The Kraft Heinz Company (KHC) Earnings Call Transcript & Summary

Greetings, and welcome to The Kraft Heinz Company Q2 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anne-Marie Megela. Thank you. You may begin.

Thank you, and thank you all for joining us today. Welcome to the Q&A session for our second quarter 2026 business update. During today's call, we may make forward-looking statements regarding our expectations for the future. These statements are based on how we see things today, and actual results may differ materially due to risks and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release and our most recent SEC filings for more information regarding these risks and uncertainties. Additionally, we may refer to non-GAAP financial measures. Please refer to today's earnings release and the non information available on our website for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. Joining me today to answer your questions is our Chief Executive Officer, Steve Cahillane, and our Chief Financial Officer, Andre Maciel. Operator, please open the call for the first question.

[Operator Instructions] Our first question comes from the line of Andrew Lazar with Barclays.

It's encouraging to see some of the incremental investments starting to pay off. I know much can still change by the time we get to 2027. In the prepared remarks, you mentioned expected inflation next year in a 4% to 5% range, and that Kraft will try and offset as much as possible through incremental productivity. I know you had mentioned previously that 26 would also be the margin trough year. So I'm trying to get a sense of whether we should read that inflation commentary for next year maybe is implying that perhaps this year won't be the margin trough and I guess, some of the incremental investment now planned for next -- for the second half of this year will also have to wrap in the first half of next year, too? So I'm just trying to get a sense of how we should sort of read the commentary about next year in the prepared remarks?

Yes. Andrew, this is Steve. Thanks for the question. I think what we were trying to get across in those comments was that despite the macroeconomic uncertainty despite all the challenges that we're facing, that the inflation outlook for next year is not anything that we're fearful of. In fact, we can absolutely manage it. But as always, our first line of defense is productivity. If we could cover all of the inflation with productivity, we would do that. But we are looking to maintain and strengthen our margins over time. So that's the way we're looking at it. It's a manageable year next year despite all of that. We like the way we've set ourselves up. It's more than halfway through the year with this incremental investment coming in. We like the setup, we like the momentum, and we like the way we're setting ourselves up for 2027, including on the COGS line.

Our next question comes from the line of Peter Galbo with Bank of America.

Steve, Andre, I wanted to ask a little bit about just the consumption rate. I know there's a bit of noise with the inventory pull forward in Q2 that's also kind of disrupting Q3. But I think if I back all that out, your consumption was something like down 2% in the second quarter. I think that the 3Q guidance implies, it improves to something like down 1 in 3Q. So I just want to make sure I understand that cadence correctly? And then maybe just as a follow-up, like what that says about how you feel about the exit rate on the year from consumption? So are we going from this down 2% to down 1% to something improved in Q4. I know there's comparable to think about. So there's a lot in there, but maybe you can just speak to the consumption more broadly in the cadence over the balance of the year?

Yes. Thanks for the question, Pete. I'll start and Andre can certainly fill in, but you're reading it right. We had obviously first quarter that was flattered by Easter, the second quarter that reversed. We had snowstorms that we tried to adjust for in the first quarter as well. But by and large, the consumption rate is improving. And the amount of our business that is maintaining or holding share is also improving. And we're seeing real green shoots in part of our Taste Elevation portfolio, certainly in Capri-Sun, even in Mac & Cheese in terms of consumption rates. And so we hope to exit the year with the best consumption rates in the fourth quarter and enter 2027 with real momentum. Now it's too early to give guidance, obviously, and talk about 2027, but you're reading the consumption puts and takes exactly right. And the momentum is growing. Nobody is doing a victory lap that we're declining less than we anticipated, but it is moving in the right direction, and that's what gives us the confidence to invest even more to double down on improving consumption and improve on our share performance.

Yes. I think just to complement, Peter, I think directionally, you are right. In Q2 it is about 2.5% decline on the consumption as we are ramping up strategy ramp up investments by the end of Q2 and now we're going to be a lot more intense in the second half. We do expect a gradual step-up. I don't want to set up an expectation about the specific sellout we're going to be in Q3 and Q4, but we should expect an improvement in Q3 and then under a sequential improvement in Q4. July, they should put a perspective, we were about minus 1%. So there is already an improvement that observed in July and the market share even more important. We were in the first half last 30 bps, which is, in a way, it's good because we go back to the historical levels. Remember that in 2025 at some point, we're losing 90 bps of market share at the beginning of the year. So it's a very significant improvement. Look at the most recent weeks, we are now 20 bps, even a little bit better. So -- it's good to see that things are moving in the right direction. .

Our next question comes from the line of Steve Powers with Deutsche Bank.

Great. Actually, I want to kind of follow up on that and just get a better sense of how you're thinking about the market share progression? Because as you say, Andre, down 30 bps in the first half certainly improved versus where we were in 25%. But if I compare kind of where you were coming out of the first quarter, it looks like there wasn't a whole lot of progress made in the second quarter. And certainly, percentage of win big gaining or holding share went down. especially versus the March exit rates that you shared coming out of 1Q. So just maybe a little bit more perspective on how you're seeing progression. And then as we look to the back half, if there are specific pockets of the business where you expect to see the most traction that we should look for as a specific proof points that would be helpful to be able to highlight?

