8 billion to shareholders year-to-date while continuing to invest for growth. Overall, the operating environment remains challenging with the worsening consumer sentiment and inflation shaping consumer behavior globally. As a result, we are updating our 2025 outlook to reflect our third quarter performance and anticipated continued macro trends. Andre will share more details shortly.

Finally, we remain on track to separate into 2 stronger, more focused company, each anchored by market-leading brands: Global Taste Elevation Company, home to legacy iconic brands like Heinz, Philadelphia and Kraft Mac & Cheese; and North America Grocery Company, consisting of North American staples, including 3 billion-dollar brands, Oscar Mayer, Kraft Singles and Lunchables. The separation, which is expected to close in the second half of 2026, would allow each business to more sharply focus resources, improve execution, reduce complexity and drive further efficiencies. In the meantime, our priority is to drive improved performance and position both companies for long-term success.

Now moving into the details of our third quarter results. We continue to make progress on the top line with year-over-year organic net sales down 2.5%, an improvement compared to the decline of 3.3% in the first half of the year. Our Q3 performance was slightly behind our expectations, driven in large part by extended promotional activity in the cold cuts category and slowdown in Indonesia that I will expand on shortly.

At the same time, our teams delivered meaningful cost and efficiency gains across the business, which helped to partially offset pressures from tariffs of inflation along with targeted investments in trade, the net of which compressed gross margin versus last year. These results, combined with an increasing investment and a more favorable tax rate, led to constant currency adjusted operating income of $1.1 billion and adjusted EPS of $0.61.

Our cash generation remains a clear strength. Year-to-date, free cash flow was $2.5 billion, up over 20% from last year, reflecting disciplined working capital. Importantly, the sequential recovery that we are seeing in year-over-year top line growth is coming primarily from improved volume/mix. In total, organic net sales improved 80 basis points in the third quarter compared to the first half of the year, with volume/mix improving 70 basis points over the same time period.

We achieved these results despite growing challenges in Indonesia and continued promotional activity in the U.S. cold cuts category. The pressure seen in Indonesia is attributable to inventory destocking as well as route-to-market challenges, both fueled in part by a sharp economic slowdown that has led to a pullback in consumption. I can assure you we are addressing these issues directly and executing a comprehensive plan. This includes resetting inventory to optimal levels, stabilizing our distributor network and continuing to build on the investments we have made to improve the equity of our ABC brand. Given the scope of the challenges and complexity of these initiatives, we expect meaningful improvements in the second half of next year.

In cold cuts, elevated promotional activity in the marketplace continued longer than we anticipated. We made the decision to invest in price in the back half of the third quarter and expect those investments to drive improved performance.

Now let's take a look at our results through the lens of our 3 strategic pillars. In North America Retail ACCELERATE platforms, they declined 4.2% versus the prior year. This reflects a year-over-year improvement of 100 basis points from the first half of down 5.2%, largely driven by Lunchables, Cream Cheese and Primal Kitchen. And while we experienced improvements in these categories, the Q3 year-over-year decline in North America Retail ACCELERATE was primarily driven by Mac & Cheese, Spoonables and Frozen Snacks.

Global Away From Home organic net sales declined 2.4%. We delivered growth in International Away From Home for the 18th straight quarter, while the overall U.S. away-from-home industry continues to face pressure as traffic remains suppressed. We continue to expect growth in our international business in Q4, but we are not contemplating an improvement in the U.S. industry for the remainder of the year.

Now turning to emerging markets. Organic net sales grew 4.7%. LATAM and Middle East and Africa regions delivered double-digit growth for the second quarter in a row, while the weakness I just mentioned in Indonesia created a sizable headwind.

Going deeper into North America Retail ACCELERATE, I am encouraged to see share improvement across key categories. In cream cheese, salad dressings, ketchup and mustard, we gained on health share in the quarter and drove even larger share gains in September. In fact, we gained share across 70% of our U.S. Taste Elevation portfolio in the month of September. We are seeing success across these categories as we continue to invest to drive superiority through innovation and renovation, consumer-driven price pack strategies, improved marketing and strong sales execution. We will continue to deploy the successful playbook across the portfolio to accelerate improvement.

Shifting our focus to our next strategic pillar, Global Away From Home. While I'm encouraged by the growth we continue to see internationally, the industry remains pressured in the U.S., particularly in chains and restaurants. Outside of restaurants in areas such as hotel, stadium and entertainment, the noncommercial channels are an attractive higher-margin channel where we continue to see growth. Over the past few years, we have been focusing growth initiatives on these channels to diversify our sales mix and reducing our dependency on QSR and restaurants. As a result, their contribution to overall away-from-home sales in North America is up 8 percentage points from 2022.

We also continue to expand beyond ketchup through both distribution and innovative offerings. For our new Heinz Chipotle Honey Mustard, we strategically launched it in away-from-home prior to bringing it to retail. The partnership delivered twice the initial expected volume, unlocking a relationship that has opened the door for incremental cross-channel revenue. In Emerging Markets Away From Home, we increased organic net sales by 9% in the third quarter, surpassing the 8% growth rate achieved in the first half of the year. This achievement underscores the success of our go-to-market model and the ongoing strength of the Heinz brand globally.

Our Heinz Verified program supports U.S. restaurants with exclusive access to suite of benefits that unlocks growth and boosts traffic. Nearly 2,500 operators have joined, recognizing the value of serving Heinz in driving traffic and credibility. So while we expect the U.S. industry to remain under pressure for the remainder of the year, success across key elements of our strategy should drive an improvement versus Q3.

Our final strategic pillar, emerging markets, delivered yet another quarter of growth, increasing top line by nearly 5%, driven by a combination of price and volume/mix. This performance was attributed to our Heinz brand, which grew an impressive 14% in the quarter, as well as repeatable go-to-market model. Heinz is our global anchor, with over $1 billion in sales in emerging markets alone. In these markets, we have successfully been able to expand beyond ketchup into mayonnaise, pasta sauce and other fast-growing categories.

And our go-to-market model continues to drive steady growth in distribution, with an increase of 60,000 distribution points in the third quarter versus last year. This brings our emerging market total to nearly 900,000 distribution points, and we still see so much opportunity for further expansion. The strength of our Heinz brand and our go-to-market model execution gives me confidence that we are well positioned for sustainable long-term growth in our emerging markets.

Now turning to our continued investments across marketing, R&D and technology, which are at the heart of our initial recovery. One key area of investment is our Brand Growth System. This is a systematic and repeatable data-driven methodology that is powered by forensic-like analysis to drive category growth through brand superiority. It identifies opportunities across a broad competitive landscape to improve performance in 4 key areas: brand resonance, product and package, value equation and omnichannel execution.

Let's start with brand resonance. Here, our goal is to drive category expansion and build an ever-lasting emotional connection with our consumers. Driven by insights gained through the Brand Growth System, our creative is now more product focused. For example, in the U.K., our Trigger the Taste campaign replaces the Heinz name with the food that it is famously paired with to evoke taste memory and highlight the inseparable pair. In product and package delivery, we have invested to deliver superior quality, taste and consumer experience. I am proud of the teams with what they have been able to accomplish in such a short amount of time.

Lunchables' upgraded cookies and crackers now test superior in all metrics. We're also highlighting high protein content on packaging across several brands, including Lunchables, which has 10 grams of protein. In 2025, we invested in renovation and product superiority across nearly 2/3 of the U.S. portfolio, fueled by insights from our Brand Growth System.

Delivering value remains a top priority, and we are committed to meeting the needs of all consumers, from families to single households. Let me give you an example in Mac & Cheese. This year, we introduced a new family sized box of Kraft Mac & Cheese, offering 50% more than the standard blue box.

Lastly, for omnichannel execution, we want to amplify brand and category reach through excellent execution across all channels. A key component of this is e-commerce, where we have generated high single-digit growth for the last 3 years. We've built portfolio marketing to develop multi-brand media to shelf programs so we can win bigger in our must-win moments where our brands are hyper relevant. For example, this summer, we won in display and feature across our multi-brand Let's Grill Out for Dinner campaign.

We have made meaningful progress implementing our Brand Growth System. By year-end, we expect to reach 40% sales coverage, representing a 30 percentage point increase over last year. And with a dedicated team, we will continue to scale faster and further expand coverage in 2026. Our Brand Growth System works hand-in-hand with our disruptive marketing and innovation efforts. By delivering superior products to meet our consumers' evolving needs through innovation, we continue to drive momentum globally.

Starting in Canada, where we turned up the flavor with the launch of new Heinz Mayonnaise-Style sauces, now available on major retailers. These flavors are driving nearly 3 percentage points of share gains for Heinz Mayo versus the prior year. In fact, Heinz has now claimed 5 of the top 10 SKUs, representing 22% of the flavored mayo category.

