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 2025 business update. During the following remarks, we will make forward-looking statements regarding our expectations for the future, included related to our business plans and expectations, strategy, efforts, and investments, and related timing and expected impacts. These statements are based on how we see things today, and actual results may differ materially due to risk and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release, which accompany these remarks, as well as our most recent 10-K, 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 second quarter results and will discuss our 2025 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 turn it over to Carlos.
Thank you, Anne-Marie, and thank you all for joining us. At Kraft Heinz, we continue to play a vital role in families' lives. As we navigate the complexities of the current market landscape, our commitment to delivering superior, affordable, and accessible products is unwavering. Whether it's a family dinner, a backyard barbecue, or a quick snack on the go, our brands are at the center of creating moments that matter. Our second quarter performance reflects this dedication. From product improvements to investments in our manufacturing capabilities, we are working tirelessly to ensure that our portfolio evolves to meet the changing needs of our consumers. As we look to the future, we remain focused on driving long-term growth while maintaining the financial discipline that has always been and will continue to be part of the DNA of our company.
I am pleased to report that our second quarter results came in line with our expectations and demonstrated an improvement in year-over-year top-line performance. We are progressing across key areas of our business as our investments get implemented, including our focus brands in North America retail, emerging markets, and expanding our footprint away from home. We are pleased with the momentum we are building, giving us the confidence to reiterate our 2025 full-year outlook. We recognize that the macro environment remains volatile. Consumers are looking for value, whether that be through price or product benefits, and we're delivering. Our investments are paying off, providing value and driving brand and product superiority that is resonating with consumers, with our brand growth systems as the foundation. Importantly, as we continue to make these investments, we are generating strong cash flow, maintaining our target net leverage ratio, and returning capital to stockholders.
As we look to the future, I am confident that we have the right elements in place to drive long-term profitable growth. Now, moving into the details of our second quarter results, organic net sales declined 2% versus the prior year, an improvement when looking at our first quarter results, which were down 4.7%. As expected, we experienced gross margin and bottom line pressure, with gross efficiencies and price more than offset by higher inflation and trade investments in the quarter. On the cash side, we continue to deliver very strong results. We generated $1.5 billion of free cash flow year-to-date, nearly 30% above prior year levels. All in all, the second quarter played out in line with our expectations. Our strategic priorities remain unchanged. We are focused on driving long-term growth and value creation. We continue to unlock efficiencies to reinvest in the business.
All to power brand and product superiority and ultimately accelerate profitable growth across our strategic pillars. Now, let's take a look at our results through the lens of these strategic pillars. Our prioritized investments in our North America retail accelerate platforms are starting to yield results, with underlying sales improving in 14 categories relative to the first quarter. Year-over-year, strong growth in Philadelphia and Primal Kitchen brands was more than offset by declines in Lunchables while improving sequentially in frozen snacks. Global away from home organic net sales declined 1.9%. We delivered growth in international away from home for the 17th straight quarter, while the overall U.S. away from home industry continues to face pressure due to traffic headwinds. Looking ahead, we continue to expect growth in our international business, but we are not contemplating an improvement in the U.S. industry for the rest of 2025.
Turning to emerging markets, our top-line growth has continued to strengthen, with an acceleration from 3.9% in the first quarter to 7.6% in this quarter. This was primarily driven by double-digit growth in Latin America and Middle East and Africa regions. Emerging markets continue to be a bright spot in our portfolio as we progress further towards our own algorithm pace of double-digit growth. Now, let's dive into our North America retail business. With our brand growth system gaining momentum, this systematic and repeatable data-driven methodology is a critical component in our creative ecosystem, and it is strengthening our disruptive marketing and innovation efforts to drive brand superiority. In 2025, our brand growth system is on track to reach 40% sales coverage by year-end, which is an increase of 30 percentage points compared to 2024.
