Good day. Thank you for standing by. Welcome to The Kraft Heinz Company Q2 results. At this time, all participants are in a listen-only mode. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anne-Marie Megela, Head of Global Investor Relations. Thank you, hello, everyone. Welcome to our Q&A session for our Q2, 2023 business update. During today's call, we may make forward-looking statements regarding our expectations for the future, including items related to our business plans and expectations, strategy, efforts and investments, and related timing and expected impacts. These statements are based out on how we see things today, actual results may differ materially due to risks and uncertainties. Please see the cautionary statement and risk factors contained in today's earnings release, which accompanies this call, as well as our most recent Form 10-K, Form 10-Q, and Form 8-K filings for more information regarding these risks and uncertainties. Additionally, we may refer to non-GAAP financial measures, which exclude certain items from our financial results reported in accordance with GAAP. Please refer to today's earnings release and the non-GAAP information available on our website at ir.kraftheinzcompany.com under News and Events for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. Before we begin, I'm going to hand it over to our CEO, Miguel Patricio, for some brief opening comments. Well, thank you, Anne-Marie Megela, and thank you, everyone. Thanks for joining us today. Before opening the call for questions, I would like to thank the entire Kraft Heinz team. We have proven again that our strategy works, generating top-line growth fueled by the three pillars, while reinvesting margin gains into the business. While we did lose share in the quarter, as price gaps have stayed wider for longer than we would have liked, we are managing the business for the long term and still generated mid single-digit top-line growth within the range of what we expected. As you may remember, on the last earnings call, we introduced four action plans to drive share. We have seen those plans take hold, and they have led to improving results each month within the quarter, building momentum into the second half of the year. The continued execution of these action plans and the lapping of last year's pricing are expected to drive improving volume trends in the second half of 2023 and into 2024. Our results give me continued confidence in our strategy and in our business, and I'm pleased to reiterate our full year guidance. With that, I have Andre and Carlos joining me. Rafa is on a well-deserved vacation with his family, so let's open the call for Q&A. Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for your first question. Our first question comes from Andrew Lazar with Barclays. You may proceed. Great. Thanks so much. Good morning, everybody. Good morning, Andrew. I was hoping to dig into the promotional environment a little bit and some of the comments from your prepared remarks about branded competitors promoting at a higher level than Kraft Heinz. In your view, are branded competitors, you know, either over-promoting or promoting in what you see as sort of an irrational way? Or is it more that KHC has not been able to ramp up its own merchandising activity yet to the extent needed, given some of the supply constraints and leading of the pricing actions? I guess, in other words, would you still expect the industry promotional levels to settle in below 2019 levels, or is there some concern building internally, you know, that competitive behavior could return to previous levels or beyond, and that pricing could actually go negative at some point? Just trying to put some context around all of this. Thanks so much. Good morning, Andrew. Thanks for the question. I will ask Carlos to answer since I believe it's related to the U.S. retail. Good morning, Andrew. You know, the, the way you kind of look at it is that if you look at the industry as a whole, today, promotional levels are, as you said, are still below 2019. What we are seeing is that our branded competitors are actually closer to those levels. What we are working on is how do we continue to make sure that we act with a thought of protecting our margins and of building the virtuous cycle as we continue to, you know, improve on our marketing, continue to improve our services, our innovation, and importantly, that we stay focused on deriving the revenue management needed in order for us to be rational in terms of the effectiveness of our promotions. If you look at our promotions this year, we actually have been very effective and efficient. We actually are generating attractive ROIs on our investments. In fact, I think the numbers right now are up 50 points versus 2019, and that's true because, you know, the, the focus that we have on those agile, AI-driven revenue management tools that we are applying to making sure that every promotion does have that kind of true ROI return. On top of that, we're also making sure that we are working to maximize the opportunity on those promotions. The quality of our merchandising, especially when you look at displays, continues to improve. In fact, our share of displays continue to see increasingly improvements over the Q1. I think altogether, what I would say is, our focus