In addition to flavor exploration, we are making our beloved brands more accessible and relevant. Our single-serve Capri Sun bottles are proving to be a huge success. We have achieved top quartile performance across major retailers, with display execution driving significant lift. Our dual aisle placement on shelf and in front of the store is demonstrating incrementality, 60% to the brand and 50% to the category. The single-serve bottles are aging up our consumer base and over-indexing to lower-income households, given its accessible entry price point.

And we continue to deliver unique benefits, such as health and wellness. Our Heinz TK Zero with zero added sugar and salt is now available in over 10 countries. With its new formula, graphics and campaign, our renovated Heinz TK Zero has gained over 1 percentage point of share in Europe and driven incremental volume to the category. Our Zero promise does not compromise with the iconic ketchup taste. So whether you choose Zero, Classic or Sweetened with Honey, you can trust that it will always taste like Heinz.

And finally, marketing. We have transformed our approach, starting with investing behind product-focused creative. As we move forward on our journey, we are amplifying human creativity with TasteMaker, our new AI marketing and innovation platform that enables content creation at record speed. What once took 8 weeks now takes just 8 hours. And we are only scratching the surface of what's possible.

We're also leaning into relevant moments in culture where our brands make sense. This past quarter, we announced our new Heinz Look Familiar global campaign that reveals the striking similarity of french fry boxes and the iconic Heinz Keystone. Live across 8 global markets, including the U.S., the campaign demonstrates the unmistakable link between the universally loved duo.

And we are unlocking value at must-win consumer moments, most recently during back-to-school. We increased media investment in core brands by 75% versus the prior year. And with a full 360-degree campaign, we were able to reach 85% of parents at an average frequency of 5x. As a result, we increased cross-shopping across participating brands by 60 basis points compared to the prior year.

On the next slide, you can clearly see that our investments across marketing, R&D and technology are yielding results across all 4 focus categories in North America. Lunchables and Capri Sun returned to positive consumption growth, and we are making progress in Mayonnaise and Mac & Cheese. With renovated products in market and several initiatives either just hitting shelf or coming soon, I believe we can drive further improvements. This success gives me confidence in our ability to apply this framework across the rest of our brands to drive top line growth.

As a leader in the food industry, we are harnessing the power of technology to drive efficiencies across our value chain. Our AI-powered solutions are transforming the way we work, enabling us to streamline processes, enhance decision-making and better enable reformulation. Our AI-powered tool, the Cookbook, provides employees access to 150 years of company knowledge on the production of ketchup and is leading to more efficient operation from farm to table. The tool went from idea to prototype in less than 3 months, thanks to our partnership with Microsoft. We are planning to scale this technology to other brands, products and businesses and explore additional use cases to further leverage its potential.

In operations, our AI-powered platform, Plant Chat, is enhancing real-time decision-making on the factory floor. By gathering real-time analytics and insights, our employees can make informed decisions, improving quality and throughput across our supply chain. Plant Chat is one component of our broader connected AI ecosystem across operations that has led to a meaningful reduction in waste, increased forecast accuracy and improved yield.

And in R&D, our product AI model, Leonardo, is enabling faster and most cost-effective reformulation for nutritional advancements. Leonardo makes recommendations that replicate the exact taste and experience profile, allowing us to create healthier products without compromising on taste. In our first pilot in Brazil, we used Leonardo to reduce added sugars and sodium by over 30% in Heinz Tomato Ketchup while preserving the iconic Heinz taste. As part of our overall innovation and renovation strategy across health and wellness, we are committed to offering a balanced portfolio with an array of options. Our AI-powered solutions will be key tools in helping us achieve this goal, as well as drive continued progress on our commitment to eliminate artificial diet by 2027.

Before I hand it off to Andre, I would like to quickly touch on the separation. Work is well underway, and we will continue to keep you informed of our progress. We remain on track to close in the second half of 2026, and I can assure you that in the meantime, we are laser-focused on execution and improving the performance of the business.

With that, Andre will provide more details on our financial results and discuss our 2025 outlook.

Thank you, Carlos. In the third quarter, organic net sales declined 2.5% for total Kraft Heinz, with price up 1 percentage point and volume/mix down 3.5 percentage points. As Carlos mentioned, this is a modest year-over-year top line improvement of 80 basis points from down 3.3% in the first half of the year.

In North America, organic net sales declined 3.8% as growth in Canada was more than offset by declines in the U.S., led by cold cuts and away-from-home. This was a 100 basis point improvement from the first half of the year of down 4.8%, largely driven by meaningful progress in both Capri Sun and Lunchables. In our international developed markets, organic net sales declined 1.4%.

In the quarter, we saw growth in Taste Elevation across key markets and priority channels, including away-from-home and discounters. This growth was more than offset by industry softness in U.K. meals, particularly in beans and soups, despite us holding the share. In fact, we grew or maintained share versus the prior year across 75% of our international developed markets portfolio in the third quarter. The year-over-year decline in the third quarter is a 60 basis point improvement from down 2% in the first half, largely driven by performance in the Benelux region and France.

In emerging markets, organic net sales were up 4.7%, driven by both price and volume growth. This was a result of continued double-digit growth in LATAM and Middle East and Africa regions, partially offset by a 460 basis points impact from the decline in Indonesia. Indonesia was the reason our year-over-year top line decelerated in emerging markets compared to the first half.

Turning to the next slide. Total Kraft Heinz adjusted operating income declined 16.9%, and our adjusted operating income margin decreased 310 basis points. In North America, adjusted operating income declined 17.8% versus the prior year. This was primarily driven by commodity inflation, mostly meats and coffee, as well as volume declines, which were partially offset by our productivity initiatives.

In international developed markets, adjusted operating income decreased 3.5% as gains from efficiencies and revenue management initiatives were more than offset by lower volume/mix as well as increased variable compensation and R&D expense. In emerging markets, adjusted operating income declined 6.5%. Declines in Indonesia more than offset strong growth and margin expansion in the rest of the business. Outside of Indonesia, the growth was driven by a combination of continued recovery in Brazil, a mix benefit as Heinz growth remains strong across the region, and productivity savings.

Moving to adjusted gross profit margin. In the quarter, we saw a decline of 200 basis points versus the prior year. Efficiencies were more than offset by rising inflation from higher commodity costs in meats and coffee, and tariffs, some of which we decided not to price given the competitive environment.

In terms of adjusted EPS, we declined 18.7% or $0.14 versus the third quarter of 2024. This was driven by results of operations, a higher effective tax rate and higher interest expense, partially offset by favorable impact from other financial income and share repurchase. We are committed to prioritizing investments in the business for the long-term growth. Altogether, we have invested nearly $350 million year-to-date across trade, media and R&D versus the prior year. Our year-to-date media increase is highly concentrated in the third quarter, and we expect this to increase further into the fourth quarter. These investments are helping to drive recovery across key areas of business and position us well for 2026 and beyond.

The investments I just discussed are partially being funded by best-in-class levels of productivity, as we are on track to deliver savings above 4% of COGS for the third year in a row. Year-to-date, we have generated 4.3% of gross efficiencies, far exceeding the 3.5% goal we have for the year. We have now unlocked $1.8 billion out of our $2.5 billion goal that we set to achieve by 2027, further solidifying our position as a leader in operational excellence. Through advancements we have made in our supply chain, we are driving end-to-end improvements across manufacturing, logistics and procurement.

One key area of focus has been leveraging technology to better anticipate and mitigate disruptions before they impact our operations. In addition, we have made strides in demand planning, refining our approach to reduce excess inventory and optimize our resource allocation. We also enhanced our digital capabilities, automating processes and improving yield. Finally, our logistics optimization efforts have led to a reduction in fuel use and emissions.

Our ability to generate attractive cash flow continues to be a bright spot, with year-to-date free cash flow reaching $2.5 billion. Our year-to-date free cash flow conversion was 109%, up over 30 percentage points versus the prior year. This improvement is largely attributed to our successful inventory management initiatives, which have driven reductions in days inventory outstanding as well as lower CapEx spend. These improvements in working capital are driving an increase in our full year 2025 estimated free cash flow conversion to at least 100%, up from previous expectations of about 95%.

Through continued operational discipline, we are well positioned to provide consistent cash generation, invest in growth opportunities and drive long-term value creation. And we continue to be excellent stewards of capital. Our capital allocation priorities remain unchanged. First is to invest in the organic business as we have done in 2025. Second is to maintain net leverage around 3x. Third is to actively manage our portfolio. And fourth is to return excess capital to shareholders.