We prioritize resources to drive improvements across four focus brands in North America: Capri Sun, Lunchables, Kraft Mayonnaise, and Kraft Mac & Cheese. We are starting to see progress reflected in our results, with sequential improvements relative to the first quarter across each of these four brands. Starting with Capri Sun, dollar sales have improved by 10 percentage points relative to the first quarter, growing by over 6% in Q2. We have achieved superior taste, expanded our reach into new channels and households, and improved brand resonance through product-focused creative and by capturing culturally relevant moments. These results give me confidence in our ability to replicate this methodology across our brands to drive further top-line performance. In Lunchables, we saw a 9 percentage point improvement in dollar sales relative to the first quarter through relevant innovation, enhanced product offerings, and our largest Lunchables fall season campaign ever.
We are proving our commitment to both maintaining our number one market share position and to expanding the category. Our recent launch of Lunchables Peanut Butter and Jelly is a great example of this innovation. The new product gives kids the freedom to enjoy a peanut butter and jelly just the way they like it. By bringing innovative solutions to the category, we are driving excitement for both our consumers and our customers. Moving on to Kraft Mayonnaise, where dollar sales improved by 7 percentage points in the second quarter. Building on its great taste, we are investing in packaging, price, and product-focused creative to drive further improvement. After applying insights from our brand growth system, we are using a targeted regional approach to push our presence in the places where we matter the most during the most relevant key seasons. Finally, Kraft Mac & Cheese.
We increased sales by 1 percentage point versus the prior quarter, with several initiatives hitting the market in the second half to build upon these improvements. We are doing three things to drive growth. First, our new flavors line is specifically designed to attract younger consumers by giving them the bold and venture of flavors they crave. Second, we revamped our packaging to proudly highlight the fact that Kraft Mac & Cheese has been made with no artificial flavors, no preservatives, and no dyes since 2016. Third, recognizing that value is a top priority for our consumers, we introduced value offerings that provide affordable options for families. We are heading in the right direction and positioned for even a better second half as additional action plans are set to take effect. The powerful combination of our brand growth system and agile ways of working are fueling improvements across our U.S.
retail business and creating a repeatable model that can be successfully applied across all brands in our portfolio. Within taste elevation in North America, we are seeing growth across important brands and categories. As consumers increasingly prioritize protein in their diets, they're turning to our high-quality premium condiments to elevate the flavor and enjoyment of the protein-rich foods. This trend is driving meaningful growth for our brands, which takes us up 5% and Worcestershire sauce up 17%, as we have great products that enhance protein no matter what type consumers choose. Even in today's environment, where conversation centers around value, we are also seeing consumers prioritize better-for-you options. We have an array of great tasting, affordable products that consumers who are looking for healthier, more sustainable choices can enjoy.
Two leading examples of this: Heinz Simply Tomato Ketchup and our Primal Kitchen portfolio grew an impressive 17% and 24% respectively in the second quarter. Building on this success, I am incredibly proud that our company led the way in committing to remove artificial color from our U.S. portfolio by the end of 2027. With 90% of our U.S. portfolio already free of artificial colors, we are going even further to ensure we deliver on our promise to provide nutritious, affordable, and delicious food that meets the evolving needs of consumers. This move is a testament to our company's dedication to innovation, exceptional quality, and unparalleled consumer satisfaction. Let's shift our focus to our next strategic pillar, global away from home. I am encouraged by the progress we're making across key elements of our strategy, notably our ability to maintain share in the U.S.
in the midst of a challenging environment. While there is still room for improvement and we are not yet where we aspire to be, I am optimistic about our potential for growth. We are growing in higher margin channels where we have concentrated our efforts to drive both growth and profitability, recently adding entertainment and Live Nation as a new customer. We continue to expand beyond ketchup through both distribution and innovative offerings. After taking the internet by storm earlier this year, Heinz and award-winning music producer Mustard are teaming up once again with this summer's hottest drop, an unbelievably delicious Heinz Chipotle Honey Mustard. Fans can try this exclusive launch at Buffalo Wild Wings locations across the country before the sauce becomes available at retailers nationwide.
Brought to market in only four months, this launch not only marks the first national innovation for Heinz Mustard in nearly a decade, but it is also the brand's first-ever co-created innovation in the U.S. Finally, our efforts to expand distribution and drive growth are also paying off in other areas. In the second quarter, we grew organic net sales in emerging markets away from home by nearly 10%. A testament to the success of our go-to-market model and the power of the Heinz brand. In the U.S., we are expanding our Heinz Verified program as part of our ongoing efforts to support the restaurant industry. With 84% of survey participants stating that they would prefer a restaurant that serves Heinz ketchup, we are helping our customers tap into this opportunity.