Yes. And you are correct, the share trend in Q2 and Q1 is similar. And if you remember in the last earnings call, we already anticipated that. We said we do not expect in part because, as we said, we built in today 100 bps headwind from SNAP and part of that would be a share pressure. So in a way, it's good that we are able to offset that share pressure coming out of SNAP because we are seeing the SNAP headwinds, and we were able to protect the share as we anticipated. Now as the investments ramp up and we have all the innovations that we put in market again, interaction you saw in prepared remarks, I think there is very encouraging early signs coming out of Capri Sun Hydrate, out of the Power Mac & Cheese, out of Ore-Ida Shapes. So there's good momentum there. And I think that's also contributing for the share improvement we are seeing. So you should expect Mac & Cheese to continue to improve. We should expect acceleration in general to continue to improve from where we are right now. We should expect momentum on the desserts business, we should expect cold cuts to start to improve the trends given now that we're going to lap the decline that started in July last year. So all those things will be signs of progress.

And if I just build on that, and Andre mentioned this, if you look at the last 4 weeks, we are seeing proof of that. So we're seeing that. And only 1/3 of our incremental first $600 million has been spent. So -- we still have a lot in market to go, including the additional $100 million that we announced this morning.

Our next question comes from the line of Scott Marks with Jefferies.

Wanted to just dive in a little bit on the meats and deals side of the business. That's one area where you specifically called out, plenty of work to do, talked about the targeted actions. Just wondering if you can kind of help us understand how you're approaching those actions and what we can expect in terms of timing for the improvements beyond just the lapping dynamic that you mentioned?

Yes. So I'll start again, Andrew, can build on it. One of the biggest issues that we've had are with our Oscar Mayer brand and specifically in Deli Fresh, we have new packaging, which is almost now complete completely in the market, and we're seeing better performance based on that. And some of that has to do with now lapping the big demands that we saw. So we know we have work to do clearly on the Oscar Mayer front, but the new packaging is in place and early signs are encouraging. And we want to plug that leaky bucket for sure. bacon and hot dogs better performances, better -- much better than Deli Fresh. So it's really isolated around Deli Fresh. Lunchables. We've also had some innovations coming in the market, Lunchable, Snackables. We made some product improvements in Lunchables as well, which is showing early encouraging signs as well. And you mentioned meal. So Mac and Cheese, obviously, we already mentioned, is showing improved consumption, significant improved consumption and Power Mac is -- continues to be off to a good start. I think we mentioned on the last call, terrific distribution, 35,000 stores out there with Power Mac and its consumption is in the first quartile of innovation. So feeling very good about that. And the early read is it is very, very incremental to us and to the category. So retailers have been quite pleased with that. So all-in work to do, but progress being made.

Our next question comes from the line of Michael Lavery with Piper Sandler.

Just was wondering if you could help us understand a little bit of what's working and between some of the product investments, the price investments, the marketing -- what are you seeing being most effective that's running ahead of your expectations? How much can you transfer it across brain categories? And how does it inform how you deploy the incremental $100 million? .

Yes, I see it's working virtually everywhere we're putting it. And so condiments is probably the first area where we've seen really marked improvement Heinz is back to growth as it should be. Strong growth, strong consumption growth, which is terrific. So across the board in the U.S., we're seeing better performance we haven't even mentioned though, emerging markets and what's happening there. Emerging markets had a terrific quarter. Heinz is up 12% in the quarter in emerging markets driven by distribution and consumption. And so if you look the totality of our portfolio, we've said the investment is largely in the U.S. to turn around the U.S. business. We're seeing early green shoots on that. But the rest of the portfolio is performing well in emerging markets, as I already mentioned, and Global Away-from-home is back to growth as well. That's a very strategic channel for us. One that we were not performing well in last year, and we're performing well now. And so we're investing there in product, in customer and in distribution, and it's paying off.

And just couple of quick complements Heinz is really having a very strong year. Worldwide, we grew 3% year-to-date and with the expectation to accelerate from where we are right now, condiments in the U.S. which last year was flat, and that's one of the places where we started the step-up investments in the second half of last year. Condiments in total in the U.S. is also growing 3% year-to-date, which is very good. And again, with prospects to continue to improve. .

Our next question comes from the line of Tom Palmer with JPMorgan.

I wanted to follow up a little bit on Andrew's question on 2027 and maybe focus a bit more on the investment side. you noted earlier in the call that only around 1/3 of the spend had kind of stepped up in the first half of the year. So I think that would imply like a $200 million step-up, $500 million then comes in the back half of the year. One, any help on kind of how much of that step-up comes in 3Q versus 4Q? And then when we start thinking about next year, is a reasonable starting point looking at kind of the 4Q run rate and then extrapolating what that would imply for kind of the step-up next year? Or are there more meaningful considerations on top of that?

Yes, again, I'll start. I think you should think about the third quarter and the fourth quarter being broadly even in terms of how we spend that money. And then as you think about 2027, again, too early to give guidance, but you should think about not necessarily a fourth quarter run rate, but think about 2026 being the base year in terms of getting the investment level right. And we mentioned this in the prepared remarks, but I would like to underscore that we're spending the additional $100 million because we can from a position of strength. And if you're a share owner, would you rather we spend too much or too little. And it's not an exactly precise science, but we felt $600 million was the right number, a very good number and a strong number, the fact that we can add $100 million to it really helps us think about 2027 being the year that we've got it really right with a very strong marketing spend in order to drive our volume-led sustainable share type growth. And so we like the way we're setting ourselves up for 2027. When we get to the fourth quarter results, we'll obviously give guidance against that. But I like where we are. And I think we're in a differentiated position versus some of our peers in terms of the investments that we're making and the momentum that we're starting to build.

And just to be triple clear, like we do not expect any wraparound of investments into next year. So this 26% is the base.