Ladies and gentlemen, thank you for standing by, and welcome to The Kraft Heinz Company first quarter results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will follow at that time. If anyone should require assistance during the conference, please press star zero. I would now like to turn the conference over to your host, Mr. Chris Jakubik, Head of Global Investor Relations for The Kraft Heinz Company. Please go ahead, sir. Thank you, and hello, everyone. This is Chris Jakubik, Head of Global Investor Relations at Kraft Heinz Company, and welcome to our Q&A session for our first quarter on business update. As you know, during our remarks today, we will make some forward-looking statements that are based on how we see things today. Actual results may differ due to risks and uncertainties, and these are discussed in our press release and our filings with the SEC. We will also discuss some non-GAAP financial measures today during the call, and these non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results. You can find the GAAP to non-GAAP reconciliations within our earnings release. Before we begin, I'm going to hand it over to our CEO, Miguel Patricio, for a few quick opening remarks. Miguel? Well, thank you, Chris. I just wanted to start our session today with a few overall thoughts. First, that we have had a very encouraging start of the year, both top line and bottom line, with our strongest growth in priority platforms and markets, especially in underdeveloped countries with a very strong result. We were able to hold household penetration gains even as markets begin to open and effectively managing inflation and supply constraints. We are also very encouraged by our progress with initiatives to accelerate our advantage in different areas, like in marketing, being more agile and more creative in retail and food service, joint business plans, in unlocking capacity in grow and energized platforms, and also on bringing efficiencies, gross efficiency gains that we continue tracking to be about $400 million in the year. That said, we feel that it's still too early to change our outlook for the full year. We still expect 2021 financials to be ahead of our strategic plan, and we are expecting mid-single digit growth in Q2 2021 versus the same period in 2019. At the same time, we should see stronger but manageable inflation beginning in Q2. Finally, we are pleased with additional financial flexibility that we are building. We continue to aggressively reduce debt, and our divestitures are on track to further increase flexibility. I will now hand it back to the operator, and we can start the Q&A. Thank you. Your first question comes from the line of Andrew Lazar with Barclays. Miguel, I know that organic sales growth guidance for 2Q is a bit better than what consensus was expecting. It does represent a notable sequential deceleration versus 2019. I'm trying to get a sense of, I assume this is primarily just, A, 1Q was quite a bit stronger than you probably thought, and maybe you're also trying to be thinking through and being prudent about what further sort of reopening and mobility means for sales trends going forward. I was hoping maybe Rafa could just comment even briefly on just how he sees the durability of the emerging market strength that we saw in the quarter. Thank you. Hi, Andrew. Thank you for the question. Keep in mind that in the second quarter, we are going to have a different mix. Food service will be stronger, for sure with opening of the market because of COVID fading, the mix will change. That is one of the reasons. The second reason also, let's remember McCafé that it was in the numbers of 2019, that is not in the numbers of 2021. That has a strong impact. I don't know if, Paulo, you want to complement that question before passing to Rafael. Miguel, I think you highlight the right point, and we are calling down versus prior year, a low single-digit growth, and the impact of McCafé is always 1.1 percentage point. It's not that dramatic of a deceleration. Although, as you're saying that we are seeing the reopening of the developed markets, and there is some mix impacts that we're going to feel in the quarter. That said, yes, first quarter was a very strong quarter, as you mentioned, in terms of net sales when compared with 2019. Rafael, please. Yes. Hi, Andrew. Thanks for the question. I mean, for us, emerging markets consumption has held up relatively well during the pandemic. I would say two key reasons. One is availability. Our customer service across international has been quite consistent during the whole pandemic. Also the focus, the second is the focus. We remain very focused on our emerging market strategy, centered around Taste Elevation platform. Combined with Localizer, the proven Go-to-Market expansion model. This has been performing quite well. There are two factors that helped us during the pandemic. You can see on the result, it added a point of share. We've been gaining share also during the last three quarters in a row. We do expect this momentum to continue as we move throughout the year. Great. Thanks very much. Your next question comes from the line of Robert Moskow with Credit Suisse. Hi. Thanks for the question. I was wondering if you look at your U.S. retail mix as maybe more exposed than some of your peers to kids going back to school. You have Kraft Mac & Cheese there, you have Kraft Singles, Oscar Mayer lunch meats, and that's a lot of, I guess, parents making lunches for their kids when they're