By becoming Heinz Verified, restaurants gain exclusive access to a suite of benefits that unlock growth, including promotions, consumer insights, first access to innovation, and a prestigious badge that enhances credibility and boosts traffic. Our partnership with Uber Eats has already yielded results, with participating Heinz Verified customers experiencing a 14% lift in orders, and nearly half of those coming from first-time customers. This showcased the unique value that only Heinz can deliver. Our final strategic pillar, emerging markets, generated yet another quarter of growth, increasing top line by nearly 8%. We are well on our way to reaching our long-term algorithm pace of multi-digit growth by the end of the year. We are driving profitable growth in emerging markets through both price and volume mix, while at the same time expanding margins substantially, achieving our highest adjusted operating income margin ever.
That growth stemmed from leveraging the strengths of our Heinz brand, which grew an impressive 18% in the quarter, as well as expanding distribution through our repeatable go-to-market model. Heinz is our global anchor, with over $1 billion in sales in emerging markets alone. With our unmatched tomato expertise, we have successfully expanded into new and growing categories, from sauces and condiments to meals and to markets, from Latin America to the Middle East to Asia. We continue to expand distribution through our go-to-market model, adding approximately 6,000 distribution points compared to the second quarter of 2024. This is why I'm confident that emerging markets and the Heinz brand are well-positioned for continued long-term success. We are fueling our growth engine with two powerful drivers: innovation and marketing. By focusing on delivering superior products, we are creating new innovative opportunities for our brands.
Our Mexican food strategy is a great example, allowing fans to recreate the Taco Bell restaurant experience in their own kitchens. Recently, our Canadian team executed a Beth and Clarence launch with national distribution achieved in less than two months, and our 2025 full-year sales target achieved in only four months. In Canada, Taco Bell has already garnered over 20% market share of the Mexican category, and in the U.S., we are seeing a second year of double-digit growth. We're also expanding into new locations and channels, as well as growing categories. The early success of our single-serve Capri Sun bottle is encouraging. Initial sales continue to beat expectations in both velocities and distribution. For over a century, Heinz has been growing the world's best tomatoes, and the brand's versatility has proven to be a recipe for success.
With a reputation for superior taste and quality that transcends categories, from protein to size to pasta, we are leveraging this strength to drive growth globally. In the U.K., Heinz Pasta Sauce sales have increased by over 20% year-to-date, and we are now expanding to over eight countries, bringing our rival tomato expertise to new markets. We know that in today's environment, consumers want to enjoy the same great taste with better-for-you ingredients. That is why we created Heinz TK Zero, with zero added sugar and salt, and the same irresistible taste consumers know and love. After launching in over 10 countries, our recent renovation in the U.K. has just hit the shelf. With a new formula, graphics, and creative campaign, we are giving consumers even more reasons to choose Heinz.
To support our brands, we're not only making a big step up in marketing dollars, we are also transforming our approach to drive growth and build brands that resonate with consumers. We are investing behind product focus, creating that celebrates our great tasting products and unleashes the power of our brands. Let's face it, if our product is not the heat of our story, we're not telling the right story. So we have created a playbook that helps us get it to right every time. It is all about crafting creative that makes your mouth water, ensures our brand stands out, and reminds consumers of all the moments when our products are the perfect fit. We're also bringing our brands to life in a way that resonates, and our Oscar Mayer Weenie 500 event was a great example.
We partnered with the Indianapolis 500 and created an experience that generated unprecedented media coverage, with over 6 billion earned impressions and 1 million livestream viewers. It was a huge win for us, and it has opened lots of possibilities for future activations. Finally, we are leveraging the scale of our portfolio to make a bigger impact during key must-win moments like the upcoming back-to-school season. We know kids love our brands, and we want to make them a part of their daily routine. Across some of our most beloved brands, including Lunchables, Capri Sun, Kraft Mac & Cheese, and Jell-O, we are increasing our media investment by 75%. By bundling several of our favorite brands, we are providing consumers with convenient solutions for any occasion. Before I hand it off to Andre, I would like to emphasize that there are so many great things happening at Kraft Heinz.
