Good day, and thank you for standing by. Welcome to The Kraft Heinz Company Q2 2021 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star one on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star, then zero. I would now like to hand the conference over to your host today, Chris Jakubik, Head of Global Investor Relations. Please go ahead. Thank you, and hello, everyone. This is Chris Jakubik, Head of Global Investor Relations at The Kraft Heinz Company. Welcome to our Q&A session for our Q2 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, and 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, 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 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? Well, thank you, Chris, and good morning, everyone. I would just like to start by sharing how encouraging it is for us to see our company leaning into a scale and agility that we have been talking about for some time, addressing short-term challenges at the same time that we are building the long-term advantages. We are today a much stronger company, and we are better positioned to address inflation that we are seeing. We are taking actions now to protect profitability through 2022, and our actions are not just pricing. We are also implementing price pack architecture, value engineering, and leveraging our scale in procurement. At the same time, our team has continued transforming our business for long-term growth and advantage. Our momentum with the consumer is strong, and our consumer-focused, platform-based approach is taking us to new occasions. We continue to invest to improve relevance of our brands. We are making greater, more creative market investments. At the same time, we are building agility that will deliver the $2 billion of gross efficiencies and looking to unlock more. We are continuing to pay down debt and improve our net leverage, and we continue to invest in our most important assets, our people. As we mentioned in our remarks, we have done all of this while delivering better 2021 results than previously expected, which speaks to the strength of our business. Well, with that, let's take your questions. Thank you. If you have a question at this time, please press star then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from the line of Andrew Lazar with Barclays. Your line is open. Please go ahead. Great. Thanks so much. My question is actually for Rafa, if I could. You know, we've been taking a look at some Nielsen trends and some key food categories in the U.S. and Western Europe. While consumption obviously in the U.S. has certainly remained elevated, trends, at least in some categories in Europe, seem to be decelerating meaningfully or I guess normalizing is a better word for it, as those markets reopen at a faster pace than what we've seen here in the U.S. I'm curious if KHC has seen this dynamic play out at all, for the company. If you see maybe certain trends in Europe as a fair leading indicator of what's to come in the U.S. around stickiness of demand or if maybe there are some differences suggesting that's not a great set of data points to necessarily use to compare. Thanks so much. Yeah. Hi, Andrew. Rafael here. Thanks for the question. I mean, from an overall market perspective in Western Europe, we have seen indeed more of a return to pre-pandemic consumption patterns than in other developed markets. That said, I mean, it varies quite a bit per category. We are seeing much greater stickiness in our taste elevation platforms as consumers kinda continue to look to us to elevate their meals, right? This is quite positive, to be honest to us, because if you recall, I mean, we have three key pillars on our international growth strategy in our taste elevation platform, emerging markets and food service channel, right? This demand stickiness in taste elevation, I mean, we continue to see favorable levels of consumption, growth and absolute terms on the platform and which is a platform we are focusing at, right? We continue to see taste elevation demands, sustaining. In food service in particular, Western Europe is rebounding very fast. I mean, it is approaching 2019 levels. On top of this, we've been gaining a lot of share in almost every market we operate in food service, right? It's another strength. As I said, overall, it's true, most of the market is coming back to pre-pandemic. In some platforms, they continue to be very strong and that has played out favorably for us, taste elevation. Great. Thanks very much. Thank you. Our next question comes from the line of Jason English with Goldman Sachs. Your line is open. Please go ahead. Hey, thanks folks. Appreciate you slotting me in. I guess I'll lean into price a little bit. You reiterated the comment today that you are in the prepared remarks that you expect the price to catch up with cost by the end of the year. Can you confirm that that's not just ingredient costs, but that's sort of the total supply chain pressure? Then looking at slide 8, is it fair to look at that as sort of a price index? To say you came into the year with an index around 103, and you plan to exit a bit north of 106, you'll be carrying around 3 points of price into next year. Is that 106 a bit of an average and the real exit rates closer to 107 or 108? Thanks. Hi, Jason. Paulo here. Let me try to help with this question. We expect to see a similar level of inflation at the beginning of 2022, as we are seeing now in the H3 of 2021. Okay? Most of the inflation that we're gonna see is carryover for 2021. We expect 2022 having executed the price plan that protects our profitability from current levels of cost that we are seeing now. This should address the inflation that we expect in 2022. Okay? We are seeing our execution of pricing protecting our profitability given the cost levels that we're seeing now, and this should protect our profitability when we enter into 2022. Okay. We're probably looking at something closer to a mid-single digit pricing as we enter next year if you're carrying high single digits for a percentage