continues to be being very much leveraging our revenue management tool, continue to focus on driving the investments in terms of marketing innovation, which you will know will make sure that, you know, improve our, our view as we go into the second half of the year and onto 2024. Great. I'll pass it on. Thank you. Thank you, Andrew. Thank you. One moment for questions. Our next question comes from Ken Goldman with JP Morgan. You may proceed. Hi, thanks. You know, you mentioned that the second half's organic sales growth rate will be more in line with the long-term algo. Not to put too fine a point on it, just so we can model more accurately, I was just curious, does this mean you expect it to be within that 2%-3% range that's your long-term algo, or just getting somewhat closer to it? Thank you, Ken. Andre, please. Hi, Ken. Good morning. As we have said in prepared remarks, we expect to gradually go towards the long-term algo. It might happen that we're gonna reach there between Q3 and Q4, but you should expect, like, revenue to be gravitating towards that. Yeah. Okay. I'll, I'll follow up on that. I wanted to ask a follow-up about capital allocation priorities. Paying down debts, I think number three on that list ahead of portfolio management. You know, you highlighted that leverage is, I guess, more or less at your target. Does debt pay down thus move down a notch in importance? I guess what I'm getting at, is there, is there a scenario in which you might, you know, maybe start to buy back some stock again? We are not changing our capital allocation policy now. As we said, our priority has been to fund the business organically. I think we have been doing that very consistently. For us to maintain the dividend that we have, which provide a very attractive yield, is critical. I think we feel good about our rating now, with the double upgrade we had in the past 16 months. M&A, as we said before, continues to be something that we actively look at. We'd like to, as Andre Maciel mentioned that multiple times, so we're having very disciplined how we're doing that, but there is no change at this point. I mean, we're always taking into consideration market dynamics and, and our capital structure, but we don't have anything new to say at this point. Thank you. Thank you. One moment for questions. Our next question comes from John Baumgartner with Mizuho. You may proceed. Good morning. Thanks for the question. I wanted to stick with, with North America and, and the comments on promotions, but more so on the delivery. Is there, Carlos, you highlighted the ROIs you're seeing, you touched on the quality promos a bit, but to dig inside a bit more deeply versus history, how are you seeing the lift, you know, sort of changing from quality promo programs, the feature, the display, relative to the pre-inflation era? Are you seeing a greater role for price reductions going forward? Does quality programs still have the same degree of lift, you know, in terms of the influence of those drivers? Just trying to get a sense for, as you lean into promo more in the back half in the programming, does pricing need to be a larger driver at the margin than you would have thought relative to feature and display, you know, a couple of quarters ago? John, thanks for the question. You know, I'll say, I think some of the parts were a little hard to understand, but I think I got the gist of your question. You know, as it related to the second half, as we think about promotional level, and we have said this in prior calls and it's within our guidance, there is a step up that we'll do in promotional levels as we go into the second half of the year in selected categories, but always with a disciplined approach about the returns. What I would add, too, is that, you know, one of the things that we're able to do with our promotional investment to improve the effectiveness of those things, of that investment, is to make sure we lever the entire portfolio, and that we are thinking through how do we make sure we have the right product selection to the right audiences. For us, when you look at our, whether it's barbecue season, and we combine the different kind of categories that we can bring together, as we think about back to school, in which we can bring in Lunchables and our Capri Sun business together, that idea of us being able to kind of go into the retail environment and actually lever the entire scale of our business allows it to be more effective in terms of the returns of those promotions. It's both looking at the true ROI through the AI management tools that we have, as well as maximizing our presence in store, leveraging our scale. The last thing I will say is, as we think about going into the second half of the year, we're also seeing consumers behaving, you know, in, in a way, in two different kind of camps. There are the consumers who are gonna be looking for those, the more, I would say, you know, larger packs, in which they're gonna look for the value by looking at the total size of the products that they're gonna get, and why we are introducing more products in the club type of packages, whether that is in our Mac and Cheese, in our Lunchables, and you see that that is focused on driving that particular type of behavior with consumer effectiveness. There's also gonna be a number of