Welcome to The Kraft Heinz Company third quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I would now like to turn the conference over to your host, Anne- Marie Megela, Vice President of Investor Relations. Thank you. You may begin.
Thank you for joining us today. Welcome to the Q&A session for our third quarter 2026 business update. During today's call, we may make forward-looking statements regarding our expectations for the future. 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 and our most recent SEC filings for more information regarding these risks and uncertainties. Additionally, we may refer to non-GAAP financial measures. Please refer to today's earnings release and the non-GAAP information available on our website for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. I'll now pass it over to our Chief Executive Officer, Steve Cahillane, for a few opening comments.
Good morning, everyone. Before we open the call for questions, I want to take a moment to highlight this morning's announcement regarding the definitive agreement to divest our North American coffee business to One Rock. This is an important step in simplifying and strengthening our portfolio. With this transaction, we can concentrate our capital and management attention where we see the greatest potential for growth and where we can create the most value for our consumers, our customers, and our shareholders. I also want to acknowledge the people behind this business. These brands have a long and proud history with consumers, and that is a credit to the teams who have cared for them for many, many years. Thank you for your dedication.
We are confident these brands have a bright future under One Rock's focused ownership, and we are demonstrating that confidence by owning a 30% non-controlling equity stake in the business, which allows us to share in their future success. With that, I'm joined by Andre Maciel, and we're happy to take your questions. Operator, please open the line for the first question.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.
Great. Thanks so much. Good morning, everybody. Steve, I know you recently spoke a little bit a couple weeks back about maybe some weakening category trends in U.S. retail, but delivered the North America business organic as planned, even excluding the trade benefit. I am wondering how you sort of square those two and what you are expecting in 4Q regarding sequential improvement in U.S. retail, given I think the percent of revenue gain you are holding share seemed to take a little step back sequentially this quarter.
Yeah, Andrew, thanks for the question. We did deliver a better result than our original plan, and you can see that in our narrowed top-line guidance. I think what you are seeing in terms of our share trajectory and our consumption trajectory is what you would expect based on the investments that we have made. We have leveled out in terms of where we are in terms of holding share. We will acknowledge that for certain. If you think about the investments we are making, we are making those, and we are making those against the innovations that were in the pipeline from last year. There is a lot of benefit that you will see in the velocity, but there is not the same benefit that you will see in total distribution points and the like.
You will see that really start to get its next boost, if you like, in the first quarter, spring of next year with the resets. We have got very constructive dialogues going on with our retail partners. They love the fact that we are making these investments. They like what they are seeing in brands like Kraft Mac & Cheese and PowerMac and Capri Sun that are benefiting from that. They like what they are seeing in condiments. As we get into next year, you will see we will have a plan to actually grow TDPs, and you will see that next level of improvement starting next year, and that is exactly as we expected it.
Great. I am just going to get a really
Just to give
Oh, yeah. Mm-hmm. Keep going, Andre.
Sorry. Hi, there. Just to give a little more color as well. First, give credit inside North America to U.S. away from home and Canada. They both grew low single digit in the quarter again, which is great and encouraging to see that consistency. On U.S. retail, to your point, it did come a little better, despite having probably more pressure from retailer inventory than we expected. We mentioned 80 basis points less in last earnings. There was a little more impact than that, but the consumption came a little better.
The category has indeed softened the way you are expecting. So it was about, in our portfolio, mix adjusted about 50 basis points softer. But just to maybe adjust a little bit what you said, in the quarter, our percentage of revenue gaining share has improved a little bit. It went from roughly 25% in the first half to 28%.
It's not a great improvement, but still another step in the right direction. Which I think helps you offset the headwind we saw in the inventory.
I know it's too early to talk about 2027, and maybe we'll get more of that next week. But just with expected higher inflation, a higher year-over-year tax rate next year, maybe some of the incremental investment this year likely to still be a year-over-year headwind next year. I guess, are there any other key puts and takes we should consider? And maybe what sort of opportunities do you have to help mitigate some of these items, again, as we go into 2027? Thanks so much.
