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Kraft Heinz Co (KHC)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered a mixed print: Adjusted EPS of $0.61 was a modest beat versus Wall Street consensus*, while net sales of $6.24B were slightly below consensus* as price (+1.0 pp) was more than offset by volume/mix (-3.5 pp) and commodity inflation in meats and coffee .
  • Margins compressed: Adjusted Gross Profit Margin fell 200 bps YoY to 32.3% and Adjusted Operating Income declined 16.9% YoY to $1.11B, reflecting inflationary pressures, unfavorable mix, and higher A&C spend, partially offset by efficiencies .
  • Guidance lowered: FY25 Organic Net Sales down 3.0–3.5% (from down 1.5–3.5%), Constant Currency Adjusted Operating Income down 10–12% (from down 5–10%), Adjusted EPS $2.50–$2.57 (from $2.51–$2.67); Free Cash Flow Conversion raised to ≥100% (from ≥95%) .
  • Strategic separation remains on track for H2 2026; management reiterated capital allocation priorities and net leverage target near ~3x as a setup for investment-grade profiles for both entities .

S&P Global disclaimer: Asterisked values below are consensus estimates retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Strong cash generation: YTD Free Cash Flow grew to $2.49B (+23.3% YoY) with FCF conversion at 109%, driven by working capital efficiencies and lower Capex .
  • Share momentum in Taste Elevation: “We gained share across 70% of our U.S. Taste Elevation portfolio in September,” supported by renovation and improved marketing execution (e.g., Capri Sun, Lunchables) .
  • Emerging Markets resilience ex-Indonesia: EM grew organically +4.7% in Q3; management cited EM (ex-Indonesia) +9.2% with Heinz brand strength across markets and expanding distribution .

What Went Wrong

  • Margin and profit pressure: Adjusted Gross Profit Margin down ~200 bps to 32.3%; Adjusted Operating Income down 16.9%; Adjusted EPS down 18.7% YoY to $0.61, impacted by inflation (meats, coffee), unfavorable mix, higher A&C, and a higher effective tax rate .
  • U.S. Retail softness and promotions: Extended cold cuts promotions and weaker consumption weighed on Q3; Q4 guide embeds inventory phasing headwinds >100 bps and continued weaker U.S. consumption .
  • Indonesia disruption: Significant destocking and route-to-market challenges; management expects meaningful improvement only in H2 2026 with transitional actions underway .

Financial Results

Headline Metrics: Prior Year, Prior Quarter, Actual, and Consensus

MetricQ3 2024Q2 2025Q3 2025 ActualQ3 2025 Consensus*
Net Sales ($USD Billions)$6.383 $6.352 $6.237 $6.259*
Organic Net Sales YoY (%)—(2.0%) (2.5%) —
Price (pp)—+0.7 pp +1.0 pp —
Volume/Mix (pp)—(2.7) pp (3.5) pp —
GAAP Diluted EPS ($)$(0.24) $(6.60) $0.52 —
Adjusted EPS ($)$0.75 $0.69 $0.61 $0.577*
Adjusted Gross Profit Margin (%)34.3% 34.1% 32.3% —
Operating Income ($USD Billions)$(0.101) $(7.974) $1.025 —
Adjusted Operating Income ($USD Billions)$1.330 $1.276 $1.106 —

S&P Global disclaimer: Asterisked consensus values are retrieved from S&P Global.

Segment Net Sales and Organic Detail (Q3 YoY)

SegmentQ3 2024 Net Sales ($MM)Q3 2025 Net Sales ($MM)YoY %Organic Net Sales YoY %Price (pp)Volume/Mix (pp)
North America$4,826 $4,641 (3.8%) (3.8%) +0.4 (4.2)
International Developed Markets$882 $895 +1.6% (1.4%) +1.0 (2.4)
Emerging Markets$675 $701 +3.8% +4.7% +4.0 +0.7
Total Kraft Heinz$6,383 $6,237 (2.3%) (2.5%) +1.0 (3.5)

Segment Adjusted Operating Income (Q3)

SegmentQ3 2024 ($MM)Q3 2025 ($MM)YoY %
North America$1,237 $1,018 (17.8%)
International Developed Markets$135 $130 (3.5%)
Emerging Markets$84 $79 (6.5%)
General Corporate Expenses$(126) $(121) (4.4%)
Total Adjusted Operating Income$1,330 $1,106 (16.9%)

KPIs (YTD through Q3)

KPIYTD 2024YTD 2025YoY Change
Net Cash from Operating Activities ($MM)$2,796 $3,086 +10.4%
Capital Expenditures ($MM)$777 $596 (23.3%)
Free Cash Flow ($MM)$2,019 $2,490 +23.3%
Free Cash Flow Conversion (%)75% 109% +34 pp
Dividends Paid YTD ($MM)—$1,400 —
Share Repurchases YTD ($MM)—$435 —

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic Net Sales YoYFY 2025Down 1.5% to Down 3.5% Down 3.0% to Down 3.5% Lowered (tightened to low end)
Adjusted Gross Profit Margin YoYFY 2025Down 25–75 bps Down ~100 bps Lowered
Constant Currency Adjusted Operating Income YoYFY 2025Down 5% to Down 10% Down 10% to Down 12% Lowered
Adjusted EPS ($)FY 2025$2.51–$2.67 $2.50–$2.57 Lowered (range narrowed)
Effective Tax Rate on Adjusted EPSFY 2025~26% ~26% (≈$0.23 headwind YoY) Maintained
Interest Expense ($MM)FY 2025≈$960 ≈$950 Slightly Lowered
Other Expense/(Income) ($MM)FY 2025≈($230) ≈($250) More favorable
Free Cash Flow Conversion (%)FY 2025≥95% ≥100% Raised
Separation TimingTransaction—H2 2026 expected close Reaffirmed