programs specifically to making sure that we are keeping consumers who are also focused on the cash flow within our categories, which is why we also have been introducing more of a smaller package, more a Dollar General, more of the dollar type of products that allows us to maintain our consumers within the category for longer. We're approaching that in those two prongs, at the same time, always looking at making sure we have the right ROI in every investment that we make. Good. I, I apologize for my connection there, but just to clarify, if we think about price promotions versus sort of non-price, the quality, the feature, the display, have you seen any sort of changes in terms of how deep you may have to go on price reductions going forward? Do you think that, you know, kind of quality promo, you'll still see attractive lifts, and you don't really have to get deeper on pricing? Sorry, Andre, here. What we have seen throughout this past two years is that we can have very attractive lifts without having to go as deep. I think that, when you look across at least based on data from IRI and NielsenIQ, that's what we have been observing for ourselves. I think that still remains true moving forward. The other thing that, as Carlos mentioned, that I think moving forward, we're gonna start to see more and more a increasing importance of mix, and that vis-à-vis only doing more promotions or playing with these prices. I think you're gonna be hearing a lot more about mix-related actions. Okay. Thanks for your time. Thanks, John. Thanks. Thank you. One moment for our next question. Our next question comes from Bryan Spillane with Bank of America. You may proceed. Hey, thanks, operator. Good morning, everyone. Good morning. Hi. I had, I guess I had just two questions. First one, just a clarification. I think we talked about margins in the prepared remarks, that Q4 margins will be higher than the Q3. I just wanna clarify, was that a comment on gross margin or EBITDA margin? Andre? Yeah, it ends up, ends up being both, but it's driven by the gross margin. Okay. It's mostly It's a seasonal factor because in Q4, we typically sell we overindex in products with higher margin. If you look just seasonally, aside from many others, Q2 is higher than Q3 because we ship a lot of grilling season, which has higher margin. We ship for summer, then in Q4, we have items like cream cheese, gravy, other items like that, they have very high margin desserts. That's why. It's just mix related. Okay. Then second question, and I guess maybe this is related to what John Baumgartner was just asking, but maybe just more simplistically, you know, I think coming out of the Q1, you talked, and this, we're talking about North American retail, that one of the issues or one of the, the drivers of share, share losses, was just price gaps, right? That competitors, whether it's private label or branded in certain categories, hadn't followed your pricing. So I guess I have two questions. One is, have price gaps narrowed, or are your share gains that you've seen sequentially over the last couple of months happened without the price gaps closing? Then when we think about your-- the comments about expectations for volume growth in 2024, right, is that dependent also on kind of normalized price gaps? I guess what I'm trying to understand is, like, can you drive volume without those price gaps closing because you really can't control what your competitors do? Yeah, I, I think there's a couple of things. If we look versus the, the bottom with the last two, three months, we have seen the price gaps narrowly moving favorably to us, so getting closer. There is certain contribution coming from that. Also all the other actions that we, we outlined in the remarks, right? We had still some pockets of challenges in service that is now getting behind us. I think the only big remaining item is cold cuts, that, as we said, are gonna be recovered by end of Q3 or the Q4. We have innovation starting to ramp up, and I, I think Carlos can give more color on that. Yeah, Brian, what I would add is that, you know, first of all, on the, on the comment on private label, you know, private label shares trends actually have been flat since you look at it. In fact, since second half of 2022, even with the increase in price gaps that we had after our pricing back in February. We have taken that pricing to protect our margins and, you know, some branded competitors have not followed, but at the same time, we continue to stay diligent on the way we think about the business. In the points that Andre just mentioned, in terms of as we think about going forward, why is it that we see the moderation of our, of our improvement? I'll give you three reasons and the way kind of I look at it as we go into the second half of the year, into 2024 in, in the U.S. retails. You know, number one, we're investing more in marketing, we're launching more innovation, and we are lapping the pricing actions as we go into second half of the year. Just to unpack it one more level, if you think about the innovation that we are seeing right now, we are actually building momentum as we go into the year, as we are following this kind of two-pronged strategy innovation. First, you're gonna see us continue to launch more disruptive innovation platforms, and that, that