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 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, 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 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 two stronger, more focused companies, 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 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% and 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 deliver meaningful cost and efficiency gains across the business, which helped to partially affect 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 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 three 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, the 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 overall 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 hotels, stadiums, and entertainment, the non-commercial channels are an attractive high-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 QSRs and restaurants. As a result, their contribution to overall Away From Home sales in North America is up 8% 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 suites of benefits that unlock growth and boost 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 a 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 Sauces, 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 four 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 everlasting 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 it is famously paired with to evoke taste memory and highlight the inseparable pairing. In Product and Package Delivery, we have invested to deliver superior quality, taste, and consumer experience. I am proud of the teams and 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 two-thirds 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 three years.
We 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 three percentage points of share gains for Heinz Mayo versus the prior year. In fact, Heinz has now claimed five of the top 10 SKUs, representing 22% of the flavor 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, giving it an 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 one percentage point of share in Europe and driven incremental volume to the category. Our zero promise does not compromise on its iconic ketchup taste. So whether you choose Zero C lassic, 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 speeds. What once took eight weeks now takes just eight hours. And we're 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 eight 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-T o- 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 five times. 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 four 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 operations from farm to table. The tool went from idea to prototype in less than three 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 more 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 dyes 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 mixed 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 point 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 mixed benefit as Heinz growth remained 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 two 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 return capital to stockholders while maintaining a strong balance sheet, significantly reducing our net leverage ratio from 4.4x in 2019 to approximately 3 x. 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 price instability. 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 mixed impact, and one-time 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 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 discipline, efficiency, and execution. We intentionally chose a path forward that prioritizes long-term sustainable growth and are continuing to make targeted brand investments enabled by a 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.