Earnings Call Themes & Trends

TopicQ1 2025 (Apr)Q2 2025 (Jul)Q3 2025 (Oct)Trend
AI/TechnologyFocus on efficiencies and readiness to invest; monitoring tariffs/inflation Productivity above plan; efficiencies across supply chain Tacemaker (AI marketing), PlanChat (factory AI), Leonardo (R&D reformulation) scaled to drive speed, yield, and health reformulation Expanding adoption and impact
Supply Chain/Working CapitalInventory rebuild impacted cash in Q1 Strong WC improvements drive FCF Further WC benefits lifting FCF conversion to 109% Sustained discipline improving cash
Tariffs/Macro/ConsumerVolatile environment; lowered FY outlook Inflation and promotions pressure top line/margins Worsening U.S. consumer sentiment; inventory pullbacks by customers; Q4 consumption soft Macro headwinds intensified
Product PerformanceLunchables decline cited in Q1 Targeted renovation programs underway Lunchables and Capri Sun returning to positive consumption; share gains across 70% of U.S. Taste Elevation in Sept Improving in renovated brands
Regional TrendsEM growth with Heinz expansion EM decelerated vs H1 due to Indonesia EM +4.7% with Indonesia headwinds; EM ex-Indonesia +9.2% EM strength ex-Indonesia; Indonesia recovery pushed to H2 2026
Promotional StrategyEaster timing & promotions affected mix Extended promo activity Focus on higher frequency vs depth; back-to-school success; holiday concentration; testing bundling/e-comm Tactical evolution to improve ROI
Separation/Capital StructureOutlook lowered; strategic review Impairment; reaffirmed FY outlook Spin into “Global Taste Elevation Co.” and “North American Grocery Co.” on track H2 2026; both to target investment-grade; maintain net leverage near ~3x Execution progressing; balance-sheet discipline reiterated

Management Commentary

  • “Our third quarter results reflect a modest year-over-year improvement in our top-line performance relative to the first half of the year… driven in part by targeted investments… to deliver superior and affordable products” — Carlos Abrams-Rivera, CEO .
  • “We are amplifying human creativity with Tacemaker, our new AI marketing and innovation platform… What once took eight weeks now takes just eight hours” .
  • “We now expect organic net sales down 3% to down 3.5%… constant currency adjusted operating income down 10% to down 12%… adjusted EPS in the range of $2.50 to $2.57… free cash flow conversion of at least 100%” — Andre Maciel, CFO .
  • “We remain on track to separate into two independent companies in the second half of 2026… both companies to be investment grade… maintain net leverage around three times” .

Q&A Highlights

  • Investment mix vs profit revision: CFO clarified FY25 profit revision is driven by lower U.S. consumption, elongated Taste Elevation recovery, and incremental inflation (meat, coffee), not by incremental marketing beyond plans; ~$300MM increased U.S. promotional spend and ~$80MM incremental media concentrated in H2 .
  • Separation perimeter and balance sheet: Management reiterated focus on value creation, will adjust perimeter if needed to maximize shareholder value; targeting investment-grade structures and net debt near ~3x for both companies .
  • Emerging Markets/Indonesia: Indonesia 12% of EM revenue ($300MM); distributor transition and inventory reset underway; meaningful P&L recovery expected H2 2026; EM ex-Indonesia grew +9.2% .
  • Q4 outlook drivers: Inventory phasing headwind >100 bps for total company; continued lower U.S. consumption embedded in Q4 .
  • Promotions: Shifting to higher frequency vs deeper discounts; cross-merchandising and e-comm events in test; back-to-school program delivered cross-shopping lift .

Estimates Context

  • Q3 2025 vs consensus*: Adjusted EPS $0.61 vs $0.577 — beat; Net Sales $6.237B vs $6.259B — slight miss. Company cited inflation (meats, coffee), unfavorable mix, and higher A&C spend as key pressures .
  • Forward lens*: Q4 2025 consensus EPS ~$0.615; revenue ~$6.382B. Given lowered FY25 outlook (organic down 3.0–3.5%; AOI down 10–12%; EPS $2.50–$2.57), Street models may need to recalibrate margins (especially gross) and U.S. consumption assumptions, while FCF conversion improves .

S&P Global disclaimer: Asterisked consensus values are retrieved from S&P Global.

Key Takeaways for Investors

  • Expect near-term pressure in U.S. consumption and Q4 inventory phasing; anticipate continued margin headwinds from meats/coffee and mix until renovation and promotional mix effects normalize .
  • EPS resilience vs consensus despite revenue softness reflects ongoing productivity and targeted A&C; monitor sustainability of efficiencies >4% of COGS and tax/interest dynamics supporting EPS .
  • EM remains a growth pillar ex-Indonesia; watch execution milestones on distributor transition and inventory normalization to gauge timing of recovery (H2 2026) .
  • Renovated brands (Lunchables, Capri Sun) gaining traction and share in Taste Elevation; continued scaling of Brand Growth System and AI platforms could drive medium-term volume/mix improvement .
  • Guidance reset lowers revenue and profit expectations but raises FCF conversion; near-term valuation support may hinge on cash returns and leverage discipline ahead of the separation .
  • Separation catalysts: clarity on perimeter, leadership, and capital structures (investment grade; ~3x net leverage) should be positive de-risking events; watch updates through 2026 .
  • Trading implication: EPS beat with lowered guide is a “mixed” catalyst; stock likely sensitive to holiday sell-through, Q4 inventory dynamics, and any updates on spin execution and EM recovery trajectory .
Note: All non-asterisked figures are sourced from company filings/press releases and earnings materials with inline citations. Asterisked values are S&P Global consensus estimates.