Perfect. All righty, if we could all find our seats, we'll kick off our next fireside chat here. Welcome back, everybody. For our next session, thrilled to welcome back The Kraft Heinz Company. And with us today are CEO Steve Cahillane and Executive Vice President and Global CFO Andre Maciel. Thank you both for joining us, and welcome back.
Thanks for having us. Good to be here.
Sure. All right. Maybe to start off, Steve, when you took over, one of the recurring perceptions we'd hear from investors was that KHC had under-invested behind its brands for a long period of time. Six months into what you've explicitly called a reinvestment year, what evidence gives you confidence that the trajectory of the business is actually changing?
Yeah. So a couple of things, Andrew. First, the brands have been under-invested. That's demonstrably true, it's measurably true. We hadn't invested what we needed to invest to keep the brands alive, relevant, and contemporary. We announced, as you know, at the end of January or so, that we would reinvest $600 million into exactly that, into capabilities, marketing, into really our brands. Then, as you also know, when our last earnings happened, we were encouraged by the progress, so we upped that to $700 million. And the reason we did that is exactly the answer to your question. We've seen some early signs of trajectories changing. We ended last year with 21%, only 21% of our business holding or gaining share. And at the end of last quarter, and really up until today, that's now 35%. Is that good enough?
No, it is not good enough, but it is much better than 21%-35%. If you look beyond that or inside that and look at condiments, for example. Condiments is an area where we started to invest last year before I joined, recognizing that the brands could use some additional investment, and we have continued that into this year. We have seen a real trajectory change in North America in condiments. Last year, consumption actually on the Heinz brand declined by 3%, and that should not happen with a brand like Heinz. This year, consumption is now up 3% and gaining share. We are seeing that happen. We are also seeing in hydration and desserts the same type of trajectory changes. Equally, this is again less bad news, but if you look at the totality of our portfolio, 90% has a better trend today than it did in 2025.
That might mean it went from losing 200 basis points to losing 100 basis points, so still not good enough, but 90% has changed trajectory.
I think that is good evidence that what we are doing is working, and we will continue to get smarter and work against that. Equally, you look at areas like Away From Home.
Away From Home was another challenging area for us last year, and this year we are now back to 3% growth globally and Away From Home, and even a little bit better than that in the U.S. We have seen good progress there. Finally, in Emerging Markets, which should always be a good story for us, it is a great story for us this year. So growing high single digits, and gaining share in every emerging market country that we compete in, say for Indonesia, where we had some distributor challenges last year. So good evidence across the board that what we are doing is working, but not good enough yet. We remain hungry. We know we have a lot of work to do. But I think the evidence is there that the brands and geographies and the people respond with the right level of investment.
Great. Given the over-delivery in the first half of the year, the company has the flexibility to now invest an incremental $100 million this year, so a total of $700 million, while still delivering on the initial EPS outlook. Understanding that this year is clearly, again, a stated reinvestment year, what do you think this implies for 2027?
Well, it's too early to talk about 2027, obviously. When we say that we're investing to win in the marketplace, let me be clear. When we say win, we mean growing consumption and growing market share. That's the path that we're on, investing to win. We've got an Investor Day, which you know, coming up in November, and we're working hard to continue to build plans for 2027 and hope to be in a position to provide even more insight into what 2027 and beyond will look like. Winning for us does mean growing consumption and growing share.
Yeah. Okay. The $700 million of spend this year is across consumer marketing, R&D, sales and marketing hires, as well as some price investments and promotional investments. As you've leaned into some of these investments, I guess where have you seen the strongest response from consumers and retailers? Have competitors reacted in any meaningful way?
We've seen great response from our customers.
And so let me start there. I've had a number of conversations, really constructive conversations, where retailers are very pleased that we're leaning into this. We're in 50 categories. We matter a lot to them. I've said to one or two of them, "Look, we know that you can win without us, but we want to be helpful in your winning." The response I usually get is, "Well, actually, it's hard to win without you guys. You're big, you're in every category, and you could provide growth for us." So when we made the announcement of $600 million and then $700 million, that was met very favorably because it shows an intentionality around what we're trying to do and what we aim to do. That's in complete overlap with their strategy and what they want to do. So that's been very positive.
