Good day, and thank you for standing by. Welcome to The Kraft Heinz Company Second Quarter 2021 business update call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would like to hand the conference over to your speaker today, Christopher Jakubik, Head of Investor Relations. Please go ahead. Thank you, and hello, everyone. This is Christopher Jakubik, Head of Global Investor Relations at The Kraft Heinz Company, and welcome to our Q&A session for our second quarter 2021 business update. 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. These are discussed in our earnings release and our filings with the SEC. We will also discuss some non-GAAP financial measures today during the call. 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 and the supplemental materials posted at ir.kraftheinzcompany.com. Before we begin, I'm going to hand it over to our CEO, Miguel Patricio, for a few quick opening comments. Miguel? Thank you, Chris, and thank you, everyone. I'd just like to add or summarize and tell you that we are very optimistic about how we are progressing in our transformation at Kraft Heinz. We've been taking advantage of the scale that we have, and we've been building the agility that we need to build a better business for the future. We posted sustainable top line and bottom line gains versus 2019, and we are encouraged because the strongest growth comes from priority platforms and markets, what we call the growth platforms, Taste Elevation, and in emerging markets. We continue seeing retail very strong, and we are coming back with food service. It's recovering and recovering fast. Transforming Kraft Heinz is what we all have in mind, and we want to do that, maintaining the industry-leading profitability. We are investing more in our brands, and better as well, building a much more creative company. We are also on track to deliver the $400 million of growth efficiencies in 2021 and effectively managing inflation. At the same time, we continue strengthening our portfolio and improving financial flexibility. We are adding capacity to our products to drive growth in our trade platforms and in the emerging markets. We, as you know, closed the nuts divestiture, and we expect to close the cheese divestiture in the second half of this year. Recently, we acquired Assan Foods in Turkey. It's a very small operation, but it's a very important step into our strategy because it accelerates Taste Elevation and is in the emerging markets. We continue to pay down debt and improve our net leverage. We continue to expect to have a very good 2021, actually, to deliver a stronger 2021 than we projected when we provided our initial outlook in February. That speaks to the strength and potential of our ongoing business. Thank you. We are all now waiting for your questions. Ladies and gentlemen, to ask a question, you will need to press star one on your telephone, and to withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Chris Growe from Stifel. You may begin. Hi, good morning. I just had a quick question for you, if I could please, in relation to pricing. I was just curious if you could maybe give a little more color around the price realization and how you expect it to kind of build for the second half of the year. Just as a backdrop, as I look across your categories, in some cases, Kraft's pricing is above your category, some a little below, but all in all, like the IRI data in the U.S. would say you're pricing at a little slower rate than what the categories are overall. I'm just curious if that's strategic in helping drive your share gains, or if that's just timing and there's more pricing coming in the second half of the year. Thank you. Okay. Thank you for your question. Let me start and then maybe Carlos and Paulo can give you more color on that. As I mentioned on the call, we believe that inflation in our business remains manageable. Even with inflation, we expect to deliver, as I said, a stronger 2021 than we projected before. We continue to invest in our brands at the anticipated levels to drive our transformation. We will continue to monitor things and take further action if, of course, it's necessary. Carlos, maybe you can give more color on it and maybe Paulo as well. Sure, Miguel. Thanks for the question. First, I think I would say is, in the U.S., what we have said in the past is that we are proactively managing against the incremental inflation we see. Actually, we feel good about our ability to implement those actions when and where we see the need. If you look at the inflation we saw in Q2, it's mainly coming from ingredients, things like soybeans, edible oils, packaging, and some transportation as well. It's very similar to what we saw in the first quarter. Most recently, we also saw some increases too, but driven by rising costs and some higher transportation rates. Now, from a pricing perspective, as I mentioned on the call, we are restoring key promotional activations to drive the business versus the pandemic-induced pullbacks that we had in 2020. As we had mentioned earlier in the year, our goal continues to be to connect with consumers that now have discovered or rediscovered our brands and drive the repeat rate among those households. In that context and versus inflation, again, we feel good about our ability to achieve the net pricing we need to offset inflation and maintain strong household and repeat rate, given that we are renovating our portfolio to drive better value for consumers, improving the creative content of our marketing, and strengthening and diversifying our media impressions. What I will also add is that we're doing this primarily through four key revenue management