Ladies and gentlemen, thank you for standing by, and welcome to The Kraft Heinz Company first quarter results question and answer session. I'd now like to turn the call over to your host, Chris Jakubik. You may begin. 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 Q1 2022 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 the 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 net 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. Well, thank you, Chris. I would just like to start by sharing how proud I am of our people and the truly transformational work they continue to deliver for our company. We've seen two years of a lot of disruption, and they continue to successfully address the short-term challenges at the same time that we are building the long-term advantage of our company and our brands. Our teams delivered a strong start for the year, both on top line and bottom line. We remain on strategy with the strongest growth coming from our priority platforms, brands, channels, and markets. We are effectively managing our inflation, improving our supply constraints while continuing to gain incremental efficiencies. We continue to make progress building and deploying initiatives to accelerate our advantages in areas like becoming more agile, becoming much more creative in marketing, developing joint business plans between retail and food service, and capacity unlocks in our grow and energized platforms. As you are now seeing, we are doing this through strategic partnerships with technology giants and cutting-edge innovators to accelerate our transformation and redefine best in class across our value chain. It is a very exciting time for Kraft Heinz, and I don't think we could be better equipped to build on our momentum through what promises to remain a very challenging environment. With that, well, let's take your questions. Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touchtone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. Our first question comes from Andrew Lazar with Barclays. Great. Thanks for the question. Good morning. Chris, congratulations to you. Thank you for all the help over the, well, too many years to quantify. Appreciate it. My question really is around retail inventory. I guess, where are you currently regarding the retail inventory rebuild versus where you want to be? How much more opportunity might there be for shipments to, you know, exceed consumption going forward related to this dynamic, which I guess could be somewhat of an offset should elasticity ramp up a bit from here. Is there any indication that retailers may opt to hold more inventory going forward than they did pre-pandemic, you know, having seen during the past two years how problematic out of stocks can be when there are supply dislocations? Thank you. Andrew, this is Carlos. Let me take that one first, and also let me just echo Miguel's comment. You know, I'm just so proud of how our teams have managed through all this, and the strong start of the year is a testament to the resiliency of the teams. Now, to your questions about retail inventories, you know, they do remain fluid. If you recall, we exited last year below normal days of inventory from a historical perspective that were both in terms of the trade and in our warehouse. If you look at in Q1, our actual production volume was actually 10% higher than it was a year ago, and we expect that to continue through the year-end so that we can support the inventory recovery. In Q1, you know, the way it looks is that we began to rebuild some of those retail inventories in certain categories. In aggregate, we're still below historical levels. Our expectations as we continue through the year is that we'll recover our inventory levels by the end of the year, with service levels then returning to pre-pandemic levels early next year. Now, let me tell you, kind of our focus going forward is gonna be in three specific areas. One is recovering the service constraint categories and focus on the key power SKUs. And as you saw, our increasing production level supports this initiative. Number two is improving the share of shelf and implement shelving principles. We have both a detailed plans to do that and a strong collaboration with customer to do just this. Finally, creating in-store destinations so that we can, you know, launch meaningful, incremental, disruptive innovation into the marketplace. You are seeing this already from our award-winning Out of the Burger to creating different destinations and breakfast destination in store and online that leverage our scale in partnership with retailers. Now you asked specifically about kind of how to also think about the retailers and their inventory normalization. You know, I would say it's difficult to say where exactly the retailer inventory levels would normalize. The one thing I will kind of make you think about is the fact that if you keep in mind that pre-pandemic levels, the inventory levels actually saw quite a bit of re-inventory reduction in the 2 to3-year period prior to the pandemic. I would say it's hard to predict, but we know that, you know, as we continue to move forward, we're building that, because there's still room for us to do that. Thank you for your question. Sure. Thanks very much. Our next question comes from David Palmer with Evercore ISI. Thank you. Interesting comments in those prepared remarks about the partnerships with Microsoft and Google. Maybe if you can touch on those a bit more. What outcomes do you expect from those? What areas of improvement do you expect us to see? What's first? Carlos, do you want to answer that question, please? Sure. You know, let me just say that, you know, part of the partnerships that