As I already mentioned in some of the big brands, investing behind brands that really have resonance, saliency, and equity has proven that they can turn around fairly quickly. Internationally, I already mentioned Emerging Markets, but even in International Developed Markets, we're seeing a much better performance and a trajectory turn versus where we were last year. So, again, continue to be encouraged by the decisions that we made. Absolutely convinced they were the right decisions, but with still more work to do.
Got it. Yep. In the key North America segment, in putting aside some of the timing puts and takes on organic sales, the expectation is that underlying consumption and share trends for U.S. retail, specifically, continue to improve sequentially. What do we need to see in the back half of this year to give you confidence that you can sustainably grow in North America?
Yeah, I think seeing incrementally improved performance category by category. As I've already mentioned, we've seen it in condiments, hydration, desserts. We need to see it in the rest of the portfolio. In fact, if you look at the share losses that we've had this year through the first half of the year, 60% of them are in Oscar Mayer alone. We've got an issue in Oscar Mayer. We have to fix that. We have new packaging for Deli Fresh, where the vast majority of the problem was. We had a resealability issue. We did not do the job for the consumer and the retailer that we needed to do. We fixed that. All that product is now in distribution. We started shipping the beginning of August. The declines have lessened, which is, again, you have to get to not as bad before you get to good.
We're kind of on that journey. If I look at sales per point of distribution, because when Deli Fresh had those big problems in the last year, we lost a lot of distribution, understandably. We need to earn that back. But when we look at sales per point of distribution, it's actually now growing. That's showing that where it's still in store with the same shopper coming in, we've earned the right to at least get retrial. Now we have to build on that. We have to tell that story and continue to build distribution. So I'd say you should look at market share, what we've talked about, and see in North America, are we making the types of improvements that we've talked about, and that's what we aim to do.
Right. On the second quarter earnings call in early August, it sounded as though sequential share improvement continued through July. As you've moved further into the third quarter, what are you seeing both from category demand and from Kraft Heinz's relative performance within some key categories?
I think I said at the beginning of the year, and I'll underscore here, a turnaround like this, the path is never quite linear, because there's the things that are in our control, things that are not in our control. I'd say the consumer in the U.S. and around the world still, despite some competing headlines about great jobs growth and other things, is still under pressure.
Sure.
We're seeing the industry not quite improving in terms of volume performance that we'd like to see. We continue to see incremental improvements in our own market share. It's interesting, Labor Day just happened, so we'll see what happens on Labor Day, and we're getting into the holiday season, where we're quite excited about that. A lot of what we're doing activation wise is really only starting. If I just touch on one, the NFL, r ight? We've got an exciting new NFL partnership, which is a really big deal. NFL season kicks off tonight, so it's just beginning.
Had my fantasy football draft just last night.
Excellent. I wish you—
Feeling good.
—I wish you well. I don't do that because I know I would like it and waste a lot of time on it. The NFL is really, if you look at the top 100 TV shows every year in the U.S., like 98% of them are NFL games. It's just a great partnership. It speaks to our portfolio in terms of activation, [Wednesday] Night Football, Saturday, Sunday. It's kind of round the clock for the next many months, and it's a great way to bring families together over meals and our condiments and Kraft Mac & Cheese and others play a vital role. It's not just about that, it's about how you activate in store. I was just looking at the last four-week read, and our displays are up 150% versus same time last year.
I attribute a lot of that to the activation on the NFL partnership. So, a lot to look forward to still in the back half of the year with a lot of this investment—
Great.
—just being deployed.
Global Away From Home is now back to growth, as you mentioned, with an expectation that this trend can continue. Specific to the U.S. Away From Home segment, what's driven this outcome, particularly in light of what is still sort of QSR traffic that's still hovering around, call it flattish?
