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Kraft Heinz Co (KHC)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered mixed results: net sales fell 6.4% to $5.999B, with Organic Net Sales down 4.7% as price was +0.9 pp but volume/mix -5.6 pp; GAAP EPS was $0.59 and Adjusted EPS was $0.62 .
  • Versus S&P Global consensus, Adjusted EPS modestly beat ($0.62 vs $0.601), EBITDA beat ($1.464B vs $1.419B), while revenue was a slight miss ($5.999B vs $6.022B)*.
  • Full-year 2025 outlook was lowered across key lines: Organic Net Sales to -1.5% to -3.5% (prior flat to -2.5%), Constant-Currency Adjusted OI to -5% to -10% (prior -1% to -4%), and Adjusted EPS to $2.51–$2.67 (prior $2.63–$2.74) .
  • Management cited higher COGS inflation (base 5% plus estimated 150–200 bps from tariffs) and a step-up in brand/marketing and product renovation as drivers; Q2 gross margin and operating income expected to be pressured near-term .
  • Potential stock reaction catalysts: lowered FY outlook (broader range), tariff-driven inflation headwind, and a stepped-up investment cycle versus near-term margin pressure .

What Went Well and What Went Wrong

  • What Went Well

    • Free Cash Flow rose 1% to $0.482B; FCF conversion improved to 65% (+9 pp YoY), aided by lower capex and timing of variable comp cash outflows .
    • Emerging Markets showed resilience: Organic Net Sales +3.9% (price +4.3 pp, volume/mix -0.4 pp); segment Adjusted OI up 20.3% YoY (constant currency +28.6%) .
    • Capital return continued: YTD dividends paid $477M; buybacks $225M; remaining repurchase authorization ~$1.7B; quarterly dividend of $0.40/share declared for June 27, 2025 .

  • What Went Wrong

    • Top-line softness: Net sales -6.4% with volume/mix -5.6 pp; North America net sales -7.0% and International Developed Markets -4.4% YoY; Easter timing (~90 bps) and Lunchables decline weighed on volume .
    • Margin pressure: Adjusted Gross Margin 34.4% (-10 bps YoY) amid procurement cost inflation and FX headwinds (0.8 pp), partially offset by efficiencies and lower SG&A .
    • Outlook cut: Lower FY 2025 guidance for Organic Net Sales, Constant-Currency Adjusted OI, and Adjusted EPS; CFO flagged COGS base inflation rising to ~5% plus 150–200 bps estimated tariff impact, concentrated in 2H .

Financial Results

Consolidated P&L snapshot (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Net Sales ($B)$6.383 $6.576 $5.999
Gross Profit ($B)$2.186 $2.245 $2.064
Operating Income ($B)$(0.101) $(0.040) $1.196
Net Income ($B)$(0.290) $2.132 $0.714
Diluted EPS (GAAP)$(0.24) $1.76 $0.59
Adjusted EPS$0.75 $0.84 $0.62

Q1 2025 vs S&P Global consensus

MetricActualConsensusSurprise
Revenue ($B)$5.999 $6.022*-$0.023B (miss)*
Adjusted EPS$0.62 $0.601*+$0.019 (beat)*
EBITDA ($B)$1.464 $1.419*+$0.045B (beat)*
Values marked with * retrieved from S&P Global.

Margins (Adjusted Gross Profit Margin, oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Adjusted Gross Profit Margin34.3% 34.4% 34.4%

Segment breakdown – Q1 2025 Net Sales and Organic mix

SegmentNet Sales ($B)YoY %Organic YoY %Price (pp)Volume/Mix (pp)
North America$4.488 (7.0%) (6.5%) +0.6 (7.1)
International Developed Mkts$0.817 (4.4%) (1.7%) (0.2) (1.5)
Emerging Markets$0.694 (4.7%) +3.9% +4.3 (0.4)
Total$5.999 (6.4%) (4.7%) +0.9 (5.6)

KPIs and Cash

KPIQ1 2025
Net Cash from Operating Activities$0.720B
Capital Expenditures$(0.238)B
Free Cash Flow$0.482B
FCF Conversion65%
YTD Dividends Paid$0.477B
YTD Share Repurchases$0.225B

Guidance Changes

MetricPeriodPrevious Guidance (2/12/25)Current Guidance (4/29/25)Change
Organic Net SalesFY 2025Flat to (2.5%) (1.5%) to (3.5%) Lowered
Constant-Currency Adjusted OIFY 2025(1%) to (4%) (5%) to (10%) Lowered
Adjusted Gross Profit MarginFY 2025Flat to slight expansion Down 25–75 bps Lowered
Adjusted EPSFY 2025$2.63–$2.74 $2.51–$2.67 Lowered
Effective Tax Rate on Adj EPSFY 2025~26% (≈$0.23 headwind) ~26% (≈$0.23 headwind) Maintained
Interest ExpenseFY 2025~ $900M ~ $960M Raised
Other (Expense)/IncomeFY 2025~ ($140)M ~ ($230)M More favorable
Free Cash FlowFY 2025Flat; ~95% conversion Flat; ~95% conversion Maintained
DividendQ2 2025—$0.40/share payable Jun 27, 2025 Declared