Given the planned separation and our commitment to set up the 2 companies for success, we will focus on continued investments while ensuring net leverage stays near 3x. To maintain this targeted net leverage, we will actively consider the deployment of excess cash to pay down debt before completion of the separation. In 2025, we are planning to invest about $160 million above our original expectations that we set at the beginning of the year. We are on track to close the divestiture of our infant and specialty food business in Italy by the first quarter of 2026. And we have returned nearly $1.8 billion in capital to stockholders through dividends and share repurchases.

For both companies, as we complete the separation, we are targeting capital structures that maintain investment-grade ratings, committed to maintain the current dividend level in aggregate and aim to provide balance sheet optionality as well as certain levels of excess cash flow. We returned capital to stockholders while maintaining a strong balance sheet, significantly reducing our net leverage ratio from 4.4x in 2019 to approximately 3x. Of the $1.8 billion returned to stockholders to date, nearly $1.4 billion was through our competitive dividend and approximately $400 million through our share repurchase program.

Now turning to our full year 2025 outlook. We are updating our guidance for the year. We now expect organic net sales to be down 3% to down 3.5% at the low end of our previous guidance range. This contemplates slower growth in emerging markets driven by continued declines in Indonesia as we stabilize our distributor network, reset inventory levels and reduce pricing stability. Emerging markets growth is now expected to be at mid-single-digit pace in Q4. It also reflects continued pressure in U.S. retail as observed in recent consumption trends, both for the industry and Kraft Heinz.

Our outlook now contemplates full year adjusted gross profit margin down approximately 100 basis points year-over-year, reflecting incremental inflation in meats and coffee, a negative mix impact and onetime costs we incurred in the third quarter. We now expect constant currency adjusted operating income in the range of down 10% to down 12% compared to our previous outlook of down 5% to down 10%. This reflects our revised top line expectations as well as a lower adjusted gross profit margin outlook. We now expect adjusted EPS to be in the range of $2.50 to $2.57 compared to our previous outlook of $2.51 to $2.67. Our adjusted EPS expectation contemplates an effective tax rate of approximately 26%, which is a $0.23 headwind on adjusted EPS year-over-year. We now expect free cash flow conversion of at least 100%, up from our previous expectation of 95%.

With that, I will pass it back to Carlos for some closing comments.

Thank you, Andre. I would like to share some thoughts based on where the consumer is today and what that means for the food industry as we look to 2026. The consumer continues to navigate a tough environment with sentiment worsening, costs continuing to rise and SNAP-related headwinds expected to intensify. We see these pressures as persisting beyond the fourth quarter, leading to a longer path to consumer recovery.

That said, I am encouraged by the progress we at Kraft Heinz are making. We continue to deliver best-in-class productivity levels and strong cash flow, reflecting disciplined efficiency and execution. We intentionally chose the path forward that prioritizes long-term sustainable growth and continue to make targeted brand investments enabled by our Brand Growth System, better positioning us for 2026.

Next year will be a pivotal year for us as we prepare for the separation. We are committed to investing in the long term and are taking deliberate actions now to position both companies for success post separation. Thank you for your time and interest in Kraft Heinz.

All right. Welcome back, everybody. For our next session, I'm thrilled to welcome back The Kraft Heinz Company. With us today once again are Chief Executive Officer, Carlos Abrams-Rivera; and Executive Vice President and Chief Financial Officer, Andre Maciel. Thank you both for joining us.

Pleasure to be here.

Thank you.

So we have some things to discuss without a question, how to throw out the old sort of fireside chat questions and come up with some new ones, but we appreciate you sort of being here even in the midst of all that you've got going on. Maybe to start off at sort of a basic level, right, yesterday morning, you announced you're going to plan to split the business into 2 separate entities, Global Taste Elevation Co., North American Grocery Co. So to start, why do you believe the separation will lead to improved performance?

Yes. Well, first of all, thank you, and I appreciate you being flexible and working with us. I'm sure you changed everything that you were going to ask us. Listen, I think ultimately, it all comes down to focus. And I think one of the things that it has -- we have seen and it has been proven now inside our company then when we can dedicate focus, it actually leads to improved performance that ultimately will unlock shareholder value. If I go back, Andrew, to what I commented back in May that as a Board, we were looking at strategic transactions opportunities because we believe the company's truly valuation didn't reflect the potential of our company.

I think part of the reason we were doing drills exercise is because we inherently understood that the more we can drive focus, the better performance we have -- will happen and then it will yield the kind of value that we want. And I think for us, it's not only a matter of us thinking about whether it's possible, it's a matter of fact that we have seen it work. Over the last 2 years, we have spent a lot of time and effort behind what we call the brand growth system, making sure that we are focused on driving improved performance in key brands. And when we have done that, it has paid off.

We started this process working with our Heinz business in the U.K., with our Philadelphia business in the U.S., both of them as we focus on driving better quality, better marketing, improving the communications, both in package and online, it actually yielded a reverse of those trends -- negative trends that we have seen in those business. So we know that works. That gave us confidence for us to now do that broadly in our portfolio. Now today, if you look at, for example, our business like Lunchables, in which we have been able to drew the Brand Growth System, make sure we have innovation, improve our -- with PB&J, improve our quality in our products with the best cookies and crackers we ever had, talk about the communication to our consumers in store by highlighting the 12 grams of protein that our products have.

All that is actually has led now to seeing growth in that business as well, too. So we know that what we have been able to focus had driven growth. At the same time, the reality, I think that both the Board and I agree is that the complexity of the business today is a hindrance to be able to drive that kind of focus that we need in the business to drive better performance. So with this move, it allows us to do both. It allows us to reduce that complexity and increase the level of focus to drive better performance.

Sorry, there's also an aspect of the competitive landscape, right? Most of our competitors are very specialized. So you can argue somehow we are competing in even terms, right? Today, you have to spread 2 things, the time of CEO, Zone President, Head of Sales, Head of Quality, so on and so forth across a very vast amount of categories. We're competitive about it. They're thinking about this day in, day out.

So trying to really allow us to have a higher span of attention of senior people across the different functions and really have this focus and develop deeper expertise in certain domains should translate into better performance as well.

Got it. Got it. There are certainly plenty of investors that would say, hey, is this split really just essentially a reversal, right, of the original Kraft Heinz merger from 10 years ago? And I guess why is this not just an unwinding, if you will, of what was done 10 years ago?

First, I would say, no, it is not. The reality is that we have done the moves that we have made and the [ penimbertives ] that we have actually put in each company responds to 2 things: how consumers are today behaving, which is very different than it was 10, 12 years ago. But it's also about thinking about the future and what we want to be able to take these 2 companies going forward.

So for me, even a fact is that both -- we have Kraft brands in both companies. We have Heinz brands in both companies. And what we're trying to do is what is the right thing to do for Kraft Heinz. And remember, Andrew, that a lot of these things were actually fitting into the strategy we laid out back in CAGNY in February 2024. This idea of us driving focus behind our accelerated platforms, defining what the PROTECT platforms were and our Balanced platform that idea of us saying we want to continue to drive the growth through both Taste Elevation, raising meals and snacking.

Those were the places that we identified back 1.5 years ago, and it actually has shaped how we think about the 2 companies. So it really is about how we are seeing consumers today, how do we continue to see the growth in the future and also the reality of who we are as a company that really led to the way we kind of decided 2 perimeters.

Great. And you've talked about, obviously, the desire for increased focus. I guess what does this increased focus allow you to do going forward that maybe you couldn't do in the current structure? Maybe there are even some examples that you can sort of point to.

Yes, absolutely. Listen, I think that I would think about it in terms of how do you deploy your resources inside the company. When you have this greater focus, then allows us to make sure that from the CEO down to the more junior person are all aligned both in terms of their KPIs and incentive before what that company is supposed to do. So it allows us to make sure that a company like a North America grocery company that is going to be focused on good margins, stable shareholder cash return to shareholders. That allows us to make sure that all the incentives are aligned to that, that we make sure that we're investing R&D are helping us drive efficiencies in that company.

Today, we're having to then do both things. We're having to run a -- essentially having to run 2 companies inside this Kraft Heinz. So as we go forward, you'll see us then be more intentional of where we put those resources, expertise and capability in each of those companies. I'll give you another example. When we think about our Global Taste Elevation, 30% of the business will be in emerging markets. That means that we should also be thinking around how internally we have aligned ourselves to make sure that we support the emerging markets from our operations to our procurement, to our marketing to make sure we continue to drive that growth in the double digits that we have seen so far, but I think we can do even more.

So that idea of us creating opportunity for us to be thoughtful about the resources investment, the expertise, the alignment of the internal organization behind those KPIs, along with the capital allocation as well, too. I think when you're seeing those 2 companies, each one will have its own principles of how to think about the capital allocations that allows us to also be successful.

Sort of their own reason for being...

A 100%.