Yeah. So we've had some good customer wins. We've had some good wins outside of tomato ketchup as well. We've had some good wins in mayonnaise. We're growing share in both tomato ketchup and in mayonnaise in U.S. Away From Home, which we're pleased about. That's been good. Our up and down the street business, we really want to own the caddy. We lead with Heinz. Heinz Tomato Ketchup is the best front of house brand, I believe, and I believed this before I joined the company. A quality restaurant wants to put Heinz ketchup if they're going to have a front of the house offering. We need to leverage that to do more around the rest of our condiments to really own the caddy up and down the street as well, which is an initiative that we've had in place.
We have something called Heinz Verified, which is part of the program to really drive exactly that, and that's shown some good early traction.
Great. Emerging Markets have been, as you mentioned, a bright spot for the business. Now that you're lapping the distribution change in Indonesia, the growth is really starting to show through more fully. Where are you in your sort of emerging market journey and what gives you that confidence that this can be nicely accretive to overall growth for an enduring amount of time?
I think we're in the very early innings of Emerging Markets, and I think it's a tremendous growth opportunity for us. I'll give you some examples. I was just down in Brazil two weeks ago, which is one of our largest emerging markets. They're doing some really exciting things and growing very well. They launched Heinz Zero just the beginning of this year. Heinz Zero's numbers are fantastic. I don't think I've ever seen an 80% incrementality in too many markets, but that's what Heinz Zero is in Brazil, 80% incremental. We've had lots of successes there. Just looking at the Heinz brand, which is 50% of our International Emerging Markets business, it's such an incredible brand. Just two stats that I learned that blew my mind.
As you know, I spent a number of years with Coca-Cola, a great company, a great brand, undoubtedly. Coke's worldwide awareness is 94%. Heinz is 96%.
Their household penetration is 50%, ours is 20%. There's a lot of room to drive distribution and household penetration on Heinz Tomato Ketchup. We are growing distribution in the first half of this year, but at a 5% rate. It is quality distribution, so it is not putting it everywhere. It is determining the right accounts in the right geographies, having the right capability, and driving that distribution, which will drive household penetration. I think as I look at emerging markets, I see years and years of what should be high single digit, low double digit growth for us. I think that is going to be a growth driver. As it gets bigger, it will become even more meaningful just from a mathematics perspective. It is exciting for us.
You have previously stated that all of the $700 million in incremental spend would be in the base in 2026 as we think forward to 2027. I think there are some aspects, though, like cost associated with adding some of the additional talent as this year progresses, that will flow into next year. What are some of the potential offsets to that as we think forward to 2027?
Big offsets are in other areas of SG&A that are not sales and marketing- related. Think about shared services, captive shared service centers, the whole advent of AI and all that we are doing, exploring what that can give us. As we add incremental headcount, which is the $700 million we have said is in our base, it is really easy to understand that when we are talking about marketing spend and pricing and activation. Less clear when you are talking about adding headcount, because you add headcount in the back half of the year, that becomes the wraparound that you are talking about. We will look to offsets in other areas of SG&A, not in cutting the $700 million, which is in our base and part of our commitment to turn around the business, but other areas where we can drive efficiencies.
Got it. You recently discussed your expectation for 4%-5% inflation as we look forward to next year, and the desire to offset as much of that as possible through productivity. Historically, how successful has Kraft Heinz been in doing that? Does the evolving cost outlook really change your confidence that 2026 ultimately will prove to be the margin trough, as you've suggested?
We're going to get Andre in at some point, right?
Yeah. Now is the time.
Look, for us, as Steve said, it's critical, and our North Star is all about maintaining the top line growth and sustainable volume [audio distortion]. We also understand that it's as important for us also at some point to start to grow earnings again. For us, if you think about the value creation of earnings will not only come from-
Can everybody hear Andre, by the way? I want to make sure.
No?
Yeah. Let's make sure that green light's on. Maybe it's a little flip the switch there. Hold on one sec. Here's an important question, so we want to make sure we get to that.
Okay.
Yep.
There we go.
There you go.
Can you hear me now?
Yep, you're good.
Yeah, it was off.
Great. Thank you.
So—
Sorry to interrupt you.
—Yeah. Okay. Maybe I'll start again. For us, as Steve said, our North Star is clearly drive top-line volume-led growth. But for us, it's as important as well is to also grow earnings. The equation of growing earnings will be led by top line, but also involves gross margin expansion.