we're doing is really about supporting our agile at scale initiatives. For us, if you recall, when we talked in CAGNY, we talked about how agile at scale was gonna help us in three ways. First, it was about us making sure we organize and embed and lead with agile values throughout the company. We mentioned how we actually evolve our structure to be flatter and leaner with multidisciplinary teams on missions to attack our largest priority. In North America, we actually instituted a rule of five, where only five levels between myself and the entry positions in the business unit. The second part of that, and to your questions, is also that we were building a tech ecosystem to create end-to-end capabilities with leading tech companies to accelerate our solutions, to capture efficiencies and create a significant competitive advantage. What you're seeing in our partnerships between whether it's in Microsoft, whether it is in a partnership with Google, is also allows us to look for those partnerships that allow us to accelerate our move to an agile at scale. Because then once we build a tech ecosystem, we can then scale up to leverage those proven solutions across and maximize the value creation. The reality is that we're also doing this across the entire value chain. I'm very pleased with the partnership we have with Microsoft because it's gonna allow us to also look at things like areas in planning, in manufacturing, in logistics, in sales and marketing that allows us to get closer to our consumer and making sure we actually are getting real-time information, that we improve the customer service by improving forecast accuracy and speed, and that it generates end-to-end efficiencies with new processes, tools, and structure. As you will see, we're gonna continue to look for those partnerships in which we can actually work together to accelerate our journey towards agile at scale. I would just like to add to what Carlos just said, that these partnerships go beyond just technology. As you remember, we announced before the NotCo and the Simplot partnerships. These are other great examples of us to become more agile in all areas of the company. You know, we didn't have a good pipeline of plant-based products, and would take a lot of time to develop. Well, you know, partner with a company that can bring you solutions in a record time and great quality. We didn't have a solution for our line of business from a supply standpoint. Well, partner with the ones that can, you know, solve quality, innovation and volume problems that we would eventually have moving forward. These are just great examples of partnerships that will, you know, just make us more agile and faster. Thank you for that. Just on the marketing side or the actual spending side, you know, what is your advertising as a% of sales today? Big picture, you know, how has that shifted in terms of the% of sales over the last few years? But also how or have you shifted that spending? I would imagine digital is a much higher% today, and, you know, give us a flavor of what you're anticipating there. Thanks. I can give you a better sense of the percentage of net sales, because with all these changes we are having net sales. I don't wanna give you a number, but that is not precise. Let me tell you that it's not our intention to reduce the investments in marketing. This year will either be flat or growing, depending on how the year continues, because we want to continue investing in our brands. Our investment in digital today is about two-thirds of all our investments. It's about 70% of our investment. I would say that more than even the quantity at this moment, I'm really impressed with the quality and how we changed the way to communicate. Today we have in all our views, you know, our own development of digital marketing, that gives us really the possibility of being at the speed of culture and producing from a day to another one, great quality marketing that makes us much more engaging. It's very different, the quality of marketing that we have nowadays. You know, I don't know if you saw, but Ad Age, you know, selected us as the best campaign of the year. They put us among the five best marketers in North America, and more recently, they called Velveeta the best renovation or the best rebranding, of the year. These are all consequences of a huge improvement of the quality of our marketing. Yeah. The one thing I guess I would build also to on Miguel's comment is that, you know, while it's true that we have, you know, invested about $100 million more in marketing to 2019, you know, our focus really has changed, and it's what Miguel just highlighted. We are focused very much on earned media, and that which actually we have seen how we have proven that increases the return on that investment. For us is how do we make sure that all the personalization and improved creativity that our teams are showing translates to creating more impactful campaigns that generates the earned media that improve the ROI. It's not just the investment we make, but the amplifying effect of our investment because of the quality of the work that we're putting out. That's why we continue in this journey. Thank you. Thanks. Our next question comes from Bryan Spillane with Bank of America. Good morning, everybody. I guess I wanted to ask about, you know, commodities and raw materials and not so much on cost, but just availability. You know, given some of the supply chain, you know, issues, I guess, that have been caused by the war in Ukraine, you know, and some of the agricultural commodities, you know, potentially being in short supply. Is that a concern on your end in terms of just, you know, availability of raw materials? Have you seen