of COGS. That's just the math on that. Is that unreasonable? Listen, I don't want to get into the habit of forecasting our pricing, but I can tell you that the actions that we're taking now will protect the inflation that we're seeing, and it will protect our profitability from this inflation that we're seeing in the current cost levels, and this could put us in a good position to enter 2022. Just complementing what Paulo is saying. I think that if eventually more inflation comes, well, we'll have to take action. Sure. It makes sense. Congrats on the pricing success so far. It's better than I expected. Thank you. Thanks, Jason. Thank you. Our next question comes from the line of Pamela Kaufman with Morgan Stanley. Your line is open. Please go ahead. Hi. Good morning. Morning. Can you elaborate on what drove the sequential softening and market share trends that you highlighted? Has that primarily been driven by the capacity constraints, or have there been other competitive dynamics contributing to the share performance? And then how are you addressing the capacity constraints that you highlighted? And I guess, what do you see as driving improved share performance going forward? Thank you, Pamela, for the question. I imagine a lot of those questions you had in there, I think there were three I counted, but they were related to the U.S., so I'll take it. I guess for me, I would say is, first of all the way I think about the business is we wanna make sure we continue to drive household penetration and repeat rates, which we are doing. You know, while there were some short-term share pressures and during the back to school, as you know, the demand outgrew our capacity in a few categories. You know, over the long term, the fact that we are driving household penetration and repeat rates shows the strength of our portfolio and the strength of our business on how we are actually managed through all that. But I would say is too that I'm very much focused on making sure that we win by maximizing the controllables. Our recipe for winning is to essentially consistently focus on satisfying the consumer needs better than anyone else, and it doesn't matter exactly what happened at this particular moment. You know, as we go forward, I tell you, I see three specific advantages that for us it's gonna be our play in which we're gonna win. You know, we have continued to renovate our portfolio. We have controlled the cost in our brands so that we can optimize the value for our consumers. Really, that is the best recipe for us to kind of withstand against anyone else who come in, any competition that comes in. Essentially, what we're doing, we are increasing the equation of what is worth buying at the shelf. The second advantage we have also is we're making sure that we are differentiated at each rung of the price ladder, whether it's entry to mainstream to premium, so that consumers can stay within our franchise, even if their circumstances might change. If you think about mac and cheese, we've got everywhere from an Easy Mac to the original version for consumers. The third piece I will say is we are transforming our portfolio through all these divestitures that actually have significantly reduced our private label exposure. We have continued to renovate and manage our costs. We have continued to bring, making sure that we have differentiated products within our categories, no matter what the circumstances of consumers are. We have a portfolio that is much, much reduced versus private label. frankly we continue to see opportunities to capture profitable growth, focusing on our consumer platforms. We are executing with excellence and leveraging this broad renovation, innovation and the rest of creating that our teams are doing. I think, Pamela, you also spoke a part of your question on the supply chain, the constraints that we're seeing. You know, I think what the way I would look at it is across the industry, we are seeing a supply chain that is being tested on a daily basis. What I will say is our supply chain team has been very agile, taking advantage of our global scale. We're showing agility in labor, in manufacturing, in logistics. I'll give you some examples of what I mean. You know, we are reducing the amount of time to hire and significantly increase the applicant pool by leveraging new digital tools at Kraft Heinz. We are improving the flexibility in terms of the materials that are available with really an ownership mindset across sales, procurement, and manufacturing. Those things will change in our plants, 39 of them across the U.S., sometimes on a weekly basis. In logistics, we've actually increased the throughput on warehouses by shifting more of how we operate 24/7 and increasing the automations since the pre-pandemic time. Having said that, I will tell you that we do have a good line of sight of continuing to improve our customer service levels as we move forward and, because frankly restoring the top-tier customer service to the pre-pandemic level is a continued focus for us and entire team. Thanks for your question, Pamela. Pamela, you also asked about moving forward in terms of capacity. On top of everything that Carlos is saying, I just wanna add that we have been adding capacity. We increased substantially Heinz Ketchup capacity, Mac and Cheese in frozen snacks, Delimex and Bagel Bites, in Kraft's and condiments, in meal and in kids juices. it's this investment in capacity is a great proof of our belief about the demand for our products in the future. Great. Thank you. Very helpful. Thank you. Our next question comes from the line of Bryan Spillane with Bank of America. Your line is open. Please go ahead. Hi. Thanks, operator. Good morning, everyone. My question is, I guess tied to some of the themes here just in terms of inflation and pricing and margins. Maybe if we could just step back pre all of this inflation and pre-COVID, right? There was a transformation in your supply chain, which that work had started. I you know, as we kinda look at gross margins and/or profitability, the gross profit