Over the years, we have been successful in expanding gross margin. Our gross margin is still higher than pre-pandemic levels, despite all the investments we have done in the business last year and this year. There is a path for that to continue to happen moving forward. Productivity has been the main driver for that. We have now for five years delivered north of 3.5% of COGS. In fact, the last three years, more than 4% of COGS. There is always some element of pricing there, but the more you can do with productivity to drive that gross margin expansion, the more we are doing. We have just concluded an extensive exercise to see how we can further step up productivity to 4.5% or so. I think there are a lot of opportunities still ahead of us on the productivity front.
Price, if required to be, we try to do as minimal as possible. But again, we understand that we need to deliver the top line growth with gross margin expansion over time as well.
Okay. Great. Do you believe KHC has other levers, it's kind of what you just touched on a little bit, if need be, to help bridge any gap between cost and productivity next year, whether it be pricing or others? As some other food companies have been fairly explicit in their need for some pricing as we move forward. Obviously, you've been making some price investments as part of the $700 million of reinvestment. So there's some tension there, obviously, between those two, given the rising cost environment.
Aside from productivity, again, which is the number one, and price in selected places, maybe price becomes like the optionality for us. If you see the whole market moving, because in some categories there will be significant inflation pressure, we will just go along.
Again, we are trying to prioritize on the productivity front. Now, mix is another important driver. As the business continued to grow more through sauces, Philadelphia Cream Cheese, Kraft Mac & Cheese, those businesses have all, pretty much everything that sits in the win big part of our portfolio role, those have much higher gross margins, so there is always a mixed component that contributes as well.
Okay. There still seems to be this narrative, I think among some investors, that some of the company's legacy brands and large categories, as well as some other food companies as well, are simply less relevant to consumers these days, almost no matter what is done to shift the product and the messaging. I guess, what have you seen thus far that would help sort of maybe debunk this sort of thinking?
Yeah, I would personally push back very hard on that type of narrative. There are certainly brands that become irrelevant, but in my experience, those brands become irrelevant because they've been not managed in the way that they need to be managed. There's certain nostalgia that exists with brands, and I joke with people sometimes, nostalgia might help you sell the T-shirt, but it won't get you into the pantry and the type of experience that you're trying to drive. To do that, you have to drive relevance for the next generation of consumers. I already mentioned Heinz, but Heinz Zero in Brazil is a great example of that. But Heinz Simply in many countries around the world, and Heinz Organic are great examples of that. Maintaining your relevance because you're investing in what consumers want will keep brands alive and keep them vibrant.
Another great example in our portfolio that I've told some people about is what's happened with Capri Sun. Capri Sun is a really interesting brand. It's a great brand, but for many years, once a child turned 11 or 12, they were out of the Capri Sun franchise because it's just not cool to have that pouch that you had when you were eight years old and poke a little straw in it and relive your glory days when you were eight and nine on the soccer pitch when you're 12 and 13. But consumers, that young consumer, still loved the brand, and moms and dads who were doing the shopping still loved the brand. So the team innovated around a very simple resealable plastic bottle, which did a couple of things.
It made it cool again to have the brand that people loved into their tween years, and it opened up all sorts of distribution in C stores, tens of thousands of new distribution points. The brand is growing nicely on the back of that. We've just innovated, most recently this year, with Capri Sun Hydrate. Think about electrolytes and a new innovation that's not new to the world, but new to Capri Sun, that makes it more of like a junior-level sports drink. Doing very well. You could make the argument that Capri Sun was one of those brands that had seen its best days.
But if you really keep the consumer insight at the heart of everything, you build the right innovation platform around it, and you invest in the brands, and you believe in them, and you have the conviction, 20 years from now, the world is not going to be littered with just a handful of little brands and private label everywhere. That's just not going to happen. But it doesn't guarantee that a lot of the brands that are here talking over the course of these next couple of days are going to be around.