Yeah, I think, as we think about 2027, we'll give more guidance than we normally would at an investor meeting next week, or we'll talk more color about 2027 next week. But we are seeing more inflation. I think everybody's seeing that. Our first line of defense is always productivity, and we're stepping up that productivity. As we think about price, we want to take as little price as possible because of the consumer dynamic, but price is likely to have to be taken in 2027 for sure. As I mentioned earlier, we're very bullish about the investments that we've made and the fact that we will get better returns on those investments after the spring resets. We'll, again, talk more about that next week at our investor meeting, which I hope many of you will be able to attend.
Thanks so much.
Our next question comes from the line of Nik Modi with RBC. Please proceed with your question.
Yeah, thank you. Good morning, everyone. Steve, I was hoping you can talk about away from home. We have been hearing from some other companies, there has been some pressure from away from home, but obviously, you had a very good quarter there. I just wanted to get some more context. Is this something you think you can muscle through some of this weakness simply because you have these new partnerships and you are really leaning in? Any context on that would be helpful. I just kind of wanted to follow up on one of Andrew's questions regarding market share. You talked about better shelf resets next year, but something that we are picking up across a lot of different categories is how retailers are really kind of rethinking the aisle generally.
I am just curious if you have seen that, have had conversations with retailers around that, given how big you are as a supplier to many of your retailers. Thank you.
Yeah, thanks, Nik. In away from home, most of our, if not all of our success this last couple of quarters has been through share gains, and a lot of that is based on the partnerships that you referenced. The NFL and Disney are just really starting and proving to be quite valuable. We are taking share, we are gaining new distribution across not only ketchup, but also the other condiments. So we are feeling very good about our away from home performance. As we look to the consumer recovering in 2027, if we continue to gain share and the category itself gets a little bit of tailwind, it is a great place for us to be. So global away from home grew nicely, and North America away from home grew nicely. So we are feeling very good about that.
In terms of the North American retail and the way they are thinking about the aisles, we are involved in a lot of very constructive conversations around just that. How do you revitalize and how do you make the aisle more interesting? I would not say there is anything dramatic in the offing for 2027, but we are square at the table with those conversations. I think part of that is, we punched that ticket when we made the investment of $600 million, now $700 million, and was very bullish about, we are going to grow.
We want to be a tailwind for our retailers, not a headwind. Part of that comes through innovative thinking about how we make the aisle more dynamic, more interesting, how we bring more innovation, how we drive more traffic. So that is clearly a conversation that we are engaging up and down with our retailers.
Thank you.
Our next question comes from the line of Thomas Palmer with JPMorgan. Please proceed with your question.
Good morning. Thanks for the question. I wanted to ask on the timing item you had noted as it relates to operating profit in the quarter, the 450 basis points of help relative to your expectation from trade and marketing. What caused the timing shift? Was there anything more tactical on your end to kind of think about? Then just to clarify, you would look for this to be fully made up for in 4Q, or is there a bit of a change in trade for the year as well? Thank you.
Sure. Thanks for the question. Nothing in particular. It is just the way the programming ended up working. We have, by end of Q3, spent roughly 70% of the trade and the market investments planned for the year. Q3 year- to- date to have already accrued in the P&L 6.1% of marketing, so we are pacing that. There is no intention to change our plan whatsoever. We do have, historically, our market share peaks in Thanksgiving and Christmas, so we decided to concentrate more of the efforts to the Q4. Nothing beyond that.
Understood. Thank you.
Our next question comes from the line of Max Gumport with BNP Paribas. Please proceed with your question.
Hi. Thanks for the question. Wanted to focus on your market share performance in U.S. retail. Previously, when you announced these investment plans, you discussed how you expected to see meaningful results in the second half. You expected to see a bend in the trend even in market share. You acknowledge you are a bit behind that schedule, but you are also saying things are playing out exactly as you expected, and you now expect a meaningful step-up next spring. Can you just maybe provide a bit more color on why it does seem like market share has perhaps not really shown the progress you initially expected to see in the U.S., and then give a bit more color on why you remain confident about next year. Thanks very much.