at home. When they're going back to full-time schooling, do you think that these brands will face more than normal headwinds, or does it make up for itself somewhere along the way? Thanks. Well, first of all, thank you for the question. Listen, we feel good about controlling the controllables. If you think about the gains we have made in household penetration, those are coming from younger, more diverse families. We're seeing that those families are actually increasing their consumption across different day parts. That's happening, whether it's Mac & Cheese, whether that's Oscar Mayer hot dogs, very consistent. Even if you think about brands that typically kids use at school, like Lunchables, we're actually also seeing gains on those even over the last six months. What I will say is our focus on continuing to retain those new households, regardless of their circumstances, is working, and it will be the things that we'll continue to do move forward. Thanks. Okay, thanks. Your next question comes from the line of Bryan Spillane with Bank of America. I've got two questions related to inflation. The first one, I think the guidance is for mid-single-digit cost inflation. Just wanted to get an understanding there of, is that gross inflation or is that net of cost savings? If not, just if you can give us a breakdown between the gross inflation versus net inflation. Bryan, thanks for the question. The guidance that we provided in mid-single digit is in growth. It's a percentage of our total COGS as growth and as gross inflation. Okay. Actually, we are seeing that we would be, in our current view, more in the low end of the mid-single digit range. That's our view. When we see this happening today, as we mentioned before, we also saw, as many peers, the escalation of this inflation since our last call. When we add, as we mentioned, our cost efficiencies that we highlighted around, that we're still seeing $400 million in efficiencies in our supply chain. All the levers that we have for revenue management, we believe that the final number will be manageable for the company. Okay, thank you. Then if I could follow up, Rafa, for you, just in terms of inflation, could you just give us a little bit of perspective on what tools you have available, especially in developing markets, but also in Europe, in terms of managing inflation? Is it different, I guess, in terms of the way that you'll work through inflation in your markets than what we'll see in North America? Yes. Hi, Bryan. Yes, let me break down the two. In emerging markets, in general, acceptance of pricing is better, right? Because inflation is more normal on the local economies. In developed markets, what I can tell you is we've already successfully closed negotiations with all our key retail partners, and especially in key countries like France, Germany, and we managed to achieve the pricing and premiumization behind the brands that we needed. We feel quite confident about that. In terms of comparison, you said comparing to the U.S., there are similar and differences, right? Similar to North America, the costs have moved against us, in ingredients, in packaging, different than North America overall, logistics is not a major contributor to inflation in Canada. In terms of numbers, it's what in line with what Paulo said, comparable to mid-single-digit range for the total. Okay. Thank you. Your next question comes from the line of Rob Dickerson with Jefferies. Great. Thank you so much. Miguel, can I just add a general question kind of around your innovation plans, marketing plans, kind of vis-a-vis SKU rationalization, right? As we've heard for over a year, right? There's been a lot of optimization. The retailers kind of focus on those core SKUs, right? To just essentially maximize the benefits of velocity and scale, which you also speak to all the time. I'm just curious, as you kind of look forward around that creative development of the innovation, are there sizable pieces of the portfolio that you kind of foresee rationalizing, such that those tails come off, new innovation comes in, but still focused on the core, on those high velocity items? Thanks. Let me answer your question, and I ask Carlos to complement my thoughts. We have seen, and this is a great opportunity for us exactly to focus on SKUs with higher rotation. Also from a supply standpoint, to improve efficiencies in our factories, and also on cost. We see this move as very positive. Carlos, do you want to comment more precisely in terms of numbers of what's going on with us? Sure, Miguel. As we go into this year, we have reduced probably 20% of our SKUs versus what we had in 2019. I think this has been done through collaboration with our retail partners. We're building together a level of trust and transparency to make sure that we, in fact, focus on our core, that drive better velocity, and actually allows us to have better service with our customers. Overall, I feel good about where we are and the progress we have made in this area. Thanks. Okay, great. No problem. Thanks. Your next question comes from the line of Alexia Howard with Bernstein. Good morning, everyone. Can you hear me okay? Yes. Perfect. I wanted to ask about the promotional path from here. You talked, I think in the prepared remarks, about pulling back on promotions in January and February, during Q1. Does that mean that we're likely to see a more elevated level of promotion year-on-year, given the pullback that happened last year? What does that mean for net pricing