it at all crop up maybe competitively, you know, like smaller competitors having service issues? Maybe if I could just tie to that as well, you know, given that you do have some exposure to it, just bird flu, is that something we should be worried about, you know, given that you do grow some turkeys? Thanks for the question. I'll get this one. Andre here. Yes, situations come up every day on the raw material and packaging material side. The situation continues to be challenging. I think the teams have been now for two years dealing with these challenges on a recurring basis, right? Requires a lot of resilience from our team, which have been demonstrating very strongly. Now the great thing is, despite all these challenges, we have been able throughout the quarter to rebuild inventories for the first time probably since the pre-pandemic level, and we have improved service levels. I think we are now in a good trajectory to continue to do so into the second quarter. Despite the challenge that we continue to face and I think the whole market, we have been able to navigate through that. I think our scale also definitely helps on this regard. Hedging, as we said before, we have been maintaining a very disciplined approach to hedging, so we haven't been speculating or trying to second-guess what's gonna happen in the market. We have been maintaining our strategy to maintain the consistency. As we mentioned, some of the commodities that have been the most impacted by the Ukraine conflict, like grains, oils, energy, we are hedged on those until Q4, which put us also in a good position. Bryan, the point about availability has been around for a long time now, before the war. Every day there's one raw material that is short because the supply chain is very tight overall. I think that in that sense, company with our scale should be able to navigate better. There are examples every day. I mean, there's a shortage, just as an example of guar gum, which is raw material to do cream cheese and we have a good inventory of that. The smaller companies will have difficulty to have access to that. This is every day we really have to adapt every day to a new problem. I think the teams have done a great job in that sense. If you could touch just on bird flu, is that a concern at all? Yeah. Let me touch on that then. You know, I think first let me give you a little bit of historical context. I mean, we have seen this before, and one thing that is different about this time around is that we have the insight from the lessons we learned last time. You know, as we looked at it this time around, we are flexing our portfolio to address those short-term kind of poultry disruptions. You know, we have had some experience doing this in the past two years on how we actually flexed our portfolio, so we can actually be very dynamic in our response. You know, the regions from which we buy turkey have not been impacted so far. Now, we have seen price increases, that is true. What we're using is our strategic sourcing network that Miguel spoke about to provide those supply and will remain agile as we go forward. We're working closely with our retail partners so that we can navigate as the situation evolves. Again, I think we have seen that we have learned in the past, we're applying those lessons, and reality is that we're flexing our portfolio in order to navigate through this. Right. Thank you. Thank you. Brian, Rafa here. Just to comment to you asked about exposure to Ukraine. For us, it's negligible. It's very small, okay, the exposure to raw materials in Ukraine. Our next question comes from Jason English with Goldman Sachs. Hey, good morning, folks. Thanks for slotting me in. To echo the earlier sentiment, congrats, Chris. You're a legend. We'll miss you. Anne-Marie Megela, congrats on the escalation. Looking forward to working with you more closely going forward. To the questions at hand, great to see your food service momentum. I think you gave two statistics, the growth in US and growth internationally. Can you give us the blended growth rate, like across all of food service, 12% of sales growing what on average? How close are you to back to pre-pandemic levels? Have we pretty much closed the gap? Is that what's driving the majority of the growth, or is this momentum over and above the recovery from COVID? Okay. Look, I'm not gonna quote the specific numbers, but both across International Zone and North America, we are growing north of 20% on both. Okay? Gaining share, as we also indicated, across the board, which puts us in a very good position. The way things are trending so far, it's possible that we're already gonna be ahead of 2019 levels, at least in North America, which is also great. I would add on the comments from Andre that we are very excited with the food service. We see as a difference from the past, there was a very transactional channel. Today is a strategic channel for us. It's a great way for us to launch new products, to test them, to sample them with the consumers, and then to leverage that sampling to the trade. In the presentation, you have a very recent example of that, but it's our intention to keep doing that through the future. For sure. Makes a lot of sense. I appreciate the comment earlier on ad spend and the commitment to have it be flat, if not up as a percentage of sales for the year. Can you unpack a little bit more on the SG&A efficiency this quarter? It's down pretty sharply year-over-year. Is that the effects of your productivity or is there some unique timing dynamics that we should be aware of? On the SG&A, we have in the first quarter lapping a one-time gain from last year that do not get repeated. Pretty much that's what's driving the entire