Thanks, Max. I remind you that we've never and we won't give market share forecasts, but our top line in North America and globally is moving better than we anticipated at the start of the year. There's categories where we're doing better than we expected, and there's categories where we're acknowledging we're doing not as well as we expected. One of the not as well as expected is clearly in Philly Cream Cheese, and it's an interesting one because we're gaining share, but we're losing consumption because the category is under pressure. Some of the pricing moves that we made proved to be deflationary to the category, so they didn't work, and so we're adjusting. I'd say broadly speaking, the fact that we bent the trend and we're holding that, improving it very modestly, is a better place to be than the opposite.
We've also said all along that progress would not be linear, and so we reserve the right to continue to get smarter, to make the reinvestments, and move things around as we see what's working and what's not working. As we study our market share and we study our North American retail performance, what we've seen is we're gaining velocity and we're improving velocity against smaller shelf sets because we lost distribution last year. We had an innovation pipeline that was based on the under-investments of the years past. But we looked at that pipeline and said, "What could work for us?" We think Kraft Mac & Cheese PowerMac could work, so we leaned into that. We thought Capri Sun Hydrate could work, we leaned into that. We thought Ore-Ida and Shapes and some of those things were good, so we leaned into that.
What we're looking forward to is the investments that we've made this year and the pipeline that we've built this year for next year will prove to be more beneficial to us. Non-linear, but good progress, and we're feeling good about where we are from a top-line perspective. We're feeling good about the constructive discussions we're having with retailers about next year. That's kind of where we stand. We're feeling good about the innovation pipeline for next year. If you look at one example of what's happening in Canada, we introduced KD Ramen, and it literally, we sold three months of inventory in a week. Great innovation, we're going to bring that to North America next year.
We'll continue to hold ourselves accountable for market share and for consumption growth. We're feeling okay about where we are right now, and we're feeling better about what we're building for next year.
Thanks very much. I appreciate all the detail.
Our next question comes from the line of Peter Galbo with Bank of America. Please proceed with your question.
Hey, good morning. Thanks for taking the question. Andre, I know you mentioned that inflation maybe could still be higher into 2027. I think last call you had provided some early thoughts on, I think, 4%-5% inflation guidance for 2027. I did not see an update on that today, so I was just hoping to get some clarification there. Obviously, on some of the raw materials, we have seen some deflation, so just curious where you are falling in that band for next year. Thanks very much.
Sure. As Steve said, we are going to provide a little more color on 2027 next week, but I can tell you on inflation that we previously said in the prior call, we are expecting 4%-5% next year. The expectation is now slightly above 5%. We continue to see, on one hand, more inflation coming from packaging and from certain commodities. Soybean oil remains a good item of pressure. We are having a lot of favorability this year from dairy, and we do expect some of that to reverse into next year, which will contribute to this year-over-year pressure. That is why Steve mentioned a little while ago that even though productivity remains the first line of defense, and if you are good about the pipeline we have for next year, there will be an element of price across all regions so we can protect our gross margins.
Great. Thanks very much.
Our next question comes from the line of Leah Jordan with Goldman Sachs. Please proceed with your question.
Great. Thank you for taking my question. I just wanted to follow up on the margin discussion. I know there's been a few questions this morning, but you've previously suggested this year should be a trough in margins, and your investments continue to play out, some working, some not. You called out a little bit higher input cost inflation. Just wanting to get an update on your confidence in that view, the high-level puts and takes we should keep in mind around the stability, or what would you call out as the biggest tailwind? Is it productivity at this point, or just kind of help clarifying that point? Thank you.
What we have said is the level of investment that we have deployed in the P&L this year, $700 million, we believe to be sufficient to turn around the business and deliver sustainable volume net growth, and that's still the case. We are investing, we will invest in the P&L $700 million, and next year, that's expected to remain the same level. So there will be no margin decline driven by more investments required, so that's important. Now, with the elevated levels of inflation and inflation raising throughout the year, just to put the perspective, this year, our level of inflation is expected to be slightly more than 4%, but in Q4 is around 6%. Which prompting us the need to price across the regions.
Normally, when you see rising inflation, the pricing obviously comes with a lag, and that lag puts temporary pressure on margins. So, we do expect to see this type of dynamic affecting us, but that is just temporary as price flows through the P&L. So again, we are going to talk more about 2027 next week, but I want you to understand these dynamics.