initiatives. First, we're optimizing the frequency and depth of our promotion while we restore retail activation levels that I discussed in the call. Second, we are doing broad-based pricing actions, which we have announced across our portfolio. Third, we're continuing to manage key commodity pricing. Lastly, we're using other revenue management levers, including price pack architecture and managing our category price ladders. If you look at our revenue management initiatives, they are guiding our smart trade investments so we can optimize returns on those investments and manage through the current inflationary environment. In the near term, the timing of cost inflation versus price realization may lead to some degree of margin pressure, but this is reflected in our outlook. We see net pricing and cost coming into balance as we exit the year. With that, let me pass it over to Paulo. Any other comments you want to add, Paulo? Sure, Carlos. I think if you want to frame inflation and pricing from a total company perspective, to break it down first on inflation, we're going to recall that in April, we said that we're expecting inflation in the mid-single-digit range as a% of COGS, but at the lower end of that range. Since April, our costs have continued to move higher. We're expecting inflation still in the mid-single-digit range for the full year, but now it's likely above the midpoint of the mid-single-digit range. Regarding pricing, as we are mentioning and Carlos has just said, we are using multiple revenue management levers, including list price actions to manage the inflation. I think it's important for us to keep in mind that we're going to be facing an unusually difficult pricing comparison in the second half last year. Just to remind, just for context, last year, second half, our price was more than 4% higher than the prior year as we pulled back on promotion to better protect customer service. In terms of the timing and the pricing realization, why we expect the timing of the cost inflation versus price realization to soften our margin percentage to lower than the run rate levels in the short term. I think it's important to note that all of those impacts are already considered in the outlook that we have for the year. Okay. Again, as we mentioned at the beginning, we are now expecting even stronger EBITDA dollars than we anticipated before. Thank you for the color. The next question comes from Alexia Howard from Bernstein. You may begin. Good morning, everyone. Good morning. Good morning. Yes. Thank you. Can I ask about the gross margin? I know that it doesn't really appear anywhere except in the formal numbers in the press release, but it looks as though it's down about 150 basis points year-on-year. I imagine that some of that might not be adjusted gross margin. In a situation of such intense commodity cost pressures as we're going through now, I'm just wondering how you're expecting that to shape out in the back half of the year, possibly out into 2022. Any commentary would be much appreciated. Thank you. Alexia, I can start here this answer. I think, yes, there are some adjustments to make in the gross margin. When you think about year-over-year, I think we need to remember that we're going to be lapping. We were lapping Q2, a big quarter last year with all pantry loading that happened in the quarter. Our overall margins of the business are very healthy in this Q2. I think in the second quarter, we were able to price and we had enough pricing to offset Pricing plus our efficiencies were more than enough to offset the inflation that we had. We were compared to a very heavy mix that we had in the last quarter. Great. Going forward, how do you expect it to change in the back half? Going forward, what is exactly, I think, the key components that we are going to see in the back half is that we're going to start to have, and that's already embedded in our outlook, okay? We're going to start to have the restoration of some promotions that Carlos mentioned. Also, the mixing pack that we're going to see as the year goes on. Also, this timing between pricing and pricing realization and inflation will impact our gross profit. All those impacts are already inside the outlook that we disclosed. Great. Thank you very much. I'll pass it on. Our next question comes from the line of Andrew Lazar from Barclays. You may begin. Great, good morning. Thanks for the question. I guess obviously, it's way too early to talk specifics around 2022, as we know much can still change. I wanted to go back to the slide presented at the Investor Day in September of last year. From that presentation, on the base business, so excluding divestiture impacts, it looks like EBITDA was expected to be roughly flattish in 2022 versus 2021. I guess I'm just trying to get a sense of, at this stage, would that still be the expectation, such that we just have to strip out divestitures to get a sense of it? Maybe has the inflation environment and longer tail to at-home eating benefits sort of shifted this thinking at all? Thanks so much. Let me answer, and then maybe Paulo, you can bring more precise numbers to Andrew. We are expecting 2022 to be better than the strategic plan that we presented to you. Why is that? I think our transformation is ahead of our plan. We've been beating our plans and our budgets, and we are optimistic and continue investing toward the future. It is still too early for us to be talking or to give you guidance about 2022. With all the volatility in the market, I think it's prudent not to go further on that. Andrew, just to complement here. I think as the year progresses, as Miguel mentioned, more in the later in the year, we will be