Okay. You touched on this a bit on yesterday's call, but many pieces of the Global Taste Elevation business have had a challenging year, right, in terms of growth, even though historically, right, these assets have a much better track record. Maybe you could put some context around what the specific challenges have been this year and why you don't see them as sort of structural for the Growth Co., if you will, going forward?

No, great question. I guess maybe part of it just to ground it. If I think about -- and I'm glad you said it, historically, these are businesses in Global Taste Elevation that have been growing, I think, 8 of the last 10 years. Even if we think about this year, we've been growing about flattish. So I think some of the pressure have been mostly in the U.S. If you look outside the U.S., we actually are seeing already -- that most of that company is actually already a Taste Elevation company and are seeing kind of mid- to high single-digit growth and in away-from-home outside the U.S., 3% to 5% growth as well, too.

So really, the pressures are been in the U.S. because even in Canada, we also have seen growth in our Taste Elevation business. And for me, what I would say is the U.S. has a particular situation, I think, that we have been facing over the last 1.5 years or so. And I think this affects many of us in food industry. If I -- I guess you have the context, too, Andrew, but just for the audience here, I would say, in the last 5 years, I think of it as 3 different eras in the United States. There's a COVID era, there's a high inflation era. And there's an era today where consumers are certainly trading down and more under pressure.

Now we thought that era was going to be very short because interest rates were going to be going down. That hasn't happened. So what ended up happening is that consumers are under pressure for longer than we expected, and that trade down happened for longer than expected. People are having to do in families having to manage their cash flow differently. So there is more of that push on the trade down. Now what I would say, too, is that as companies are also adapting to that. So if you look at one of the things we're doing is, one, we would rather than playing defense and try to get just a short-term pop on volume, we actually invest in Micro back in our business.

We have mentioned this in every quarter of the earnings that we will continue to make investment as we see opportunities in the Brand Growth System. So we are investing to make sure that our products are the best ever and always worth the price of the product. We are also making sure that we are giving more choices for consumers. So whether you see a $1 Mac & Cheese or $1 bottle of dressings or you also see a 5-pack product of Mac & Cheese in club, that idea of us expanding number of price architecture options for consumer is part of us responding to this era that is taking longer.

The other thing I would say, too, is that we also have to be judicious in terms of how do we actually make sure that as consumers are going through still in this situation that we continue to invest back in our brands. So we haven't shied away to say we're investing in the quality of our product. We are investing in promotional investment that have the right level of return and to make sure we get the best execution possible. The last thing I would say, too, is part of our response to this particular era has been how do we go into more channels where consumers are now shopping that maybe they were not shopping before.

And let me give you an example of Dollar General. We're now -- we know consumers are looking for food now in the dollar channel. So if you go to the dollar channel today, and I don't know how many of the audience goes to shop at Dollar General, but I'll tell you, you'll find Oscar Mayer products today that weren't there 2 years ago. And it's a way for us to make sure that we're also providing options in new channel for consumers to make sure they -- as they are wrestling with how to manage their cash flow that they have options, whether they're going into a grocery store or a club store or a dollar channel.

So that's part of what we are adapting as well. I do think those are things that are cyclical in nature. And I think those are things that over time, we'll see consumers be more stable. The last thing I would say, though, is we're not sitting still. I think I mentioned that Global Taste Elevation in the U.S. is not where we want to be. We have been making investments that are not yet showing in the Nielsen data. But I'll tell you, that becomes a huge priority for us to continue to see the progress in that part of the business because we know what it can do. We know what it has done historically, and we know what it is doing outside the U.S., too.

Yes. Great. Thank you for that. Interestingly enough, oftentimes with separations like these, the asset that is less about growth maybe and more about consistent free cash flow and smart capital allocation can actually prove to be a significant value generator. On the call, you said scale for scale's sake perhaps isn't the right way to go, and I think many of us would agree with that. But scale that comes with focus does. I guess what exactly did you mean by this?

And could North American Grocery Co. ultimately be a potential consolidator of, let's say, other more mature center store food categories that might benefit from a similar sort of reason for being, if you will?

Yes. And just to give you -- add to the context of the question, I would say I'm old enough to know that there was a point in which food companies were just buying scale, thinking that would be the answer for them to be able to have a stronger performance. And I think that those -- that has proven out not to be the case. I think that I do think the opportunity of us driving scale with focus can be opportunity.

So for us, it was important that as we said, both of those companies that they will have the right balance sheet and flexibility to do transactions in the future that support the strategy of that company and the thesis of the company. So I believe that we'll do it in a way that we feel like it will have that -- in a way that if those opportunities come along and support the strategy, then we will continue to look at exploring opportunities that help us do that.

Got it. Great. Andre, maybe you talked about $300 million in expected dis-synergies. Do we have a sense yet where -- which -- where the split of that $300 million is in these 2 separate entities? And does the dis-synergy estimate include stand-alone sort of public company costs for the split entities?

Yes. So the $300 million, which I explained yesterday in the call, roughly 1/3 is COGS, 1/3 is technology and then the rest is split between sales, marketing and other SG&A. We expect that most of the dis-synergies should be on the global company, okay? So 80% or so. And we -- that does not include one-off costs. We still are working through because now that this is public, we are working with certain vendors that will be supporting us along the way for certain specific tasks.

I'm going to be providing disclosure on that during future earnings calls as there are numbers to report. Those also be managed very tightly. But yes, that's the answer.

Thanks for that. On yesterday's investor call, you also mentioned that Global Taste Elevation would likely post top line growth towards the upper end of the company's current 2% to 3% top line growth algorithm, while North American grocery would be in the sort of very low single-digit range. How does this growth for each of these entities compare to the growth of the categories within each entity plays? Trying to get a sense of whether those outlooks sort of require consistent market share gains? Or is it more growing in line with your expectation for their respective categories?

Yes. What I'll say is, first of all, we are not yet providing obviously, long-term algorithm for either company. I'm just speaking in the context of our current Kraft Heinz algorithm. With that said, the global company will have nearly 20% of exposure to emerging markets. So by growing double digits, like we have done for several years, that alone gives 2 points of growth to the company.

Away-from-Home as well growing mid-single digits and being now also nearly 20% gives another very significant uplift. And then if you go to the U.S., the elevation. As you said, historically, the industry grows a bit north than 2%. So we can be at flat market share and even you can argue, lose a little bit of share and still be within these ranges. And then on the North American company, the categories we play historically grow about 1.5% or so. So we can -- we could afford potentially even to lose 10, 20 bps of share and still be within that range that I described.

That's really helpful. In North America Grocery, the company mentioned still significant margin opportunity going forward. Given the more recent performance, and it sounded like a disproportionate amount of the spend was going towards global taste elevation, I guess, do you believe there needs to be sort of a onetime margin reset to sort of level set some of the brand investment spend that you may need?

Or do you think the current sort of cost structure is sort of where you need that business to be and you can start with that margin ramp sort of sooner than later?

Yes. Listen, I think that there's 2 ways to answer that question. I think, first of all, if I think about what the investments we have made and in fact, all the incremental investments we have made, we have said disproportionately in this year have gone through to what is Taste Elevation and disproportionately have gone to the U.S. I do think there's some opportunity when I think about the broader sense of investments of us thinking about North America grocery company as a place in which we can invest different type of expertise and capabilities.

So for example, in order for us to make sure we continue to drive efficiencies, there may be opportunity for us to say, how do we actually improve the expertise of -- from how we manage commodities to how we manage the operations that today, we are having to kind of make some choices across 55 different categories in the U.S. So us being able to then say, okay, given this is the type of thesis we have in this company, we're going to make sure that we bring the kind of expertise that we need in order to make sure we can deliver on the margin and the continued driver efficiencies.

Today, I think if you think about our company as a whole, Taste Television with the most global platform that we have. So all the efficiencies that we take from -- whether it's you're in Brazil, whether you're in the U.K., you can transfer easily across the company. A lot of the things in North America grocery company are only in the U.S. So we don't have the capability, scale in that we will need as we go forward. So those are the kind of investments that I see us making in the future.

Yes. I don't think -- maybe to complement that. So we don't necessarily see the need for any significant margin reset. Obviously, again, let's wait until both companies can articulate the algorithms. If you put as a reference marketing investment, for example, compare what we expected peer set for both companies, you can argue that there is still more room for reallocation from the North American company into the global company when it comes to marketing levels, given the baseline of current spend.

Yes. Helpful perspective.

And let me also give a perspective to take advantage of the forum because I know that there were a lot of questions about net debt and what exactly this means and who is RemainCo, who is SpinCo. So look, baseline today is that the global preservation will be the RemainCo, okay? So if there is any circumstance that will be beneficial to shareholders to switch that, we will. But our current -- given everything we've done so far, the baseline would be the Global Taste Elevation will be RemainCo. On [ commissioned ] on that, we said very clearly that we are targeting both companies should be investment grade, and we're going to be working very close to the rating agencies to make sure that, that happens.