variance that you're asking. Okay. All right. Thank you. I'll pass it on. Our next question comes from Ken Goldman with JP Morgan. Hi, just to echo the prior comments, Chris, thank you for all of the help. You'll truly be missed. Anne-Marie Megela, congratulations, as well on the new role. I wanted to ask, you know, you've highlighted your reduced exposure to private label in the US, so I don't want to suggest Kraft is at any particular risk here. I'm really just curious if you're starting to see retail customers leaning in a bit harder to their store brands recently, you know, whether it's via incremental displays or other efforts, I guess, to try and maybe highlight for consumers some other offerings that are at lower prices. Are there any behavioral changes you're seeing from those customers? Let me take that. I would say, you know, so far what we're seeing from private label is that they're actually increasing their prices in line with the branded players. The reality is the cost are escalating for everyone. In terms of Kraft Heinz, I mean, what I can tell you is that we are stronger today than we have been in the past in four specific areas. One, we actually have relatively low private label exposure. Today we're about 11% of the portfolio exposed to private label versus 17% just a couple years ago. If you think about that number of 11% versus an industry average of about 20%, it certainly puts us in an advantage situation. We're also making sure that we are launching products that are differentiated at each rung of the price ladder. Whether it's entry to mainstream to premium, so that consumer can stay with our franchise as their circumstances may change. Whether it is a, you know, blue box mac and cheese to a Easy Mac, they have something to come into and stay with our iconic brands. We also continue to improve the product design so that we can offer better value for the money and greater ingredient flexibility, less waste and lower production costs. Actually, you'll see that in our marketing also as we go forward. Finally, we're also leveraging the breadth of our portfolio across categories so that we can provide comprehensive occasion-based solutions that the whole family can enjoy. We are in a very good place right now in terms of our exposures, and we are seeing kind of a, you know, private label being affected by the same way that we have. Thank you. Then a quick follow-up for Andre. Andre, you mentioned that as inflation plateaus, you expect to see your margin percentage rebound. You know, I understand that, you know, futures curves are volatile, but is there an estimate you have for when you expect your gross inflation, including hedges to have peaked? You know, might we be a little bit closer to that than maybe some bears are thinking about? Thanks for the question. As you said before, we have been taking actions consistently to protect our margin dollars at this point, right? We want to maintain our ability to invest in the business, as Miguel and Carlos pointed out, because it's critical to us. The current percentage margin is lower than our run rates, I can tell you that. We expect those margins to recover as costs stabilize and the price realization comes through. We're pricing at a lag versus inflation like the whole market is, so it recovers over time. Remember as well that beyond the short term, our adjusted EBITDA margin evolution needs to remain consistent to the strategy that I have outlined before. Which is to have better gross margins from variable cost efficiency, stronger pricing, mix, and that will help us to fund higher investments in brand, people, and capabilities. That's what we are seeking here. Even though I cannot go to a specific time on when we are going to recover the percentage margin, that should happen over time. Okay. If you look at the pre-pandemic levels, we were in the 24% range, so. Peter, if we can take maybe one more question. Our next question comes from Robert Moskow with Credit Suisse. Hi, thanks for the question. Chris, I congratulate you. I'm jealous of you also. I guess my question here is can you drill down a little bit more into I think the comment was that your production volume will be up 10% versus year ago. This is an environment where there's a lot of unknowns about elasticity, and I think a lot of your peers are expecting elasticity to really accelerate by the end of the year. Can you give me a sense as to what that 10% increase really means? You know, is it contingent upon what you see in the demand environment, obviously? Well, thank you for your question, and I think we're all jealous of Chris, by the way. You know, what I'll tell you is that we expect an increase in elasticity going forward closer to historical levels. You know, prices are on the way up, and everything is on the way up, and we know that most of the stimulus is gone. Now, today, we're seeing that our capacity is running about 30%-40% below historical levels. Now, the reason we're confident about our production is that we are also growing consumption sequentially as we rebuild retail inventory levels. Understand that we are actually making the advancements against many of the supply chain challenges that today are actually holding back our market share performance. That's why as we think about the Q1 production up 10%, it is to support the rebuilding of that inventory levels that have been still below our historical levels. That we feel confident about us continuing through that kind of level of support. Rob, just to add to that, to be clear, right? The production Q1 10% doesn't mean that we indefinitely go up 10%. We are just now ramping up production to rebuild the inventory levels at a retailer and in our