Great. Thank you.
Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.
Thank you. Good morning. You are obviously increasing the spending quite significantly this year, but you are also improving the ROI and ROAS. Can you maybe point to what is helping boost some of that effectiveness and efficiency? Is there more upside? Is it specific to certain brands or categories that could be transferred more broadly across the portfolio or from one geography to another? What is kind of driving that lift, and is there more headroom to it?
Yeah, Michael, thanks for the question. I'd say, before I arrived, the company was making good progress in building capability around the efficiency of marketing spend. The investments that we're making are not just in advertising, promotion, price, they're also in capability and people. We continue to build on that capability. Technology continues to move forward rapidly in terms of our ability to understand in real time what we're getting returns for and what we're not. I see continued upside in that. The level of spending that we have, as Andre said, we feel is very sufficient. Getting a better return on that in 2027 versus what we got in 2026 is, in fact, very realistic and something we're demanding of ourselves.
We feel good about the level of investment. We feel very good about the capability that we're building and our ability to get continued improvement in returns based on those investments.
Yeah, and more practically, if you look on trade investments, we have very good visibility invested in capability in RGM for many years now. There continue to have opportunities for us to improve certain promotional tactics, sometimes moving dollars across brands. On the marketing front, there is opportunity to redeploy dollars across brands to a certain extent and also improve the amount allocated to different media types. We're going to speak a little bit about that next week as well. You'll hear more, but we feel confident about the ability to continue to improve a lot of the returns on those investments.
Okay, great. Thanks so much.
Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.
Great. Thank you. Wanted to ask you about the investments this year. How much of that $700 million has been spent so far, and do you think you're going to hit that number in calendar 2026?
Yeah. Good morning. As I said a few minutes ago, we have spent around 70% of the price investments for the year and about the same for marketing investments. We have, at this point, hired 80% of the people that we have planned, and we expect to, by the end of the year, pretty much be hiring everyone that was previously anticipated. We will spend the $700 million this year, as you have said before. There will be, and we're going to put more money in marketing because we are not spending the whole money behind people, right, because of the natural ramp-up. Next year, there will be a little bit of carryover of people, but we are redeploying resources across the different levers, and they do have a number of efficiencies on the SG&A front, further leveraging our shared services, further leveraging automation.
Any ramp-up of people will be fully offset. But again, we are spending $700 million in the P&L this year.
Great. Thank you for that clarification. I wanted just to ask, and you've talked a bit about some of the things that you're learning, but if you had to sort of list the biggest things that you might do differently with the money that you're spending next year, first of all, do you envision it being similar in amount to this year, but maybe just spent better? Why would it be better? I guess there's going to be maybe some retailer resets, maybe the quality of the innovation, maybe some things you're learning on the promotion activity ROI, any sort of proportions of why the ROI might be better. Thank you.
Yeah, I'd say the ROI will be better simply because we're learning, right? We're learning about this incremental investment, what's working, what's not working. The most obvious example that we pointed out is the pricing on Philly Cream Cheese, which worked in brick but didn't work on tub. Why is that? We explore why that is, and we learn from it, and we reallocate that investment towards higher-returning areas. A lot of what we're spending on Heinz ketchup, really working. What we're spending on Heinz Zero, really working. So, it's kind of as simple as that. We're learning what's working, and we're spending more against that. In terms of innovation, as I mentioned earlier, we had the innovation pipeline as it was, and so we allocated investment against where we thought there were winners, and I've mentioned some of those.
We have a different innovation pipeline coming in 2027, which we'll talk more about next week, which we feel is significantly better than 2026, still not sufficient. So we're going to get better even beyond 2027 into 2028. It's making sure that we're spending the appropriate amount of investment against R&D. We've increased our spend 20%. R&D spending and investment doesn't happen overnight, but it's building towards the future, and we feel good about getting closer to 1% of net sales as a ratio against R&D, more than 6% in sales and marketing. The investment is there. We feel the investment is sufficient, but it's a learning curve that we're on, and it's a good place to be relative to anything else. So, we feel good about 2027 and the learnings that we'll apply based on 2026 and onwards.
Thank you.