And for us, the investment grade is not to be 5x net debt and it's not to be 4.5x net debt. So I don't want to give a precise number right now, but it's really -- is a net debt that provides -- we want really to establish that both companies are set up for success and both have equal opportunity to succeed in their own -- playing their own games. So -- and we want to make sure that both have enough excess cash to have flexibility to deploy.

Perfect. That's really helpful color as well. I'm sure you got a lot of questions on this over the last 2 days. But the rationale for placing Mac & Cheese, right, as part of Global Taste Elevation. I think there was an expectation, again, not because we had any hard facts on it, but that Taste Elevation would be the sauces, the condiments, right, the piece that sort of we've all seen has had some pretty healthy growth over the last 10 years. I guess how does a business like Mac & Cheese fit in there and what is the rationale behind that?

I guess Andrew, I'll go back to the strategy we laid out 1.5 years ago. We talked about our accelerated platforms, and that included Taste Elevation, included our ready-to-eat meals and snacking. Let me start with the easy one. Snacking, I think part of the reason we moved Lunchables with North America Grocery is for 2 reasons. One, there is some operational synergies we have in meat and cheese in that business. And secondly, there's also the opportunity for us to think about how do we actually are more focused in the refrigerated space in North America grocery and supply chain and our go-to-market. If I go to then Mac & Cheese, one of the Mac & Cheese was always in our accelerated platforms. And the reason it was there is because we have seen category growth of about 3%. We have a market share of about 70% share with very strong margins.

That was true then and is true today. So those -- the parameters by which we decided that that's a place we want to continue to invest were true at that time and they're true today, which is why it fits within what we can do in Global Taste Elevation. And in fact, if you look at some of our businesses in meals that are also not only in the U.S. but outside the U.S., whether it's the KD dinner version in Canada have been growing, growing 2 points of share this year. If you look at some of the business outside of the U.S., whether it's a Heinz that also has a Heinz Beans component to it, is a meal that is shelf table that also fits into the Global Taste Elevation.

So to me, what I think the question might be more is right now, we see some challenges of Mac & Cheese. I can tell you that we have put that our business in the U.S. through the lens of brand growth system, and we have invested in improving the quality of the product that you're going to be able to actually taste as you think about going to the store today. We're making sure that we bring innovation to marketplace, which you'll see in the next 6 months as well, too. We improved the communication of the products.

We really have new marketing out there. And you'll see that when you pick up a box of Mac & Cheese now, it talks about the fact that we have no artificial colors, ingredients or preservative right in front of the label. So I think we have done a number of things that actually have improved the business in Mac & Cheese to make sure it goes back to the historically growth that we have seen. But the conditions behind it are true then and are true today.

The last thing I would say, too, that maybe some people who write about it may not be as aware of it is that there's also some operational synergies internally. So actually, we make some of our sauces in the same place that we make Mac & Cheese as well, too. So that also is -- there's some synergies actually by having those businesses together.

Yes. So the growth considerations, the scale considerations and synergies or dis-synergies minimization considerations.

Got it. Great. That's helpful. This move is partly about reducing complexity. North American Grocery Co. will still have a number of different categories, channels, temperature states. I guess what gives you the confidence that this business as it will ultimately be set up, isn't still ultimately overly complex? And could there be potential for further asset optimization moves down the line if that were the case?

Well, let me start with the last part, which is I think we have the opportunity to make sure we have a flexibility in our P&L to both -- to drive focus, and we have said that in our balance sheet, however that may be. Secondly, though, if you look at the total categories in the U.S., we have about 55 categories that we're working with. As we go into North America grocery company, that number goes reducing in about half.

So there is a significant amount of reduction in terms of complexity. The fact that we will all be focused in one geography, huge opportunity in terms of driving focus from the CEO to -- all the way to the lower parts of the company. The reality is that we'll be focused in a very small geography in a way, we still be very relevant to our customers and our partners.

The last thing I would say, too, on this is that if I think about how you run the company, that focus is also on the fact of the capabilities and expertise that I mentioned earlier. When we all understand how to run a meat business, how to make sure that in those categories that are truly important, and by the way, 5 categories will comprise about 50% of the business. Then it allows you to just have better communication, better expertise, better understanding of the choices you have to make and to be a much more agile company to move in different ways.

We are today competing, and I think Andrew mentioned this, competing with companies that this is all they do. If you are in Oscar Mayer, where for us today, it's a $2 billion company. It is within a $27 billion company is a small part of our portfolio. Within a $10 billion company, it's a much larger part of our portfolio. So it gives us opportunity to create a different level of focus on those areas that are going to be paramount for us to succeed and continue to drive the thesis of the company.

Great. That's helpful. Before we move away from just separation-related questions, I just want to make sure to say, is there any -- are there any other topics along those lines that you want to make sure to sort of get out to the audience here. And if not, we'll -- we can move on.

Maybe both related to today and related to the future. I think what is important, too, is that we don't believe that just separating the company is -- with that -- it's a financial engineering method for us to create value. That's not our philosophy. Our philosophy is we believe that by separating the company is going to drive better performance with the additional level of focus.

And I think for us, it's important that over the next -- until the moment of separation, we continue to make sure that we may see the progress in the company that make sure that by the end of the exit of the separation, we're in a better place than we are today. So while we are not waiting 1.5 years until second half of 2026 to make sure we start living into those principles, we start operating that way now.

You see that in Q2, we basically did what we set out to do, and our goal is to continue to see progress in the Kraft Heinz today to make sure it's a stronger company by the time we come out.

Good segue into...

And I think based on some questions we got also this morning is we -- during this period of transition, one, we will continue to operate as business as usual. We're going to continue to increase investments if they are appropriate to do so as we are deploying the brand growth system. So business as usual and focus on the performance. And we have -- because I have been working on this for a period of time already, there is a lot of work that has been done already, and we have already a separation office in place, very well-defined streams.

We are carving out people dedicated for that to minimize distraction from people managing day-to-day. So we are very, very mindful as well on taking the right execution steps to ensure that we can really focus on the performance.

Yes, I think that's a great point, Andre, because I think from the outside, it feels like it -- could this be a distraction for management. Listening, I actually feel very privileged that I have people around me and our Board that have experience on going through this. The fact that we also announced yesterday that we have a separation committee chaired by John Cahill, who has done this 3 times in his career, huge benefit for me that allows me then to continue to stay focused on the business.

The fact that our Chair is now stepping in as Executive Chair to help also bridge between the Board and management during this time, huge support for me as well, too. So Andre and I focus continues to be making sure we do the right performance for Kraft Heinz.

Great. Thank you. So maybe moving away from the separation. Carlos, it was a tougher start for the year, really for the entire food industry. And those significant challenges remain, right? Kraft Heinz second quarter results were broadly in line, I think, with your revised full year expectations and did show some sequential progress it can be hard sometimes, I think, for investors to see this when like in absolute terms, performance isn't where you want it to be yet. But maybe you can start, and you touched on a little bit of this earlier, but level setting us in terms of where the consumer is currently and then what your recent results sort of gives you the confidence that you're on the right track?

Yes. Listen, I think that there's a few things that are happening in particular in the U.S., where you can see that consumers are, as I mentioned earlier, under pressure probably longer than originally was expected coming into this year. I think what I feel great about is that in this moment in which companies can be tempted to just buy short-term volume by doing deep discounts, we're not doing that. We're being -- continue to be diligent on whatever we make investment, we feel like it has to be the right return on that investment. So in the short term, obviously, it's a little painful, but it's the long term, it's the right thing to do, which means too, that when we are investing in quality, when we're investing in better communication, we're investing in better marketing, the result of that takes a little longer.

But listen, I think the fact that we did that in Lunchables and now we're seeing growth. We did that in Capri Sun. We're seeing growth. As we continue to apply the model of our brand growth system, I think that's something that we'll continue to see the progress as we go forward. And I think we've been pretty agile on making sure that we have, again, better solution for consumers independent of where they're shopping, whether you're in e-commerce, whether you're going to the Dollar General or whether you're going to a club store, we'll have an option for you as well, too.

So I think we've been solving both a channel expectation by us being able to be more expanding our points of distribution, but also making sure that we continue to invest behind our brands because ultimately, that's what makes the consumer feel like they're having a great value.

Great. You've talked a lot recently about the brand growth system as a sort of proprietary way that the company is using to examine what the right level of sort of quality, packaging, marketing, benefits to put in the product. All of these things are part of the sort of the value equation for consumers. What is it that's truly unique about, I guess, this approach by Kraft Heinz versus, let's say, other staples names that examine brand superiority in various ways?