includes things like our NotCo line of plant-based offerings, the new 360CRISP, which delivers great taste and all the convenience, and the restaurant-to-retail platform, and you see that already with things like the IHOP Coffee line. The second part of the innovation is also how do we take our existing brands into new spaces? Already, we introduced the new Kraft Mac & Cheese Deluxe Frozen. We are expanding our Delimex and Taco Bell at Home into more spaces within Mexican meals. As we speak, we're also launching new Oscar Mayer Scramblers as we continue to expand on the breakfast platform. You see, it's comprehensive in terms of how we are approaching innovation in order to continue to shape the categories as we increase its shelf space and quality displays as we go forward, and that's already paying off. In fact, just to give you a factoid, if you look at our Lunchables, we are creating a new golden wall in Lunchables as we go into a second half. We are seeing that in some of our top customers, that increases about 40% our spaces in the shelf. Again, it's not only thinking through the kind of promotional event, but also what we're doing in terms of our driving, volume driving activities that are important as we go forward. Thank you. One moment for our next question. Our next question comes from Pamela Kaufman with Morgan Stanley. You may proceed. Hi, good morning. Good morning. Morning. In North America, you pointed to your organic sales growth below consumption in certain parts of the portfolio, like the GROW Platform, Taste Elevation, Easy Meals. What's driving that gap? Are, are you seeing a change in how retailers are managing inventory levels or shelf space for your brands? Pam? Let me, let me start with the. Thank for the question. Let me start with the second part of that, which, you know, what we've seen right now is if you look at the Q2 and, and what we know today, we believe retailer inventory is actually in pretty good shape. In fact, on average, retail inventory for us was flat across the North America business. Where it did happen, it was in, in truly in isolated pockets and, and earlier in the quarter, so that we actually saw that through the quarter, it continued to improve. There's no, I don't see that as an ongoing situation as we go forward, and that has been proven as we go through, through the quarter. I'm sorry, the first part of your question then was what? Oh, why were your sales below consumption across some of your platforms? Yes. No, thank you. You know, I think if, if you look at our growth platforms, which continue to drive our priority and our strategy, those actually, in consumption, remain very strong. I think if you think about, you know, Taste Elevation growing 8% for the quarter, Easy Meals growing 6% in the quarter. In those cases, you know, the difference between organic and our, and our consumption were specifically in Easy Meals, where there was an inventory deload at the beginning part of the quarter, that, as I said earlier, it continued to improve as we go into, as we go forward. I think for us is, you know, that remains, our strategy remains, you know, the fact that the consumption continued to improve as we go through the quarter and the performance we saw on those, I think supports our continued focus on that strategy as we go into the second half of the year. Okay. Thank you. Thank you. Just a follow-up question on your outlook for volumes improving in the back half. You pointed to moderating pricing growth as one of the drivers, but in the Q2, pricing already moved past its peak, although, you know, volumes still softened. Why do you think that volumes will get better from here, considering the competitive environment and some of the macro headwinds you highlighted, like the student loan repayments resuming? I guess just related to that, how much of a driver do you think that the innovation that you talked about can be for volumes? Thanks. Yeah. Look, our price, our price in Q2, as you saw, was close to 11%. The reason why we saw higher elasticity and higher volume decline, as I said before, is because of the expanded price gaps. Moving forward, these price gaps are not getting worse. If anything, they are slightly getting better. As you head into the second half, as we continue to lap price, we still have relevant price that happened last year, so that you're going to be lapping. We started now in Q3 and even we had another round that implemented Q4 last year. We have two rounds of price still to lap in the United States alone. Beyond the, the, the pricing side, there are other things linked to our action plans that will help us to step up the share level that we are today. I think Carlos can speak about that. The only thing I guess I would add to that, too, is that if you think about innovation, it's not just kind of the launching innovation, but what the innovation allows you to actually perform in market. When I mention things like us being able to improve our presence and, and expanding our, our shelving on things like Lunchables because of the innovation. And with Lunchables, for example, we are going to new locations, so Already announced yesterday, we're doing pilots on taking Lunchables into the produce section. We're launching innovation within schools. We are expanding our presence in vending. All