over the next couple of quarters? Thank you, and I'll pass it on. I can start. Let me at least give you a perspective, too, first of all, about the overall view of how we're thinking about our pricing and how that fits in terms of our promotions. All I can tell you is I feel good about our ability to pass through our cost inflation as we see it and when we need to do it. We lost Carlos. Yeah. Well Let me just pick up on that. I think Carlos froze out a little bit, Alexia, so we'll wait for him to come back. I think where Carlos was going is, in terms of what we're seeing going on in the marketplace and what we see unfolding is, in Q1, we were able to sort of build further on 20 Oh, sorry. Carlos, why don't you go ahead. You froze out at the start there. Sorry. My apologies. Hopefully, you can hear me okay now. Sounds great. Listen, this is the new world that we're still working through. I appreciate the people's patience. What I was getting at is within the context of our pricing that we're looking at, do know that if you think about our quarters, seven of the last eight quarters, we actually were able to actually drive pricing as a positive contribution to our net sales. We are seeing that our iconic brands are actually showing the pricing power. When you look at going forward, we will return to supporting key promotional windows. If you think about coming up Memorial Day, we're also going to be making sure that we show up in those moments. At the same time, we will implement the revenue management initiatives to drive share growth and improve the returns. If I step back and I try to summarize kind of how we're thinking through this, the way I think of it is a three-pronged approach. One, making sure we continue to renovate our portfolio to drive better value for our consumers, that we improve the creative content of our marketing, and that we strengthen the diversifying our media impressions. All said, I feel good about our ability to deal with the inflation that we have and making sure we do this in a way that it's positive for the company. Great. Thank you very much. I'll pass it on. Your next question comes from the line of Jason English with Goldman Sachs. Hey, good morning, folks. Thank you for slotting me in. To put a finer point on Alexia's question, do you expect pricing net of everything to be positive in the U.S. in the back half of the year? Hi, Jason. Listen, as a matter of practice, we do not forecast pricing. Again, we are seeing that we're going to be up in the second half against some unusual comparisons in the back half. As Carlos mentioned, we see a lot of levers for us to manage inflation, through revenue management, through savings. We're feeling very good about how to manage our profitability that's coming from this inflation impact. Maybe to help us get a little more comfort on that, let's flip to the cost side. I know you said sort of low end of mid-singles plus $400 million of cost saves, so that nets us at a 2% net inflation, I think. You can tell me if I'm wrong on that. What does the cadence look like as we go through the year? Because I'm guessing, given the move of some of these costs, your exit rate in the back half of this year is going to be substantially above that. If I'm off base on that, please correct me. Listen, we have a ramp-up of cost inflation as the year progresses, but we also have a ramp-up of our save initiatives going on as the year progresses. On top of that, we have also our revenue management initiatives. Again, I'm not going to give exactly quarterly number levels here, but that's how you should think about the progression of our base, our cost base. Okay. Thank you. Welcome. Your next question comes from the line of Ken Goldman with JP Morgan. Hi, thank you. I'm going to start beating on the dead inflation horse here. I know we're talking about it a lot, but I just wanted to get a sense of how locked in you are on your raw materials for the rest of the year. I guess putting it another way, is it fair to assume, unless there's some big spikes in items that are harder to buy ahead, mid-single-digit inflation is fairly safe to build in? I'm just trying to think, items like cheese and meat and coffee rise a bit higher. These are items that historically Kraft has locked in many months in advance at times. Just wanted to get a sense of the risk, either up or down to the guidance of mid-single-digit inflation. Hi, Ken. This varies. Again, specifically in our big four, our key big four commodities for the full year, we are seeing just a slight inflation, okay? We are going to have our heaviest comp in Q2, that we're going to be lapping a very low price in cheese last year and a high price of pork bellies this year. Overall, in terms of the big four, we are seeing a slight inflation. In terms of how we manage and hedge this, it varies by type of area. There are some commodities that go longer, beyond six months, nine months. There are others that are shorter. This varies a lot. What I can tell is overall, when we see the scenarios, of course, there is a lot of volatility in this market. Overall, when we see where the commodities are today, the range of mid-single digit is what we're seeing. Again, as I said, we are seeing as overall, as a percent of COGS in the low end of this range. Very quick follow-up. What are your experts telling you about how valid some of these prices we're seeing for corn and soybeans and meat are, given supply and demand? I guess I'm asking, is there a little bit of froth