providing more clarity about how we're seeing 2022. We are not discussing this today. We can say that we see inflation as a consistent theme for us and for the industry ahead of 2022 and all those initiatives and actions that we're doing in terms of revenue management initiatives to manage the inflation. We're seeing based on expectation that the inflation will continue into the next year. I think those initiatives, together with our savings program of a $2 billion savings program, will be sufficient that together with the investments that we're making to improve the relevance of our brands. Again, we are very confident around our ability to manage the inflation and support the investments behind our turnaround as we are exiting 2021 and entering 2022. Thanks, everyone. Our next question comes from the line of Bryan Spillane from Bank of America. You may begin. Hi. Thanks, operator. Good morning, everyone. I've got a question, I guess, for both Carlos and for Rafa, if you could both comment on this. In the quarter or even year to date, currently we're seeing basically all channels are up, right? I think that's been sort of one of the surprises as we've moved through 2021 is that as away from home and food service channels have improved, the at-home consumption has also stayed relatively elevated. I guess my question for both of you is just simply, how long do you expect this to continue? I guess as things normalize, would you expect the food service piece of it to really begin to accelerate more and somewhat offset the at-home consumption? Just trying to get a sense of how you're thinking about those two channels, especially since right now they're both up. Listen, first of all, thanks for the question. I think it's very fair. Let me start. Then I'll have Rafa kind of give a perspective on international. I think in the U.S., from an industry perspective, you're right, channel trends are still normalizing. I have to also say, it's too early to tell how the share of stomach between away from home and at home ultimately is going to kind of all net out. Now recently, it does seem like all channels are growing, but that's probably not likely to remain the case. That's not built necessarily into our expectations. Now, in terms about our business, what we see is we're optimistic about our plans that we can actually drive sustainable growth in both the retail and the food service. I think it's fair to say that we also have big ambition from our away from home business. We believe food service is actually both a generation of insights and innovation that can actually help in the retail side of the business. It's also capable of driving outsized growth because we have actually put a renewed focus on culinary distribution and channel expansion. Some of those channel trends, while still normalizing, it's still a little bit early to say predicting exactly what it's all going to happen. What I do say is that I do believe we're going to be stronger versus what we saw pre-pandemic, and essentially for 2 key reasons. First, because our food service mix favor the QSR, and actually that stands to recover, and we are seeing that already faster than the rest of the food service channel, and we also see that being more resilient post-pandemic. Frankly, early in the pandemic, we also made a strategic bet to support that growth in QSR, and that bet is paying off. We now have 30% more capacity in our small packets of ketchup and sauces. That actually has been seen to be working. Secondly, we see a more durable step up in that home consumption that comes at the expense of other categories and brands without necessarily sacrificing food service recovery and growth. Lastly, let me just give you a little more color on the away from home. I mentioned that we gain a point of market share, food service recovery begins, and much of that actually was fueled by the actions we took in 3 areas that I mentioned, culinary, distribution, and new channels. In Q2, we actually executed 9 co-branded culinary limited time offers with QSR partners. Just 1 of those was actually so successful because it became part of a permanent menu item, and now it's going to be in 2022. If you think about that context of the fact that we've been able to drive those kind of limited time offers with QSR, in 2019, we had none of those. We are certainly driving a different level of execution with QSR. The second part of that, which is distribution, we actually grew key accounts by 20% over this quarter. Finally, as consumers continue to evolve how they cook and they eat, and including the use of meal delivery kits, we're actually inserting our Kraft Heinz brands into that equation. We are working with one popular direct-to-consumer company to develop things like a recipe specifically for a Philadelphia Cream Cheese as a main ingredient of their products. That actual one product was ordered over 200,000 times by consumers, really an all-time record for that sales partner. When you look at it holistically, again, I feel very optimistic about our away from home business, and that it actually is going to be a springboard for us to continue to drive retail growth. That's a perspective in the U.S., and Rafa, if you want to add something in terms of the international business, how you see it. Yes. Thank you, Carlos, and hi, Bryan. Look, on balance, our developed markets are experienced very similar trends to retail and food service in U.S. and Canada. Emerging markets, on the other hand, food service has actually rebounded stronger than in developed markets, right? Most countries have either had shorter or even stricter lockdowns, but kept their economies open during the pandemic