Our next question comes from the line of Rob Dickerson with U.S. Bancorp. Please proceed with your question.
Great. Thanks so much. Steve, obviously a couple comments on the call today about potential need to take some incremental price next year just to protect gross margin. I'm just curious how you're viewing, let's say, the overall marketplace, right? Because the core tenet or one of the core tenets of the strategy longer term is demand recovery, right? Volume-led growth that's profitable. Sometimes you take price, maybe it's harder to stimulate that demand, especially when the consumer is, but maybe that's less of a material event if the entire marketplace does that. Just trying to gauge or get some color as the thoughts on how that could play out.
Yeah. If you study the syndicated data for this year, you can see that we've been taking less price, and we've said that all along. The consumer's in a fragile state, and we want to take as little price as possible in order to meet the consumers where they are. When you look at what's happening in the fourth quarter of this year into next year, there's clearly more inflation. That's disappointing, but it's real. A lot of that is logistics. It's fuel-driven, some commodities, but it's real. Everybody's seeing COGS inflation, and I do think you'll see more pricing in 2027, not less pricing. As Andre already mentioned, and we say over and over, our first line of defense is against productivity, and we'll continue to ramp up our efforts against productivity, but I do feel like 2027 will require price.
You're seeing that from the peer set clearly, and I think that's just the environment that we're going to be in. It will be, we'll be in it with everybody, so it won't be a competitive advantage or disadvantage. It'll just be the situation that we have to face.
Right. Fair enough. Then maybe just one quick Hello?
Go ahead.
Oh, sorry. Just a quick question on the meats business. That's clearly been a little bit of a drag for you for some time. Obviously, announced the divestment or I guess partial divestment of coffee this morning. Just curious, is the meats business, I guess broader question is that fixable? Is the category itself a little disadvantage, or is this an area where maybe you would consider looking more in the justifiable reasons of keeping it, like you've done with part of cheese and nuts and coffee? That's all. Thank you.
Yeah. We'll continue to look for opportunities to make our portfolio a more growth-oriented portfolio. You saw that today with the announcement around coffee. We feel very good about that. In terms of the meats business, Oscar Mayer, I would start with the strength of the brand. It is a phenomenal brand. So yes, it is fixable. There's areas where we've had some own goals, which we're fixing. It's improving quite a lot. So it stopped getting as bad, but that's clearly not sufficient. So there's still work to be done. We haven't innovated around the Oscar Mayer portfolio in ways that you'd expect. We haven't addressed some of the concerns around the processed nature of it. So there's a lot of things that we can do and we need to do around the Oscar business.
But more broadly, I'd say we'll continue to look for areas where we can make portfolio improvements.
Super. Thanks, Steve.
Operator, we have time for one more question.
Thank you. Our final question comes from the line of Scott Marks with Jefferies. Please proceed with your question.
Hey. Good morning. Thanks for squeezing us in here. Wanted to just come back to the cream cheese category in Philadelphia. Obviously part of the Win Big bucket. You talked about some of the price investments not working, maybe redeploying some of that. Just wondering if you can share a little bit about how you're thinking. Is that investment being redeployed to other parts of the business where you're seeing more traction? Are you putting it back into other areas of the Philadelphia business? Just any thinking or update around how you're thinking strategically about driving improvements forward for that brand and that category. Thanks.
Yeah. It's all fungible, obviously. When we look at Philly, the pricing investment didn't work, but we just launched lactose-free cream cheese, so we're building distribution there. I'd say what Philly needs from a category perspective is more innovation, because it's very clear where we're losing as a category. We're losing to cottage cheese and other more protein-forward. So, we need to do more innovation around what the consumer's looking for vis-a-vis protein, vis-a-vis flavors, vis-a-vis overall innovation. You'll see, and we'll talk more about that in the future in terms of what that brand can do and what the category can do. The brand itself is an incredibly strong brand, so there's nothing wrong with the brand.
It's just the category's under some pressure relative to switching out of cream cheese into cottage cheese and others, and that's very addressable, but it's going to take just a little bit of time.
Appreciate it. Thanks.
Thank you. We have reached the end of the question and answer session, and with that, the conclusion of today's call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.