created by traders in the market right now? Ken, I wouldn't like to enter in this type of forecast. We are more focused on to be sure that we manage our cost for different levels of price, and if we provide to our business the specific hedging profile that allow the business to plan itself. Your next question comes from the line of Laurent Grandet with Guggenheim. Yeah, thank you. Good morning, everyone, and thanks for squeezing me in. Two questions. One on Canada. Canada is definitely improving. Could you please give us a bit more color about what's going on there and how sustainable the growth and the rebound it is for the next few months and quarters? Let me answer that question. I think you're absolutely right. Canada is definitely improving. Had a very good quarter. I think that we did a much better job in terms of promotional calendar for Canada. That last year we started with big promotions and that the ROI was not exactly great, and we are being much more disciplined on our promotions, and that's what it reflects. There was a big increase in margin from 16% last year to about 22% this year. It's not only on margin that Canada is improving. I'm very satisfied with the way that we are evolving on innovation pipeline, with marketing and creativity and digital marketing. I think we are having a very different Canada than we had just a year and a half ago. Thanks. Maybe a broader question on your strategy plan. Compared to your strategy plan you laid down last year, and now we are six, eight months within the implementation of that plan. Could you maybe tell us what you think? You have been very successful in implementing, and you are ahead of what you expected, and maybe some space or some strategic initiative where you think you are still behind and why. I would say that overall, we are very excited with our transformation plan. It's deep, and it's in all areas. We are all evolving. After one year, I would say that we are going a much more accelerated rate than we could imagine. Especially in a year that we are doing all this through Zoom meetings, working from home. It surprised us, the velocity, the agility that we are having in all areas. From supply to marketing, to finance, to all areas of the company. This is a journey. Using an analogy of baseball, I would say that we finished the first inning. We are now going to the second inning, there's still a big game ahead of us to play. We are excited about the possibility and the evolution. Thank you very much. I appreciate that, man. Keep continuing on that plan. Good work. Thanks. Thank you. The next question comes from the line of Steve Powers with Deutsche Bank. Yeah. Hey, thanks. Maybe to build on that last question a bit, I think it's been a little while since we spoke in detail about employee engagement and morale at Kraft Heinz, and to some extent, also about retailer engagement. Although, Miguel, you did speak to helping improve customer satisfaction in the prepared remarks. I guess, as you step back and think about the journey over the past year and the progress made since 2019, can you update us on how you perceive your current standing against those themes today, and how that feeds into your outlook as you go forward into 2021 and beyond? Sure. I will comment on our employee engagement. I will ask Carlos to talk about customer satisfaction engagement, specifically in the U.S. We have great progress on that part as well. I would say that among all things that we have been doing, maybe employee engagement is where we have the biggest shift with our people much more engaged. When I say this is, of course, through quantitative research, but also qualitatively. Our team is much more engaged, working in a much more cooperative way. We've been eliminating silos that we had in the company, and this year of pandemic, we were already organized in a different way, and we had to be much faster in that way. I would say that the morale is much higher. We have a much more engaged team. They understand the strategy we have ahead, and they are excited about the journey that they are living. That being said, again, we still have room for improvement, and we'll continue working in that sense. Carlos, maybe you can comment on the customer side. Sure, Miguel. Thank you. I can testify to what Miguel is saying, that we are seeing that across the entire company. The level of engagement, the way that the teams are working with an agile mindset in all that we do. Related to our customers, what I can tell you is we are now in a much different place than we were a year ago. We have now been able to build trust with our key retailers. We are working in a partnership that includes a level of transparency that we hadn't seen in the past. In fact, our retailers and partners are recognizing that. I think that now, when we hear from them directly, that it feels like a new Kraft Heinz. We take that with pride because of the work and the collaborations we now are doing with them in a way that we hadn't done in the past. Something for us to continue to build on. Thanks for the question. Thank you. At this time, I would currently like to turn the call back over to Mr. Chris Jakubik. Thank you. Thanks, everybody, for joining us today. For analysts that have follow-up questions, Andy Larkin and myself will be available to take them. For the media, Michael Mullen will be available for your calls. Again, thanks everybody for joining us today, and have a great day. Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.