warehouses. Okay? We are not changing our inventory policy for the future. It's just that you get to that level. Okay, you're not saying that production's gonna be up 10% throughout the year? I thought that was what the comment meant. Well, it's 10% in Q1. Right. Just Q1. Okay. Last question. If volume continues to kind of be down in this, like, 4%-5% kind of range, I think that's what your U.S. retail volume was down. Does that do anything to your fixed cost leverage at the end of the year? Or is there just gonna be so much pricing it doesn't really matter what happens to the fixed cost leverage? Look, I think that's, in fact, where the inventory rebuild discussion comes from, right? Which is important because we are rebuilding inventories right now. Despite that the volumes are being down, we still need to produce a lot to recover the inventory level. We don't expect any relevant impact from fixed costs in this fiscal year. Got it. All right. Thank you very much. Our last question comes from Chris Growe with Stifel. Hi, good morning. Thank you. Chris, just a congratulations to you. Just thinking, 68 or so earnings reports over those 17 years, so it's kinda crazy when you put it in those terms. I just wanna ask a quick question, if I could, on the supply constraints to your volume. You outlined it in a chart, like a 50 basis point market share decline as a result of those factors. How much of a revenue burden was that in the quarter, if you can say that? The pause means that it's difficult to kind of back into that, you know, right now, Chris. I think, you know, from the perspective of, you know, kind of rebuilding the inventories and then, you know, netted against, you know, some of the, you know, the supply constraints, and how that translated through the shelf in addition to the Easter shift, there's a lot of variables, you know, moving through that. That's something we'll have to try to circle back to you on. Fair enough. No, it's no problem. Thank you. Yeah, go ahead. In general, it's a low single digit impact, right, on revenue. I think the important thing is that we said in the last call, we expected to continue to lose market share, but we expected to improve, and we did, right? We did in the places where we said we would, which is mostly coming from the places where we had, like, a big constraint at the end of last year. Our perspective should continue to improve the trend moving forward as the service level recovers. Okay. Thank you. Just one other quick follow-on would be in relation to pricing. You have more pricing coming through in the second quarter. When you account for that pricing, along with. You've got a lot of productivity savings as well. Do you believe this pricing, along with the productivity savings, would be enough to offset inflation once it's in place? Or are you gonna sort of be caught up now with the level of inflation based on the pricing you have currently announced? We have been taking actions with inflation that we have seen, and in the guidance that we have provided, we are already contemplating the inflation that we are seeing even in the forward curves, which, by the way, they have been receding a little bit since their peak. As of right now in the guidance we provided to you, our price year-over-year will be ahead of inflation. Obviously, we are still catching up a little bit with the inflation that started to rise at the end of last year. On a year-over-year basis, our price will be ahead of inflation. Okay. Thank you for that color. Great. Well, thanks, everybody, for joining us today. Let me turn it back to Miguel for a couple of closing remarks. Yeah, I opened today's call saying that it's a very exciting time to be at Kraft Heinz. Let me tell you why we think that way. First, we are very proud because, you know, we've been able to navigate through all the uncertainties of the last two years at the same time that we are building a much better tomorrow. And that's not easy in moments like this. We are a very different company today. We are much more growth oriented. We have improved our portfolio mix and, today, you know, just the platforms where we are working, we have focus. Taste Elevation is about 30% of our business today. It's big and growing and profitable. Just to put it in perspective, it's bigger and more profitable than McCormick, just to give you an example. We have consistent double-digit net sales growth in emerging markets. Our business in food service is strong and growing. We are investing more in marketing in our brands and doing a much better job. Really the profile in terms of growth is very different. From an efficiencies standpoint, I think that we are in a much better place, not only because of the $2 billion that we talked about three years ago and we delivered last year and the previous year on gross savings in supply, but efficiencies across the board. I mean, from marketing to distribution and these partnerships now with technology companies that will help us accelerate these efficiencies. Finally, I think that we have a very different situation from a financial flexibility standpoint. With the discipline we had in these last two years, you know, put us back in investment grade and in a record time, just in two years. Going forward, we'll continue generating free cash flow conversion at a rate of 100%, and we'll look to acquire business and capabilities that can be much more powerful when combined with the scale of our portfolio. All this, of course, with a lot of discipline in pricing. You know, that's why it's exciting to be at this moment working at Kraft Heinz. Thank you. Thank you, Chris. Thank you, Chris. We appreciate it. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.