There's absolutely no guarantee because you have nostalgia and salience that you're going to remain relevant. You have to turn that salience into relevance through innovation and other consumer connections that make you relevant to the next generation. I firmly believe that. I think the history has shown that. It may be more difficult than it's been in the past, I would acknowledge that, but the same type of things, the fundamentals that drive people wanting to really try your product, desire your product, and winning at the point of sale, and delighting them when they take it home through absolute product superiority and performance remain the most key elements of what it takes to keep a brand alive generation to generation.
I guess regarding cash flow on the balance sheet, there's been maybe building concern around balance sheet flexibility and capital allocation, sort of optionality in the broader packaged food space of late. Can you update us on where KHC is at this stage on cash generation, dividend policy, and sort of capital allocation priorities?
Sure. Look, our cash flow generation continues to be very strong. There's a lot of effort we have put into it in the past, especially in the past three years. We adjusted the incentive structure for the whole organization as part of their short-term and long-term incentive linked to cash flow. We have invested a lot in technology in the past years to continue to unlock working capital efficiencies. We have done a good job there. There's still more to do, especially on the inventory front, and we feel confident about the path there. We have taken advantage of the excess cash and been able, despite investing $700 million in the business, continue to generate that solid free cash flow after dividends, which has allowed us as well to continue to pay down debt.
We paid this year $2.9 billion of debt, including $1 billion debt maturing, was maturing next year. We're able to refinance part of our expensive debt maturities that were in the future to cheaper debt, like with $1 billion of refinancing, that save us $250 million interest expense over 10 years. There is a lot of activities that we continue to do that really put us in a different spot compared to a lot of other, especially center-of-store companies, in terms of having a robust cash flow generation, being able to comfortably protect a strong dividend that we provide, and I think the ability to maintain so.
Great. You have talked about emphasizing fewer bigger bets. Where are the bigger bets being placed, and what kind of discipline and information have you built around your internal processes to make sure that where you are making those investments is the right place?
We look at the returns for all our investments vigorously and doing that before I arrived. I think we have the internal capability to really understand returns against investment very well. Critically important when you invest in an incremental $700 million, because that money will be fungible. We will measure where it is working, where it is working very well, and where it is not working so well. We will not be cutting the $700 million. Where it is not working well, we will reinvest in areas with a higher ROIC. That is an important discipline that we will continue to build and bring forward. In terms of the biggest bets, you should see us continue around our biggest brands. I have mentioned a number of times Heinz and the Heinz innovations, but Heinz outside of tomato ketchup as well.
Heinz, we know, plays in sauces very well and even beyond sauces. Heinz Mayonnaise is a big opportunity around the world. Heinz Pasta Sauce has shown that it is a good opportunity around the world. Heinz Beanz in the U.K., obviously for generations, very successful. Innovating and expanding around Heinz and what Heinz can be will be really important. Philadelphia is another great brand for us. Ultimately, we can get out of cream cheese and into other kind of cheeses. Our initial innovation this year is lactose- free Philadelphia Cream Cheese. There is a huge lactose -intolerant population in the U.S. that we were not addressing, and we are addressing that now. That is out now. I mentioned Capri Sun, big innovations around that. Oscar Mayer, where we need to get it fixed and get it right. There is a whole protein movement out there.
We have got a lot of protein-forward opportunities in our portfolio. Convenience and affordability are two other areas where we will be investing very heavily because nutrition, convenience, and affordability are important elements. Think about our big brands. Kraft Mac & Cheese, another one. A fairly straightforward innovation. Kraft PowerMac & Cheese, out earlier this year. 17 g of protein, 6 g of fiber. Affordable. More affordable than some of its competitors. Off to a great start. Got really 100% distribution where we pitched it because retailers saw the value in the brand. We own Kraft Mac & Cheese. Mac & Cheese and Kraft go together and doing that Kraft in Canada and Kraft Dinner Ramen, big opportunities there. Think about our big brands and areas where they are not in where they can comfortably travel with the right level of innovation and investment behind it.
I know a year ago there were a number of brands that were, as you mentioned, losing share simultaneously. I guess as you sit here today, how much smaller is that list? And is the challenge increasingly concentrated in really just a handful of businesses rather than maybe what was more broad-based across the portfolio at one point?