I am proud of our progress and the investments we're making to celebrate our great tasting products and iconic brands. With that, let me hand it over to Andre to provide more details on our financial results and to discuss our 2025 outlook. Thank you, Carlos. In the second quarter, organic net sales declined 2% for total Kraft Heinz, with price up 0.7 percentage points and volume mix down 2.7 percentage points. In North America, organic net sales declined 3.2%, with growth in our Canada business offset by lower sales in the U.S. It includes a benefit of 120 basis points driven by the timing of Easter. In our international developed markets, organic net sales declined 2.2%. This was largely driven by sales declines in the U.K., primarily driven from pressure in the ambient meals category. In emerging markets, organic net sales were up 7.6%.
Results were driven by both price and volume growth, with double-digit growth in Latin America and Middle East and Africa regions. Turning to the next slide, total Kraft Heinz adjusted operating income declined 7.5%, and our adjusted operating income margin decreased 120 basis points. In North America, adjusted operating income declined 12.5% versus the prior year. This was primarily driven by commodity inflation as well as volume declines, which more than offset productivity gains. In international developed markets, adjusted operating income increased 8.2%, and adjusted operating income margin expanded by 100 basis points, mainly due to a combination of effects, productivity savings, and disciplined fixed cost management. In emerging markets, adjusted operating income increased 52.3%. Adjusted operating income margin expanded by 440 basis points. This growth and margin expansion was driven by improvements in Brazil, a mixed benefit as Heinz growth accelerated, and productivity savings.
As we navigate the current consumer landscape and macroeconomic conditions, our focus remains on delivering value to our consumers. Funded by unlocking efficiencies and optimizing our marketing spend, we are investing in price and supporting our brands. Consistent with our previous expectations, we are increasing our investment in price in 2025. These investments are focused on reestablishing optimal price gaps, increasing trial across renovated products, including Lunchables and Kraft Mac & Cheese. Driving distribution gains in away-from-home, including through our Heinz Verified loyalty program. Investing in strategic areas to drive momentum. This includes Orida, where we see solid traction through our national programming, growing the average number of items carried across 30 customers. In addition to increasing our investments in price, we are also increasing investments in marketing, product, R&D, e-commerce, and our sales force in emerging markets.
We expect marketing as a percentage of sales to be at least 4.8%. We anticipate media spend to increase at least 20%. This incremental spend will be heavily concentrated in North America in the second half of the year. We are also targeting a double-digit increase in returns on that spend by optimizing our media mix and brand allocation. We expect these investments will drive a gradual long-term improvement in our top-line trends. Our productivity savings are not only enabling us to make the investments I just discussed, but they are also helping us to mitigate inflationary headwinds. Year-to-date, we have generated 4.1% of gross efficiencies as a percentage of cost of goods sold. Exceeding the 3.5% goal we had for the year. This achievement marks the fourth consecutive year we are on track to exceed our long-term algorithm of 3%. A testament to our team's commitment to continuous improvement.
Our investments in technology, particularly in AI, have transformed our ways of working. From improving demand forecasting to optimizing factory floor processes, we are driving end-to-end improvement. With $2 billion in efficiencies projected through 2025, we are confident that we will achieve our goal of $2.5 billion by 2027, which will further solidify our position as a leader in operational excellence. Moving to adjusted gross profit margin, it came in a bit better than expected, declining 140 basis points in the second quarter. The decline was driven by increased commodity cost inflation, which more than offset the benefit from gross efficiencies. This was better than anticipated due to the timing of additional inflation and trade investments that were expected in the second quarter that are now expected to hit in the third quarter.
We continue to demonstrate our strong ability to generate attractive cash flow, with year-to-date free cash flow of $1.5 billion. Our year-to-date free cash flow conversion was 96%, up over 30 percentage points versus the prior year. This was primarily driven by improvements in working capital and other cash management initiatives. In terms of Adjusted EPS, we declined 11.5%, or $0.09, versus the second quarter of 2024. This was driven by negative impacts from results of operations and a higher effective tax rate, partially offset by a favorable impact from share repurchase. In the second quarter, we also recognized an approximate $9.3 billion impairment charge. This impairment was driven by a sustained decline in our share price and market capitalization. We have been able to provide consistent cash generation as well as significantly reduce our net leverage ratio, positioning ourselves to better navigate this uncertain environment.