overall. The consumption obviously differs country by country, in home and out of home. The path of the pandemic, lockdown approach, vaccine availability changes a lot. Given the Delta variant now, it's a bit early to tell how the channels, where the channels will stabilize in the second half. All that said, we are seeing a lot of improvements on the retail channels, especially in Taste Elevation, and giving us a lot of confidence that we'll come out of the pandemic well-positioned after the pandemic. On the food service side, our mix is even more weighted towards QSR than the U.S. is. This format is recovering very quickly. With distribution gains in emerging markets and the potential of the food service that we still have across our overall international, I'm still quite optimistic that after the pandemic ends, the net will be quite positive. Okay. Thanks, Rafa. Thanks, Carlos. Our next question will come from the line of Ken Goldman from JP Morgan. You may begin. Hi, thanks. Would you ever reconsider your policy of not guiding to annual sales and EBITDA? I realize it's been company policy for a long time, except in rare cases, not to give much, but I imagine you could avoid some confusion about what's a, I guess, quote, good or not quite as good print if outsiders had a basic bar against which to compare results. I guess in that way, we could give you more credit when you do come in ahead of expectations. Just curious if that's a possibility, and I guess if nothing else, it would probably make Chris's life slightly easier, too. Thanks for the comment, Ken. We will discuss this internally, and we'll let you know. Thank you. Welcome. Our next question comes from the line of Jason English from Goldman Sachs. You may begin. Hey, good morning, folks. Thanks for slotting me in. Couple quick questions. You guys mentioned that you've implemented pricing actions, begun to raise those prices. Can you give us some quantification there? Overall, on average, what is the price increase that you're pushing through, and how does it vary across different products? Let me just say, Jason, that let me give you a little bit more context, which is if you think about our portfolio, we're really more diverse than most of the peers that we compete with. Our approach to pricing is not unique in terms of just having one solution. We have to be more precise in certain categories than really broad strokes across the entire portfolio. What I can say is that our actions that we have taken in pricing cover the majority of the portfolio, and that actually has quite a bit of wide range of percentage increases, so it's hard to kind of give you a specific answer. What I will tell you is that we have taken actions to mitigate those incremental inflation that we're seeing, that we feel comfortable with our approach, that we feel very good about how we are managing, and that we're going to continue to monitor things and take further actions if necessary. Thanks for the question, Jason. Thanks. You don't know what your weighted average price increase is across your portfolio? Listen, I think it's something that, for us, it's not something that we're going to be discussing, but happy to continue to have the conversations about how we are responding in this moment and how we are feeling that it's very much a manageable solution from us. Okay. One more then, just on the inflation. Can you give us the quantification of what the rate was in the quarter and what you expect in the back half? I see the total for the year going from low end to mid-singles to high end. I'll just zoom in a little bit on the near term. Thank you. Listen, it's pretty much in that range, Jason. You need to remember also that in the Q2, we had a higher pressure on the meats commodity, especially in bacon. I can tell you that in the first half of the year, our inflation rate was in the very low end of the mid-single-digit range, including this big pork component. That's the range that we saw for the quarter two. Okay. Thank you. I'll pass it on. You're welcome. Welcome. Our next question is with call from the line of Carla Casella from JP Morgan. You may begin. Hi. You mentioned that you're maintaining your leverage target of below 4 x, and you're currently at 3x. Would you ever think of changing that target to lower it, or are you leaving that flexibility just given your outlook for either the business or other potential, either M&A or shareholder-friendly activity? Thanks for the question. We are not changing that target of leverage to be below 4 x in a consistent way. Let's remember also that this 3.1 x that we closed, that would go to 3.4x if we adjust by the EBITDA that we lost, that we're going to lose, right? A pro forma adjustment for the EBITDA of nuts that we divested. Yeah, the idea is to keep the same policy and to give us more flexibility to accelerate our strategy. Again, we are going to operate with this flexibility going forward. Okay, great. Thank you. Maybe just one more question. Our last question will come from the line of Robert Moskow from Credit Suisse. You may begin. Hi. Thanks for the question. Maybe a two-parter. One is, do you think that you will increase media again in 2022? The second question is, regarding what's changed versus plan, it would seem like the biggest change has been the categories. Your category growth, or at least resilience, has been much stronger in 2021 than expected. I think you entered the year expecting market shares to grow. Maybe you could decompose those two things as to which of those really drove the outperformance in 2021. Also for your back half guidance, second quarter categories have been pretty resilient. Are you expecting