Yes. I'll say 2 things. I think, first of all, it clearly is a -- we come at it with an agile mentality, meaning we dedicate teams. We make sure that approach it in terms of a -- with a level of forensics almost analysis of the opportunities, not just for today, but for the future. So when we think about how we are going to improve the quality, it's not just about how consumers are thinking about our products today, but what are the things that are relevant for them for the future so that we can then make sure that we have the best products, not only for what the expectations might be, but anybody else who may be coming into the category.

The second part of that, too, is we want to make sure we invest that guides our investments. So it leads to better ROI in every dollar that we put behind it. And the third part of it is once we have the mapping of what we want to do with those brands, the way we actually execute those things are very unique to us. We have had this opportunity to spend now for the last 2.5 years, a lot of effort behind what we call agile scale on how we actually then deploy agile methodologies against our biggest priorities.

We're using that same level of methodology against these priorities to make sure that when we execute, we do it with agility. So it's a combination of this forensic analysis more investment, thinking about the future and the agility in which we execute the learnings behind that.

I must say, that more important than being unique or not, the important thing for us is that there is an opportunity for us to systematically do a deep dive on our brands, and this is very clear an opportunity for us to unlock value. We are seeing lots of places where more marketing was necessary, better product investments was necessary, be more focused on certain type of innovations. And that's the priority for us. It's how we can unlock value with that more than being unique.

And then maybe, Andre, just to close it out, the company has put a tremendous amount of effort and resource into productivity that is sustainable, right, rather than sort of one-off in nature. Can you give us an overview of some of the most important investments you've made? And maybe what kind of returns you've seen on those investments? And how do you ensure that you don't sort of lose some of that productivity mindset as the company ultimately separates?

Being efficient and focused on operational excellence is going to be part of our DNA and for sure, will be part of the DNA of both companies. So we are convinced on that. Look, we feel proud that we have been now for 5 consecutive years should be delivering efficiencies like well ahead of the 3% that we have externally outlined.

And we have lots of things happening across procurement, logistics and manufacturing. Our manufacturing efficiencies, they are mostly focused on variable COGS. The technology has been helping us on that. One to expedite decision-making we made a lot of investment in adding sensors across several of our factories nowadays, pretty much the entire U.S. and most of Europe at this point, give us real-time visibility when things are in that moment, we are over fitting an equipment, a certain component, and then we can already push information to the shop floor immediately to have that immediate feedback. That's one example.

On the logistics front, that has been working in terms of consolidating the number of warehouses in the U.S. We have close to 70 distribution centers at this point. It is extremely complex, and we have like a line that we have been executing now for 2 years to consolidate that. On the procurement front, our relationship with suppliers was very transactional in the past that we completely changed that to be the retailers that's a lot more strategic, and we have we don't have any problem to be getting inspiration from productivity ideas from our suppliers.

Go back to focus, like some of them live and breathe that every day. And before we are very close to those type of opportunities. And like we have now our Supplier Innovation Week, where we bring a lot of suppliers should be discussing what's coming in their pipeline so we can incorporate into us. So these are a few examples, and there is a lot more.

Perfect. All right. I think that's a great place to cut it off. We've covered a lot of ground. We really appreciate the incremental thought process around the separation. Please join us for the breakout. And please join me in thanking Carlos and Andre for being here.

Thank you again.

Greetings, and welcome to The Kraft Heinz Business Update Call. [Operator Instructions] As a reminder, this conference is being recorded.

I'll now turn the conference over to your host, Ms. Anne-Marie Megela, Head of Global Investor Relations. Thank you. You may begin.

Thank you, and welcome, everyone. During today's call, we may make forward-looking statements regarding the proposed separation including in relation to the timing and structure of such separation, the characteristics of the separated businesses and the expected benefits of the separation. These statements are based on how we see things today and the actual results may differ materially due to risks 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 excludes 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 a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures.

I will now hand it over to our Chief Executive Officer, Carlos Abrams-Rivera for opening comments.

Well, thank you, Anne-Marie, and welcome, everyone. So today, we announced an exciting milestone for Kraft Heinz and the next step in our transformation journey. Separating into 2 scale focused company, each better positioned to compete and win in today's environment.

Following a thorough evaluation of potential strategic transactions, we have determined that separating the 2 stand-alone company offers the most compelling opportunity to gain focus, improve performance and unlock long-term value for all Kraft Heinz shareholders.

The Taste Elevation Company will be a global leader in Taste Elevation and shelf-stable meals. It will be positioned to drive leading growth with iconic brands and local jewels across attractive categories and geographies.

The North America Grocery Company will be a scaled portfolio of North America staples and is expected to generate substantial reliable free cash flow through operational efficiency across stable growth categories and beloved brands.

The separation will provide both companies with more strategic, operational and geographic focus, enabling us to dedicate the right level of attention of resources to all areas of business, allowing each respective brand portfolio to reach its full potential, reduce operational complexity, driving further efficiencies and industry-leading margins, customize capital allocation based on the strategic ambition of each company, accelerating performance and retaining financial flexibility to consider strategic transactions. We expect the separation to be completed in the second half of 2026.

In connection with the strategic review and the Board's unanimous decision to separate, Miguel Patricio will become Executive Chair. He will work closely with me to prepare the organization for the separation, while our leadership team and I run and transform the business. Miguel has joined us today, along with Andre Maciel to answer your questions.

And with that, operator, let's open the call for questions.

[Operator Instructions] Our first question comes from the line of Andrew Lazar with Barclays.

Great. I realize it might be a bit early to get too specific, but I'm curious maybe what top line growth profile do you envision for each company? And what assumption does that embed for the average category growth in which each of the 2 entities will play?

And maybe, Andre, if you want to start that?

Sure. thanks for the question, Andrew. So look, as you said, it's early to talk about expectations for each of the companies. I mean that obviously will come later down the process. What I can tell you is if you look historically on the industry growth in the U.S., in the categories we play, typically, growth is around 2%. The Taste Elevation categories typically grow a little bit more, 50 to 100 bps. And then the other categories grow a little bit less. So that's one indication.

And if you look about our current long-term growth algorithm, 2%, 3%, 1 percentage point of growth comes from the North America ACCELERATE. As you noted, part of the ACCELERATE platforms will be part of the North America Grocery Company. So if we were to translate that into both companies today, you'll see the Global Taste Elevation in the upper range of our current long-term growth algorithm and North America Grocery at very low single-digit growth.

Great. Very helpful. And then I guess, more broadly, right, separations like these, as we know are -- can be time-consuming and costly with respect to dis-synergies and sort of stand-alone public company costs and whatnot. I guess what is it that sort of push the board and management over the edge, so to speak, to sort of go ahead with this plan? Was it any sort of change in maybe external industry factors that you see as sort of like different than maybe historically in the industry or more KHC-specific or sort of both?

Let me take that, Andrew. Let me, I guess, reframe that a little bit. Let me go back to May. At that time, we announced that our board was conducting the strategic review that we have been doing for a number of months to make sure we find ways in which we can unlock that value within the company. And as a company, the reality is that we have made strong progress in our strategy, but the complexity of our business has impacted their ability to realize the full strength of our brands and operations.

And as part of the conclusion of this process, we strongly believe that the sharpened strategic operational focus of both companies now will be able to drive stronger performance and sustain that performance over time. So the way we see it is this is the right thing to do for Kraft Heinz. This is the right thing to do for our shareholders, and this is the right opportunity for us now to kind of repaint a new future for our company.

Our next question comes from the line of Peter Galbo with Bank of America.

I wanted to maybe dive a little bit more into what drove the decision to keep Kraft Mac & Cheese with Taste Elevation Co. I think it was probably the one major brand that isn't going with Grocery Co that maybe doesn't fit. So maybe you can just help us understand kind of what drove that decision from either a scale perspective, a manufacturing perspective, anything additional detail-wise?

Thank you, Peter. If you go back to the strategy we laid out in CAGNY during February 2024. At that time, we were very clear that we sold this group of platforms that were part of our ACCELERATE platform. And you remember, Kraft Mac & Cheese was part of that ACCELERATE platform. It's a place in which the category over the last 5 years have been growing about 3% CAGR. Today, we have about 70% market share, and it has very attractive margins.

And as I speak to you today, none of that has changed. So for us is as we look at the opportunity of how do we think about those companies, it definitely fits to what we want to try to do with the Global Taste Elevation Company and allows us to then make sure that both across a U.S. business with Kraft Mac & Cheese and Kraft Dinners in Canada allows us to continue to drive the momentum that we have built over the years.

So I think for us, it's always been about thoughtfully -- being thoughtful about what is the right perimeter that fits into the strategic intent of each of the separate companies.