Our healthy balance sheet and strong cash flow generation provide us with financial stability and flexibility. We continue to be excellent stewards of capital. By taking a disciplined approach to financial management, we have created optionality for capital allocation. We will maintain our competitive annual dividend, target net leverage ratio of 3x , and investment-grade status. On top of that, our priorities remain the same. We will invest in organic growth, actively manage our portfolio, and return incremental capital to our stockholders. We recently announced an agreement to sell our infant and specialty food business in Italy. This transaction is consistent with our strategy to drive profitable growth through our accelerate platforms throughout Europe, enabling us to fuel investments in core growth areas. Our balance sheet remains strong, with net leverage at our target ratio of approximately 3x . In year-to-date, we returned nearly $1.4 billion in capital to stockholders.
Of the $1.4 billion returned to stockholders, nearly $1 billion were through our competitive dividend, with a yield that exceeds 5.5%, and approximately $400 million through our share repurchase program. Currently, we have about $1.5 billion remaining against our $3 billion authorization. As a reminder, our share repurchase program is non-programmatic, a function of excess cash, and takes into consideration the macroeconomic environment. Now, turning to our full year 2025 outlook, we are reiterating our guidance for the year. We continue to expect organic net sales in the range of down 1.5% to down 3.5%. This contemplates growth in emerging markets, which is expected to reach a double-digit pace by year-end. It also reflects exiting the year with relatively flat top-line performance in global away-from-home and continued improvement in U.S. retail challenge categories. For constant currency adjusted operating income, we continue to expect a decline of 5%-10%.
This includes impact from inflation and tariffs. The wider range reflects a larger degree of uncertainty given the macroeconomic environment. It also reflects varying levels of potential returns on investments and the timing of those returns. Lastly, the range provides us with some flexibility to dial in on incremental investments as deemed appropriate. Our constant currency adjusted operating income expectations include the impact of lapping lower variable compensation in 2024, with an approximate 150 basis point headwind. It also contemplates an adjusted gross profit margin towards the lower end of down 25-75 basis points year-over-year, driven by inflation and incremental investments in price and product, partially offset by our gross efficiencies, tariff mitigation efforts, and additional pricing. We continue to expect Adjusted EPS to be in the range of $2.51-$2.67.
Our Adjusted EPS expectation contemplates an effective tax rate of approximately 26%, which is a 23% headwind on Adjusted EPS year-over-year. From a free cash flow perspective, we expect 2025 to be flat versus prior year, with free cash flow conversion of at least 95%. It is driven by working capital efficiencies and lower cash outflows for variable compensation, partially offset by the net cash impact of a higher tax rate. As discussed summary, our outlook does not reflect an impact from future potential share repurchases. Looking specifically at the third quarter, we expect year-over-year organic net sales to be in the range of down 1%-2%. This reflects an improvement in our underlying business that is offset by the approximate 100 basis point year-over-year benefit from the timing of Easter we had in the second quarter.
We expect our year-over-year adjusted gross profit margin in the third quarter to be comparable to the down 140 basis points we saw in the second quarter. As I mentioned earlier, some incremental inflation and promotions that were originally expected in the second quarter are now hitting in the third quarter. We have a significant amount of investment in SG&A in the third quarter, primarily marketing, as well as in product, R&D, e-commerce, and our sales force in emerging markets. Our full year outlook gives us flexibility to increase spending further into Q4 as we deem appropriate. This anticipated adjusted gross profit margin and year-over-year increase in SG&A lead us to an expected mid-to-high-teens decline in adjusted operating income versus the prior year in the third quarter. With that, I will pass it back to Carlos for some closing comments.
Thank you, Andrea. I am proud that we are delivering value through superior, affordable, and accessible products to our consumers. We are executing our commitments by accelerating growth in emerging markets, improving across focus brands in North America retail, and continuing to unlock efficiencies and generating cash, something we know how to do well. We are stepping up investment to drive long-term top-line growth, building on the momentum delivered on the first half of the year. Thank you for joining us and for your interest in Kraft.