That list is much smaller than it was this time last year. I already mentioned last year we were even losing share of Heinz ketchup, and that's clearly something that shouldn't be, and we've fixed that and are in the right direction. I'll get back to the U.S., but if I look outside the United States, our International Developed Markets are back to consumption and share performance, which is really good. I already mentioned our Emerging Markets a number of times. Canada has proved a terrific performer over a number of years and are having another good year this year, growing consumption and share on the back of the right level of investments behind big brands like Heinz and Kraft.
Then you zero in on the United States and say, "Okay, so how is the U.S. doing?" I already mentioned Oscar Mayer being 60% of the issue that we have, and we have a path towards fixing that, and we need to get that fixed. Then we look at frozen, and we've got some opportunities to do better and fix our frozen business. The list is much shorter. While we do that, we'll also be investing in the big brands. But the other interesting thing in our portfolio that we have to remind ourselves of, and we have, and we're putting capabilities in some of the headcount we're investing, is in some of these small gems that we have. You think about Lea & Perrins, and think about A.1. Sauce. You think about Grey Poupon.
These are little gems of brands that with the right level of investment are doing very, very well. The list of brands that are doing well, we want to make that bigger and bigger. We've isolated the areas of subpar performance to areas that need to get fixed. Encouragingly, we more and more have the right insights into why the brands are declining, what the issues are. I already talked about Oscar Mayer and resealability to being in Deli Fresh. Part of fixing a problem is acknowledging it, number one, and then number two, understanding it very well so that you can put together a robust plan to make the turnaround. I think that's the path that we're on right now.
Yep. Oscar Mayer and meals have been areas of greater pressure, as you've talked about. Whether it's resealable packaging in Deli Fresh or innovation like PowerMac. I guess, what have you learned about how much renovation can sort of move the needle versus situations where maybe more fundamental changes are required?
I think renovation in this day and age is incredibly important, right? You look at where the consumer's going, and the consumer is increasingly going towards better for you, whether that be protein, fiber, and that type of thing. They want cleaner label. There's no question about that. They still want affordability. That really requires renovation and looking at your portfolio and saying, "Okay, without making consumer compromise, how can I have a cleaner label? How can I have less of what the consumer doesn't want and more of what the consumer wants?" A brand like Oscar has the right to go there. Making Oscar less perceivably processed is not going to hurt the brand. It's going to help the brand. Renovation is incredibly important, probably more important in this era right now than it ever has been.
Because what used to be a little bit more talk on the East Coast and the West Coast is becoming more of a national and international dialogue around, I want to understand what's on my label. I want a clean label. I do want to eat better. Oftentimes that requires renovation, and we've been on that path to renovation. One example, we said by the end of 2027 we'd remove all FD&C artificial colors, and we're on our path to doing that. It's the right thing to do. It's also what the consumer wants. The consumer wants a cleaner label, and renovation is a way to get there.
Maybe as we wrap up, Steve, if there's one thing that investors should remember and I guess hold Kraft Heinz accountable for to judge success over the next year, what would that be?
I think it would be more than one thing.
High on the list would be our market share performance. There's a reason we've been very vocal about that. We're holding ourselves accountable to growing in the right way. So growing volume-led market share, being a good steward of our categories, but making sure that we can grow faster than the category is very important. You've written about this. If we just held share in the weighted global business that we have, we'd be back to growth. That's really important. Andre talked about productivity. Getting 4% of COGS productivity year in and year out is equally important. Making sure that our innovation pipeline is robust and that we're doing enough to gain distribution and grow our distribution over time.
Our Emerging Markets business growing at high single to low double digits over a long period of time and making sure that we manage the volatility in Emerging Markets will equally be important. Then finally, our International Developed Markets remaining stable and a share grower over time. You put all those things together and think about those four or five simple metrics, you'll have a really good understanding of the trajectory that we're on, the progress that we're making towards the promised turnaround that we've told our shareowners that we're on the journey and committed to doing.
Good. All right. I think this is a really good point. We'll break here. We'll head it to the breakout. Please join me in thanking Steve and Andre for being here.
Thank you.
All right.