that actually helps us to strengthen our overall kind of performance in stores. We also are doing that in Philadelphia Cream Cheese. If you think about our year, a year ago, this is actually, actually gonna be the first holiday season in which we're gonna go into the holidays with full service on Philadelphia Cream Cheese. That's true for the last several years. Now we have an opportunity to actually truly kind of leverage our power of our brand, make sure we build the kind of our share of display as we go into this, one of the most important seasons for Philadelphia business. We also see into that, too, in coffee. I mentioned earlier the fact that we had a new line of, with IHOP, in terms of bringing coffee, a new IHOP Coffee into the stores. That actually allows us to also expand the coffee category into the stores and actually win additional spaces as we go into the second half of the year. The innovation plays a couple of roles. It both attracts consumer and shape a category to grow, but it also helps us expand our presence in order to increase the volume as well. volume expected to improve as a function of lapping prices from last year. We still have two rounds to lap. Innovation ramped up, shelf resets in the fall that I think will be favorable to us. That's an expectation. service level recovery, particularly in cold cuts. Got it. Thank you. Thank you. One moment for questions. Our next question comes from Cody Ross with UBS. You may proceed. Hi, thank you for taking our questions. Just want to focus on gross margin and specifically your inflation outlook. What's driving you to move your inflation outlook lower, this year? Commodities, in general, continue to come down. As hedges roll off and our contracts get adjusted, some of them are based on indexes, we are seeing costs continue to move favorably, which has been allowing us to expand the gross margin, and by consequence, has been allowing us to accelerate the investment behind the business, particularly in marketing, R&D, and technology. Yeah, I would add that... Any particular, any particular commodities? That, that are declining? Yes, that you would call out, that's driving that. I don't think there is a particular one. I mean, our portfolio is so, so large. There's so many commodities across the business, that there is a general movement of commodities coming down. The exceptions to that, say, are tomato, potato, that had bad crops and sweetness. Other than that, we are seeing generally commodities moving favorably. Understood. In light of the declining commodities or your outlook for inflation, do you think you took too much price, given you said you took price ahead of competitors and they have not followed? I'll pass it on. No, I would say. Let me answer that one. I would do everything again. I mean, we had very high inflation, and we are leaders in the vast majority of categories where we play, and it's our role as leader to try to compensate these price increases with this inflation with price increases. I would do everything again. I mean, we can always go back on price if we think we have to or when we have to, but we had to lead price increases. Yeah, that would be my answer to you. The only thing I would say is, remember that we have been very systematic in terms of pricing to offset the inflation, and that's what we have done. We have not set prices ahead of inflation. If you look at our gross margin in Q2, it's still slightly below 2021 levels. The other thing that is worth mentioning, the gross margin, we, we showed that in prepared remarks. Our efficiency plan is trending very well, and we're pacing ahead of the $500 million that we have said we'll deliver by year, which is some other good news. Let me build on, on that point, from Andre. I think that the only sustainable way to keep increasing our investments behind the brand and to grow our volumes and shares for the future, is by improving gross margins and, and, and investing back in marketing, R&D, and technology, which is exactly what we are doing. We had, you know, very high, very good gross margin this, this quarter, we could increase marketing this quarter by 23%. We could increase R&D by 10%. We could increase our investments in technology. As Andre said, that was possible because in, in one side, yes, we had price increases, but on the other side, because we are every month delivering more and more efficiencies in supply. We're excited with that part as well. You know, that's my- I think that people note the difference as well in how we're operating, because we have been intentionally opting to use those resources to put back in the long term behind market and the technology. We could have opted to be adding more promotions, but that would, that would not make sense because we are adding promotions for low return. We are thinking about the long term here. I hope people note the difference of how it has been, the game has been played very differently. That'll wrap it up for today's Q&A session. Thank you all for your questions. I will turn it over to Miguel, who will just kind of wrap up the call for us. I just want to thank you all for the time and for the attention and the patience with us. Thank you so much and hope to talk to you and to see you very soon. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.