line, and you've held up pretty well, right, relative to your peers, if anything, probably a little bit better. I guess, as we're kinda thinking about profitability going forward, knowing that there's some pricing that's coming through to cover inflation, but how much are you also still benefiting incrementally from some of the supply chain work you've done? How much of that is gonna be also a contributor to helping to offset all of the inflation and supply chain disruptions? Brian, let me start here, and then someone else here can build on top of my answer. What you said is true, like, when we come back to the time that in 2019 when we disclosed our strategy beginning of 2020, we were very focused on improving our gross profit over time. In order to do that, we developed many programs in terms of efficiencies in supply chain, in terms of focusing on mix, also pricing, new pricing strategy and revenue management strategy, and this is taking place. You can see that today with all the inflationary pressure that we're seeing in the gap that we have between the price realization and the cost inflation, we are keeping the gross profit margin the same level that we had at pre-pandemic. This gives us a lot of confidence in our plan going forward. I would say that our strategy to improve profitability to gross profit margin is working. What I would add too and think about our overall progress in our transformation it both in terms of some of the things that you heard from Miguel earlier. You know, we are in fact making a significant push on fast tracking critical projects on our capacity. You know, as Miguel gave you some examples, I'll give you a couple more, which is if you think about ketchup, the fact that in Heinz Dip & Squeeze kind of sachet small packets, we have nearly double our capacity and by the end of next year. If you think about mac and cheese, by the H3 of next year, we've actually increased about 20% of our cups capacity. Even in frozen snacks, by H3 of next year, we will have increased about a third of our capacity in areas like Delimex. Both across these are some of the examples of things that we saw earlier in the pandemic. We made fast-tracking our projects, and we continue to do that. More work to do ahead. The other way I look at it is in terms of how we make sure we get more of our utilization of our assets. For me, things like improving our OEE, which we have now done 2020 versus 2021, and, I'm sorry, 2020 versus 2019, 2021 versus 2020, it is also the way that we're gonna continue to make sure that as we go forward, we're attacking it both ways, making sure that we are being smart about investing in our capacity and that we are getting more of our assets through improvements in our OEE. Thanks for your question, Bryan. All right. Thank you. Thank you. Our next question comes from the line of Robert Moskow with Credit Suisse. Your line is open. Please go ahead. Hi, thanks. I just wanted to try to square the outlook for 2022 slide with your comments about pricing catching up to cost. because if pricing is really catching up to cost, that would imply that your EBITDA growth on a core basis, ex-acquisitions, divestitures should be able to grow in 2022. So if you're confident enough that the pricing is really catching up, why not take the extra step and talk about it in your outlook? As it stands the slide's pretty general. It says that things are gonna be strong, stronger than you thought, post-pandemic, but I'm not quite sure it points to EBITDA growth on a core basis yet. Hi, Rob. So let me start saying that we are not providing guidance for 2022, and we are not providing also at this time any outlook for 2022 besides the one that we shared. We can say that we are very confident with our path, and we are very confident about our ability to retain consumers and retain you know volume that we are having today. We are also confident in our ability to sustain you know the strong margins that we have. Our focus here is to protect the margin dollars from inflation, as we mentioned. Again, to give you a little bit more color, you can say that, and also we shared that in Q3, and we discussed that in Q3 we have lower than run rate percentage margins, and we expect these margins to improve as price realization comes. That is as far as we'll go in 2022. We're very confident with the fact that we are in a better space. We're a better company in a better space with stronger consumption and with confidence in our ability to price the short-term inflation that we are seeing. Okay. Well, appreciate it. Thank you. Thank you. Thank you. Our next question comes from the line of Chris Growe with Stifel. Your line is open. Please go ahead. Hi, good morning. I just had a question for you in relation to promotions. You've talked about how you're rebuilding promotions in your business, especially in the U.S. I think you talked about a normalized promotional environment. I just want to understand, and this kind of gets back to a degree around pricing. As you recover promotions, especially against a period a year ago where they were lower, can you achieve price realization on a net basis that offsets inflation? Maybe related to that, would that rebuilding a promotion or recovering promotion continue in the H1 of 2022, maybe a bit of an offset to the pricing you're taking at retail? Chris, let me answer that and try to explain, I think a couple of things you mentioned in your question. First, let me just put it in the context of the transformation that we've been having here at Kraft Heinz. I mean, if you think back, a critical aspect of our transformation is a consumer first approach to all that we do. Which essentially is why our plan is to invest behind our consumer platforms during those event windows where actually consumers are looking to us for solutions. If we think about the gains that we have made so far, the fact that we have continued to drive brand household penetration and repeat rate, it is exactly because we have done that. We have been able to make sure that in moments during the year that consumers are looking for those specific solutions that we can offer essentially the scale of our products in a way that satisfies the needs better than anyone else. We have been and expect to be, as we look into 2022 more active with better execution than 2020 during these critical windows, but clearly not as deep as we were in 2019. frankly we continue to see opportunities to capture that growth. As we are going to move forward, we are going to remain diligent on making sure we satisfy our consumer needs better than anyone else, guided by our platform and our renewed focus on making sure that, again, everything we do as part of our transformation is with that consumer first approach. Thank you. Thank you. Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Your line is open. Please go ahead. Good morning, everyone. Good morning. In your prepared remarks, you alluded to an appetite for more acquisitions in the emerging markets. I think you referenced the Assan Foods and the Hemmer deals that you've done so far. Can you talk a little bit about what additional or where you're focused in terms of potential future deals? Are there particular categories, particular regions that you're looking at? Can you say anything about the kind of scale of the pipeline in terms of would you be looking just at tuck-ins or potentially something more medium-sized? Thank you, and I'll pass it on. Sure, Alexia. Maybe I can comment and then give the word to Rafael, since he's responsible for emerging markets, among other things. We have, of course, today a portfolio that is better than we had two years ago and a much stronger balance sheet. With that comes more flexibility, right? You are right. I think that if we have opportunities for acquisitions, we'll look at them and always with price discipline. We like a lot to follow our strategy. As a consequence, taste elevation, which is really one of the critical strategic pillars of the strategy of the international zone, is the place where we are looking for opportunities. That helps also food service business. Like the Assan business in Turkey that we acquired is a leading company in food service, and we expect to grow to the retailers with that base in Turkey as well. I'll give the microphone, the word to Rafael so he can give you more color about areas that we are looking at. Yeah, no, thank you. I mean, the reason we are so excited about Assan Foods, about Hemmer is that exactly as Miguel said, its own strategy, right? They are, I mean, strong margin categories in the right countries, as you said, taste elevation, emerging markets, and food service, those are the pillars for our strategy. What they can enable us in the future, I mean, each of those two businesses you mentioned, Assan and Hemmer, they are just short of $100 million each, you know. With Assan, I mean, we'll not only be able to build Heinz as a bigger brand in Turkey, but we'll have capacity to grow much faster across the Middle East. With Hemmer, I mean, we have announced, but we are now waiting for regulatory approval. It will not only strengthen our distribution in, especially in the south of Brazil. I mean, we'll be able to participate much more in the value ladders of the chain within taste elevation, and we can really leverage their portfolio to build our scale faster, I mean, in retail and the food service channel. They are definitely like, again, as I said, on strategy, and that's what makes us the most exciting, is taste elevation and within the core emerging markets that we want to grow at, and we see a lot of opportunities. Great. Thank you very much. I'll pass it on. Thank you. Our next question comes from the line of Kenneth Goldman with J.P. Morgan. Your line is open. Please go ahead. Hi. Good morning. You know, a couple of U.S.-based food producers, they've suffered through some worker strikes recently. I'm just curious how you're feeling about your labor relations in general at the moment, and I guess how investors should think about the risk, if there is any, of Kraft heinz perhaps facing some incremental challenges on this front? Ken, thanks for your question. You know, I'm obviously not gonna speak to anybody else's business. What I'll tell you is that our teams, as I mentioned earlier, have shown tremendous agility of making sure that we are in fact continue to have a focus on engagement of our workforce. You know, as we sit here today, what I'll tell you is that we have seen pockets of some places where we've had some labor challenges in terms of shortages, but also they have been very much focused on a few and isolated occasions. As we move forward, I am actually confident that we have been able to actually, and will continue to manage through specific areas where there have been some isolated situations in which we have had some labor shortages, but in a way that is actually not a concern for us on a regular basis or on an ongoing basis as we move forward. Actually I feel very good about where we are and how we continue to manage this in an agile way. I don't know. Anything else you wanted to build on, Miguel? No. I think that the only thing I would add is that we've been working hard to improve the engagement of the company overall and that brings us more confidence about the possible labor issues for the future. At this moment, we don't see any risk of a strike, but that doesn't mean that that's not possible. We are confident about that. I think that, as Miguel said, we're in a good position and really feel good about the way our teams have handled it and with agility they have shown during this really difficult time. Thank you. I think we're about out of time there. We'll end it there. Thanks everyone for joining us today. For anybody who has follow-up questions IR will be available to take your questions. For anybody in the media, Kathy Krenger and her team will be available for your follow-ups. Thanks everyone and have a great day. Thank you. This concludes today's conference call. Thank you for participating. You may all disconnect. Everyone, have a great day.