And maybe, Andre, as a follow-up, you could help us understand the building blocks on the $300 million of dis-synergies that you called out. I think if I go back to the merger when the company was put together, obviously, the synergy target was much higher. So just the fact that the dis-synergies are that much lower, maybe you can help frame that for us as well.

So the $300 million is roughly 1/3 is COGS. And within these COGS is the majority is logistics because there is very minimal manufacturing overlap between the companies, like very, very minimal. So 1/3 is COGS, 1/3 is IT costs and 1/3 is other SG&A from which about half of this 1/3 is sales and marketing, which I think will be welcome in any circumstance and the other half is about the duplication of corporate functions.

And when you compare to -- I think it's not a good comparison, the synergies that we had at the time of the merger dis-synergies because you have to remind that we are a very efficient operator. And we always -- we found a way to manage the company with a lot less layers. So we have leadership closer to the business, we operate with larger expense of control, we eliminate costs that don't help with the long-term needs of the business. So we really operate in a very efficient manner. So that's why this comparison is not really I think apples with apples.

Our next question comes from the line of David Palmer with Evercore ISI.

Another question I would expect to get this morning is just basically the breakup by growth. Right now, we're seeing -- it looks like roughly in the scanner data that the Taste Elevation side has maybe 3% or 4% down sales in consumption trends. I'm wondering if you had to define maybe some of the temporary -- hopefully, temporary reasons for that or things that you'll be focusing on to get this new growth, your side of the business going, that would be helpful.

David, thanks for the question. Let me go back to kind of the strategic intent of what we have for each of these companies. If you think about the Global Taste Elevation, the business that is within those categories, are -- have been globally growing for the last 5 years. And if you think about that, that growth actually since 2019 is about 5%. And in the U.S., that growth is about 3% since 2010.

So these are businesses that historically have had attractive growth. And while it's in the last 12 months, we have seen challenges in the U.S., particularly as consumers are trading down due to the historical low consumer sentiment. The reality is that there is a very much strong and growing category for a long period of time that give us the confidence of how we're going to move forward.

I should also emphasize the fact that you have heard me say that we have been driving a huge amount of investment through our brand growth systems disproportionately through the Taste Elevation business, disproportionately to the U.S. to make sure that we are, in fact, are driving the growth of those businesses.

In fact, if you look at our North America business, 85% of the market that we've been investing and product investments have been [going] to those ACCELERATE platforms in North America. So for us, as we continue to be able to invest behind those, we believe in those, we believe we have the right to win. And what you'll see from us is continue to drive that investment. And I think as we go forward and we create a Global Taste Elevation Company, it allows us to have even greater focus to further investments, not only in the marketing, but also in the capabilities necessary to continue to drive growth up to the future.

And the only thing I'll add, if you look at this particular part of the perimeter, we grew consumption in 8 out of the last 10 years in this segment. So the exception being the year after pandemic that, obviously, everyone went down and then last year when we start to see the effect of the consumer environment. Otherwise, this business has been very resilient and have a very steady level of growth.

Our next question comes from the line of Tom Palmer with JPMorgan.

I wanted to ask just on the $6.3 billion EBITDA in '24, you gave a helpful split between the 2 segments. But I think for '25 guidance would suggest something more in the $6 billion EBITDA range. So kind of when bridging '24 into '25, is one of the businesses facing disproportionate profit pressure this year? And just any help on kind of what that split might look like for this year?

Sure. It's very evenly split. So if you can consider the reduction pretty much being half and half.

Okay. And then, Carlos, I wondered about your decision to stay with the Grocery Company versus Global Taste Elevation. Just any color on the decision-making process there?

Well, first off, I would say, I am very, very humble and appreciative for the support that I have received from the Board of Director and frankly, for all the colleagues here at Kraft Heinz. And I'm very excited about the fact that I continue to contribute to this company in many different ways as we go forward. So let me also remind you that I will be -- continue to be CEO of Kraft Heinz through this process that we don't expect to finish until late in second half 2026.

As we go forward, what I'm very excited about is if you know a little bit about my career, I actually began my corporate career working in the Oscar Mayer business. And I think these are brands that through my experience at Kraft Foods, I have helped shape and I think the fact that these are brands that I can continue to help shape into the future and continue to see its potential and continue to be able to now make strategic investment behind them.

It is certainly an exciting time for what I think we can accomplish after separation. But in the meantime, I'll tell you, my focus continues to be on making Kraft Heinz, the best company possible and continue to drive our results and our commitments as we go through this process as well.

Carlos, would you allow me to add something on that?

Please, Miguel.

So this is Miguel Patricio speaking, now the Executive Chairman for Kraft Heinz. I think this is a great proof for the market and for our people internally that the split is not between a good company and a bad company. This split is about 2 great companies with great brands and great possibilities. It's really split thinking that focus will help us tremendously.

Today, with operating with 56 different categories, we have to make and define priorities when we are taking decisions. By dividing this company in 2, I think that we are going to give the attention that part of this portfolio is not having is not getting right now. And we picked Carlos for his knowledge, his experience in the American business. And I have to tell you that he was very excited. His answer was, I love the -- that part of the business. And I think there's an immense potential. And I believe that with focus, I can do it. So I mean, we are all excited with that possibility.

Our next question comes from the line of Chris Carey with Wells Fargo Securities.

In the slide presentation, I think it's Slide 19, there is under steps to complete, there's a bullet around finalizing the capital structure, including reallocation of debt. In the prepared remarks, it says that the obligation of the debt will go to Taste Elevation or it will be refinanced. I'm just trying to square the 2 statements. Can you just give us a bit of context on how you see the capital structures of the 2 split businesses? And I have more of a strategic follow-up.

Thanks for the question. In that same page, we make it clear that we are targeting both companies should be investment grade. So we will be working with the rating agencies as well to ensure that we allocate that and give a capital structure that both companies will be set up for success and both companies have flexibility to deploy cash in different ways.

Okay. I think that's it. We'll get more detail in the coming months. And just more of a...

I think that already gives some good indication. I think by saying that we're targeting both companies to be investment grade, that should give you a decent sense of amount of debt that each entity could eventually have.

Okay. Okay. Fair enough. Just more of a strategic question. I think the original merger a decade ago was predicated on the concept of scale. What we're hearing this morning is perhaps there was a bit too much scale or too much complexity and yet the combined entity or the separated entities, you'd like to maintain a level of scale. So clearly, scale is important, but in the right level of scale, if you will. So how do you find the right balance of, well, we've got the appropriate size, but we're not too big. Can you give us a bit more sense of how that decision came to be today?

Yes. Happy to speak to that because as you can imagine, it's a topic that was worth -- that was thoroughly thought through. What I'll tell you is in your premise, which I agree with, scale does matter. And we were intentional making sure that we preserve the scale in those geographic situations, markets that we are competing in. So that's number one.

Number two, what I will say is, was scale by itself is not enough. I think we need to be thoughtful and intentional of having a purpose with that scale. So I think what you see today as we are separating -- the announcement separate to 2 companies, it gives us that opportunity. It gives the opportunity to be intentionally focused on how we actually think about that scale.

So this sense of us creating a Global Taste Elevation Company that is focused 75% focused on essentially sauces and spread, a company like North America Grocery, which is essentially one geographic kind of location, that actually allows us to make sure that we have that level of focus now as we go forward and at the same time, maintaining a level of scale that I think is important to compete in this marketplace. So we say, it is taking kind of what is intentionally a better strategy and now deploying in a way that I think is helpful for us to compete into the future.

Our next question comes from the line of John Baumgartner with Mizuho Securities.

I'm wondering if you could speak to future cost efficiencies. Andre, as you've noted, the underlying SG&A is already very efficient. But the business, as it is now, it's in the early stages of next steps. Back office consolidation, you're adding some headcount and marketing resources at the same time. To what extent does the split sort of reduce the opportunities for incremental cost savings relative to remaining as Kraft Heinz?

Do you give up opportunities for future savings given how this portfolio is split across categories, channels, geographies? And then I'm also curious, in the dis-synergy guidance you provided, that $300 million, to what extent does that also include costs required to rebuild or build out marketing and retail resources where, again, maybe splitting in 2, you're giving up some efficiencies?

Thanks for the question, John. First, on the -- sorry, could you repeat the beginning of the question, again? Because I think it was a bit longer and I think there are 2 or 3 elements there.

Sure. Yes. The first question was, to what extent does this split sort of reduce the opportunities for incremental savings that you may have relative to staying as Kraft Heinz? Are you giving up future cost savings given how the portfolio is being split? And then secondly, in that dis-synergy guidance of $300 million, to what extent does that also incorporate marketing resources, trade resources that have been rebuilt that you're also sort of sacrificing in the split?