a drop-off in category performance in third and fourth as people go back to work and consumers go back to school, specifically North America retail? Let me answer the first part regarding marketing and media. I will pass the second one to Carlos to talk more specifically about categories in the U.S. Let me say that first, we are excited about the changes that we have been making in our marketing programs and capabilities. We’ve been investing not only in our brands, but also in our people. This is an area that I’m very passionate about, given the importance that it has to drive our growth. We are driving improvements actually in a couple of ways. The first one is more marketing dollars, right? That we have $100 million more in marketing than we had in 2019. We said that we want to increase marketing moving forward. It’s our intention. However, I think it’s not only about increasing marketing. It’s really about efficiencies. We are today achieving 30% more of our consumers with the same spend by doing better marketing. Not only better marketing, but also better media. Third, I think they're very excited about stepping up on creativity in our company today. We started an internal agency in digital media in Canada in May last year, and today we have 12 of these internal hubs in different places, covering more than 30 markets around the world. That is critical for marketing efficiency because it's faster, better, and much more creative. We can really have marketing linked to the culture and need to be very fast on that. Overall, that would be my answer for marketing. Carlos, you may answer the second one. Sure. I can just build on your point, Miguel. Specific to market share and our performance, I would say we're off to a very solid start to the year, and you saw in the presentation, we are seeing household penetration and repeat rate growth rates much higher than pre-pandemic levels. We are gaining share in actually 58% of the business, and it's an improvement from last quarter, and certainly from what we saw in 2019 pre-pandemic. I think that when you take a step back and you look at our overall performance, I think what we are proving is that our consumer platform approach, our focus on renovation, innovation, and marketing, and our retail activations, they're all working. Now, as we're going forward, we will continue this agenda. We're going to increase support around key holidays while using price, promotional optimization, and as I mentioned earlier, all the revenue management tools to manage the inflation. Now, for our total business, and I think to your point about asking about the future, there are several factors impacting the category performance. I would say the most important is that we believe we're in a strong position to balance share with profitability to continue to deliver strong returns. Thanks for the question. Just one comment on that, just to build on to what you're saying and the question here on the outlook. I think it's also relevant to say that while our outlook implies a lower EBITDA margin in the short term in the second half, in the Q3. We don't think that that EBITDA margin is representative of the run rate, as I said. We expect that to improve back to normal levels as we enter into 2022, when our price realization start to catch up in our results. I'm sorry. I want to press a little bit more. This is really a question about your categories. Do you expect your categories to face pressure in third quarter and fourth quarter compared to the first half because of people going more to work and because of students going back to school? Do you think it'll look more similar to second quarter? Carlos, do you want to. Sure. I mean. It's really more, Yeah, let me just give a perspective, I guess, at least in the U.S. piece. I mentioned that there were several factors that is kind of take into consideration how the categories are behaving. I think that there are three things in particular that we are looking at. That there are certain things around the fact that there are hybrid working schedules. We see in the home purchases and in the renovations, and the new consumer preference that are actually likely to keep people at home, the high level of home consumptions that we have seen in the past. We've also now seen the Delta variant and the rise in case counts across the U.S., and those are factors that we're also closely monitoring, and in particular, because they're important in terms of thinking about how families are preparing for the upcoming school year. I think they're all things that make it very difficult for us to say at this point exactly how this is all going to shape out. What I can tell you is that we are focused on those things we can control. We are focused on making sure we improve our agility and execution, as Miguel said, that we continue to invest behind our brands to build relevance and compete for those occasions through our consumer platform-based approach, regardless of how we see this happening and unfolding. So far, we are pleased with how we are showing up. We believe we can continue to see the fact that we are able to drive the household penetration repeat rates. I mentioned earlier in the call, right now you see all channels growing, but realistically, that is not right now our expectations as we go through the second half. Okay. Thanks. Thank you for indulging me. Appreciate it. Great. Well, Thanks everyone for joining us today. If you have any follow-up questions, investor relations and the media teams will be available for your follow-ups. Thanks everyone for joining us today. This concludes today's conference call. Thank you for participating. You may now disconnect.