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3’24, Q4’24)Current Period (Q1’25)Trend
Pricing, Promotions, ElasticityPrice contribution +1.2 pp (Q3) as volumes lag; elongated U.S. retail recovery expected No incremental price investment beyond ~100 bps already planned; more targeted promos in summer windows with ROI discipline Neutral to cautious
Inflation & Tariffs2024 commentary focused on managing costs/efficiencies Base COGS inflation ~5% (from 3% prior) plus 150–200 bps estimated tariff impact, weighted to 2H Worsening
Volume/Category Dynamics (Lunchables, seasonal)Lunchables pressure noted; volume/mix drag in 2024 Q1 volume hit from Easter timing (~90–100 bps) and Lunchables; improvement expected post mid-May/June as renovation hits Improving into Q2
Brand Growth System (BGS) & MarketingEntering 2025 with BGS momentum, innovation pipeline Scaling BGS coverage to ~40% of business; step-up in media, product renovation, and sampling to drive trial Accelerating investment
Emerging Markets & Away From HomeEM organic growth outperformed in 2024 EM organic +3.9% in Q1; further acceleration expected; AFH industry remains soft near term EM improving; AFH cautious
Technology/AutomationEfficiencies and technology investments in 2024 Continued investments in automation and analytics to drive efficiencies Ongoing

Management Commentary

  • “We delivered results in line with our top line expectations despite growing market pressures… we will build on the progress we have made to drive consistent growth and profitability.” – CEO Carlos Abrams-Rivera .
  • “As the operating environment remains volatile, we are lowering our full year outlook and expanding the range of our expectations to better reflect potential outcomes.” – CEO Carlos Abrams-Rivera .
  • “We are choosing to play offense with discipline… prioritizing investments in marketing, R&D and technology… scaling [Brand Growth System] to 40% of our business by the end of this year.” – CEO Carlos Abrams-Rivera (Q&A) .
  • “In our prior outlook, we had inflation at 3%. Before any tariffs, our guidance is step up to 5%... with the tariff impact… an impact in 2025 of 150 to 200 bps on the COGS.” – CFO Andre Maciel .
  • “We do expect operating income to decline double digits in the second quarter,” citing promos, hedge losses rolling off after Q2, and specific commodity timing (e.g., dairy) – CFO Andre Maciel .

Q&A Highlights

  • Investment cadence and differentiation: Management emphasized “offense with discipline” via higher media, targeted promos, and product renovation under BGS; scaling from ~10% of brands in 2024 to ~40% of the business in 2025 .
  • Pricing vs promo: No incremental price investment versus initial 2025 plan (~100 bps); incremental investments focused on media, renovation, and sampling to accelerate trial .
  • Tariffs and COGS inflation: Base COGS inflation raised to ~5% pre-tariffs; tariffs add an estimated 150–200 bps COGS in 2025, weighted to 2H; actions include forward buys, alternative sourcing, formulation, and mix management .
  • Q2 outlook: Gross margin pressure anticipated on promos, hedging losses, and commodity peaks; operating income expected to decline double digits in Q2; improvement expected in H2 as hedges roll off and renovation benefits build .
  • Volume trajectory: Q2 top line expected to improve versus Q1 with Easter tailwind (~90–100 bps), Emerging Markets acceleration, and recovery in ACCELERATE platforms (e.g., Philadelphia, Ore-Ida); Lunchables improvement expected after mid-May/June as renovation hits .

Estimates Context

  • Q1 2025 results vs S&P Global consensus: Adjusted EPS beat ($0.62 vs $0.601), EBITDA beat ($1.464B vs $1.419B), revenue slight miss ($5.999B vs $6.022B)* .
  • Revisions likely: Lowered FY outlook (Organic Net Sales, Constant-Currency Adjusted OI, Adjusted EPS) suggests downward estimate revisions for sales and profit, with potential mix toward higher marketing/renovation spend and higher interest expense .
    Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term pressure, longer-term brand building: FY25 guide-down and Q2 margin pressure reflect higher inflation/tariffs and stepped-up investments; the BGS/media/sampling push aims to restore volume and share over time .
  • Inflation/tariff risk now central: CFO quantifies an additional 150–200 bps COGS impact in 2025; watch policy developments and coffee/meat input trends .
  • Emerging Markets provide relative resilience: EM organic growth and segment profit improvement offset some NA softness; watch continued EM execution .
  • Category/brand renovation could be a 2H catalyst: Lunchables and other platform renovations expected to improve run-rates after mid-Q2; hedging headwinds roll off post-Q2 .
  • Capital returns remain intact: Dividend maintained at $0.40/share and buybacks ongoing with ~$1.7B authorization remaining .
  • Estimate resets likely downward on sales and EPS for FY25; however, execution on renovation and EM growth could mitigate downside relative to the wider guidance range .
  • For trading: initial reaction likely driven by the magnitude of guide-down and tariff commentary; subsequent performance tied to evidence of volume/mix improvement and promo ROI into summer/back-to-school .

Note on non-GAAP: Adjusted EPS of $0.62 reflects add-backs including restructuring and tax items ($0.03 combined) and nonmonetary currency devaluation ($0.01), versus GAAP EPS of $0.59 .