Kraft Heinz Co (KHC)

Gross Margin Outlook
Q: Will gross margins face pressure ahead?
A: Management believes gross margins will continue to expand despite concerns. They noted substantial one-time impacts in Q1 and Q2 that negatively affected gross margin, but still achieved expansion. They expect a more muted year-over-year impact in the second half as last year had a big step-up. Confident about continuous gross margin expansion into 2025, driven by strong efficiencies and a company-wide focus on driving efficiency. They emphasized that healthy gross margins are key to a virtuous cycle of growth. ( - )

Volume Expectations in H2
Q: Will volumes turn positive in the back half?
A: Management expects revenue and volume to gradually improve throughout the quarters. At their midpoint guidance, they do not need volumes to grow to achieve their targets. Price is expected to be around 1% for the total portfolio. In emerging markets, volumes continue to be positive. In the U.S., they expect volumes to continue improving, but they don't need volumes to turn positive to achieve guidance. ( - )

Factors Driving H2 Guidance
Q: What are key drivers to hit H2 outlook?
A: Management highlighted different factors by region. In emerging markets, distribution gains are working, and volume is growing. In the away-from-home business, they are making improvements after plant closures and gaining new customers. In the U.S., growth is driven by innovation, renovation, and disciplined use of revenue management tools. They are focused on providing value in a sustainable way, bringing new products and solutions to consumers, and being thoughtful about investments in trade to maintain profitability. ( - )

International Markets Performance
Q: What's happening in the UK, China, and Brazil?
A: In the UK, significant inflation led to private label gaining traction. They stepped up investments to protect volume, focusing on price gaps, leading to positive volume share returns. In China, the industry continues to be soft, but they are gaining market share in modern trade. In Brazil, they continue to gain market share, but consumers are showing fatigue, and retailers have reduced inventories, impacting performance. They believe inventories are now at appropriate levels, which should allow improvement. ( - )

Impact of Plant Closure on Away-from-Home Business
Q: How did plant closures affect away-from-home sales?
A: The global away-from-home business declined 2.1% in the quarter. The impact from the plant closure was about 200 basis points, meaning they would have been flat without it. Planned exits at the end of last year had an impact of roughly 150 basis points, so adjusted growth would be 1.5%. The industry was softer in Q2, about 100 basis points worse than Q1. They are addressing this by improving service and gaining new customers. Innovations like the Heinz REMIX are progressing with positive feedback from operators and consumers. ( - )

Key Brands' Improvement in H2
Q: Which brands will improve most in H2?
A: Management is focusing on improving Lunchables and Capri Sun, which were meaningful headwinds in Q2. For Lunchables, they are seeing a recovery, with renovations, doubling marketing spend, improving media mix, and increasing value for consumers, including innovation. For Capri Sun, they have renovated the product, investing twice the marketing versus 2023, secured strong back-to-school displays, invested in promotions, and expanded into new channels like club stores. They also expect Mac & Cheese to improve with new shapes, flavors, and tie-ins like Super Mario Brothers, providing value solutions for families. ( - )

Management of Price Gaps and Promotions
Q: How broad is the price point issue across portfolio?
A: Management is contemplating a step-up in trade investment levels, with promotions still well below 2019 levels. They estimate that in 30% to 40% of the portfolio, price gaps require some incremental investments in the U.S. They are focused on closing price gaps versus branded competitors where it makes sense for the long term but prefer to grow the business through innovation, renovation, and marketing rather than over-relying on promotions. ( - )

Competing on Non-Price Factors in North America
Q: Can you compete on non-price factors?
A: Management believes they can redefine their portfolio through innovation and marketing. They have iconic brands and have been renovating and innovating, such as with Philadelphia and Jell-O. They are providing consumers with options at different price points and expanding accessibility by increasing distribution in the dollar channel and club stores. They aim to offer value in a sustainable way, focusing on making products available where consumers are shopping. ( - )