No. Okay. So the first part of the question is it should not preclude us from continuing to pursue savings. Remember, on the COGS side, if anything, that should help us to deliver more COGS savings because there will be a lot more focus today from our supply chain leadership on different chunks of the business. So I think actually, that should translate into efficiencies over time.

On the SG&A front, we still have a lot of opportunities to increase the scope of our shared services organization and nothing should change on that regard. So we should continue to pursue those, so that there is more to come on that front.

And then regarding the $300 million, as I mentioned before, there is a portion of that which is to add sales and marketing head count, which will be welcome in any scenario. I think as we are deploying the brand growth system, we have been saying that marketing now is our #1 priority. So adding more headcount we actually will help in the future with having more people that can help translate into better top line.

So we don't have in this $300 million more marketing dollars, have more marketing headcount, but not marketing dollars. As Carlos mentioned a few minutes ago, we have been adding more marketing dollars and investing in the product as needed. And as we continue to deploy the brand growth system, if you see opportunities to do so, we will be agnostic of the separation.

Let me add to the first part of your question, John, which is this idea of -- I think as we go forward, if you think about what we have been able to do for the last few years, which is we have deployed agile scale against our biggest priorities to help unlock a huge amount of efficiencies. I think as we go forward, it would only allow us to actually focus further on also making sure we have the right capabilities internally to deploy those efficiencies that create both companies. So that idea of us embedding agile scale as part of the DNA of our company, will continue even as we think about the separation of the 2 companies.

Our next question comes from the line of Robert Moskow with TD Cowen.

The margin structure of Global Taste Elevation is a lot higher than North American Grocery, and it's in the high 20s, so it's high in general. Where is the opportunity for more margin expansion ahead between these 2? Is it -- is there a bigger opportunity in Grocery than in Elevation? And maybe you can put in context how the margins changed over time in these 2? Has one been going down and one going up? Or is it pretty similar?

Thanks for the question, Rob. So on the first question. If you take all factors combined, we probably see more opportunity on margin expansion on the North American Company than in the Global Taste Elevation Company. Just remember that we have a significant opportunity on Global Taste Elevation to continue to expand into away-from-home and emerging markets.

And those have, in average, a lower margin than our Taste Elevation margins in the U.S. So there is a mixed component here. On the other hand, there is still opportunities a lot in COGS and there are a number of things that we are working even to further improve our margins on the emerging markets, which we can talk about in other occasions.

And then regarding trajectory of margins, we have seen in the last 5 years, there was a relevant margin expansion on the Global Taste Elevation Company. And then in the Global -- in the North America Grocery Company, it has been mixed. You see parts of -- it depends on the commodity cycle as well, right? Now we are in a commodity cycle that the commodities are quite high, which typically compresses margin. If you were to isolate the effect of commodity cycle, you would see as well parts of the North America business expanding margin. Remember that when we established the balanced portfolio, it was a lot about rebuilding the profitability in some cases like [ meals ] be probably the most relevant one and a lot of opportunities on the productivity front on COGS that we have been capturing. So yes, that's what I'll tell you.

Our next question comes from the line of Alexia Howard with Bernstein.

Can I, first of all, ask about the opportunities for foodservice expansion for the North American Grocery Company? I think those were mentioned in the prepared remarks. Specifically which brands, which channels, where do you see that opportunity from here?

Yes. Alexia, thanks for the question. What I would say is today, when you look at our total company, the reality is that when you do the Pareto analysis of the business, we tend to focus on Away From Home business in those sauces business because those are places that we historically have had a greater presence and we have had great capabilities to drive that growth in Away From Home.

I think as we go forward, the reality is that there is a huge opportunity in not only Away From Home, both in other channels, convenience and so forth in the North America Grocery that until now, we haven't been able to put the right level of resources and capabilities to drive that business forward. So I see that as a great place for us to think about as white space that can potentially look at how well we can take some of those loved brands into new spaces now into the future. So I'm very excited what it can be. And I think we are just going to be scratching the surface with the potential of us taking into new spaces now.

And then you mentioned in the prepared remarks that the North American Grocery Company is also expected to have the capital structure that will allow them to consider strategic transactions. I presume that includes acquisitions. That can supply in the face of the focused motivation for the split. What kind of transactions would you be looking for? How would that square with this idea that you're separating the 2 companies today?

For us, Alexia, the important thing is, as Andre said earlier, for us, first of all, to aim to be where the credit rating -- credit investment grade. So that was important for us to be able to make sure that we have the flexibility of transactions in either way. What I would say is anything we would do would be consistent with what we just said today, which is any changes in transactions will be with the focus with how do we actually drive further focus. So I mentioned in an earlier question that I actually believe the scale does matter, but that still has to be linked to focus. So to the extent that there are areas that can help us drive further focus, that could be a transaction that will also be entertaining for -- that we can entertain into the future.

Our next question comes from the line of Max Gumport with BNP Paribas.

Carlos, with regard to the North America Grocery business, you described it as operating in stable growth categories and with the loved brands, I think it's fair to say that the volume situation over the last several years would paint a very different picture. So I want to get a better sense for what are your top priorities to get organic sales growth back on track for this business? How does being a separate company unlock those priorities and those initiatives? And then what do you see as the biggest challenges that you will be facing when you're running this stand-alone company?

There's a number of questions that I'm sure we'll have plenty of time for us to discuss into the future. But let me just give you a little bit of a high-level view of how I see the North America Grocery Company. First of all, it has $3 billion brands. They have 90% household penetration and in fact, 75% of the sales are coming from market-leading brands that either have #1 or #2 positions in the category. So these are attractive brands, highly relevant with consumers in a place that actually, we believe that we can continue to drive improved performance. And I think that combined with that, I want to make sure you also know that one of the things that we also distinguish ourselves as a company is that we are very much an efficient operator.

And I think you should expect us to continue to drive the level of efficiency and continue to drive high operating margins that we think about to the future. In terms of areas of continued focus, I'll give you a couple of things that I see. Earlier this year, we talked about how we have deployed the brand growth system against some of our areas that we feel require a level of focus Capri Sun Lunchables. Both of those businesses that are going to be in North America Grocery Company and actually driving now growth for the last few weeks. And I think it is a testament to the fact that when we make direct investments that we put the right support and focus, it actually yields the kind of positive results that we want to see. So I think the company is very much excited about what the future would be as we continue to also drive the level of focus and intention behind those businesses.

So I think -- and I mentioned earlier to the question from Alexia, the reality is that there's places in channels that we haven't quite pursued with the level of focus that we would need. And I think Away From Home is a perfect example for us that as a company, it certainly is producing the kind of results we want. But if I just look at it from the lens of the North America Grocery, there clearly is an opportunity for us to continue to expand on that. So I think there's a lot of exciting things ahead. And again, I think that we'll have opportunity for us to talk about priorities and how do we think about continuing to drive this business forward. But thanks for the question.

Operator, we have time for one more question.

Our final question this morning comes from the line of Scott Marks with Jefferies.

Wanted to ask just about innovation across these 2 portfolios. I think there's been some questions just across the broader industry about innovation and driving some exciting new products for consumers to generate incremental engagement given the current backdrop. So just wondering if you can kind of share your thoughts around innovation capabilities across these 2 different businesses, what you think they need that's either similar or different? And how you think about prioritizing that?

Thanks for the question. And for me, I think that's one of the critical things that we have done as a company is making sure that as we deploy the brand growth system, it allows us to identify with a larger frame of reference, spaces in which we can take our brands to drive new innovation.

As we sit today in the company, we have doubled the rate of innovation over the last 3 years, and we feel good about that, but I think there's a lot more that we can do. And I'll tell you, I think that as we think -- the way we think about innovation, and I think maybe something that externally you may not see as much is that innovation with both the things that we are going to be driving new to the marketplace like we're doing right now with things like Lunchables PB&J, like we're doing with our Taco Bell meals that continue to drive double-digit growth in the marketplace that we are now expanding into new geographies that like we're doing with our Heinz business and how we're taking now to other space in adjacency categories like pasta sauce.

All those things are, yes, part of innovation. But another part of the innovation equation is the renovation that we're doing in our business. So when you think about our Mac & Cheese business, in which we are now deploying the best formula we have ever had, that we are making sure that our products continue to have reduction on sugar, reduction on sodium across our portfolio. That also is part of the renovation that drives us to have a better component of innovative solutions to consumers.

So from the consumer lens, the idea that we're bringing new things to the world and making the process a lot better is part of how we're thinking about innovation. And you will see that as we go into 2 separate companies, it will give us the opportunity to actually further invest in both of those in a way that actually allows us to capture even further growth into the future. Thanks for the question, Scott.

Thank you, operator. Appreciate all the questions today.

Thank you. This concludes our question-and-answer session, and thus concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.