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    KHC
    Earnings call· Mar 2025(Q1 FY25)

    Kraft Heinz Q1 FY25 earnings call KHC

    Apr 29, 2025 Source

    Executive summary

    The Kraft Heinz Company Q1 FY25 — Strategic Investments Amidst Market Pressures

    Kraft Heinz navigated a challenging Q1 FY25 with top-line results meeting expectations and strong cash flow. The company is proactively adjusting its full-year outlook to account for macroeconomic volatility and rising input costs, while simultaneously increasing strategic investments in marketing, R&D, and technology to drive long-term profitable growth and brand superiority.

    Highlights

    3

    • Delivered top-line results in line with expectations despite growing market pressure.

    • Achieved strong cash flow performance and maintained a healthy balance sheet.

    • Progress in improving brand superiority, with the Brand Growth System scaling to 40% of business by year-end FY25.

    Concerns

    3

    • Revised full-year organic net sales guidance to 0% to -2% from 0% to 2% due to macroeconomic uncertainty.

    • COGS inflation guidance increased to 5% from 3%, primarily due to commodity price increases and an estimated 150-200 bps impact from tariffs.

    • Expected double-digit decline in operating income for Q2 FY25 due to increased promotional activity, hedge losses, and commodity increases.

    Guidance & targets

    5
    CategoryTargetConfidence
    Full-year FY25 Organic Net Sales Growth
    0% to -2%
    high materiality
    High
    Full-year FY25 COGS Inflation
    5%
    high materiality
    High
    Full-year FY25 COGS Tariff Impact
    150 to 200 bps
    high materiality
    Medium
    Full-year FY25 Marketing Percentage of Revenue
    around 4.8%
    medium materiality
    High
    Q2 FY25 Operating Income
    decline double digits
    high materiality
    High

    Operational metrics

    7
    Marketing percentage of revenue
    4.8%up 30 bps
    FY25

    Midpoint of new guidance, reflecting accelerated step-up in marketing investment, particularly media.

    Incremental price investment
    100 bps
    FY25

    Approximately 100 bps of incremental price investment was already contemplated in the initial outlook, primarily in the U.S.

    Productivity savings
    more than 3.5%
    FY25

    Stepping up productivity efforts beyond the initial expectation of 3.5% of COGS to mitigate inflation.

    Brand Growth System coverage
    40%up from 10%
    by end of FY25

    Scaling the Brand Growth System, a repeatable global model for driving brand superiority, from 10% of brands in 2024 to 40% of the business by year-end.

    Easter timing shift impact
    90-100 bps
    Q2 FY25

    Expected tailwind to Q2 top line from the shift of Easter timing.

    Hedge losses impact
    quite large
    Q2 FY25

    Significant hedge losses are expected to impact Q2 gross margins but will roll off heading into Q3.

    Mexican strategy growth
    double digits
    FY24 and FY25 YTD

    Business line that did not exist two years ago, showing strong growth.

    Industry KPIs

    3
    MetricValueDetails
    Gross margin—
    Brand platform growthdouble digits%
    Organic net revenue growth0% to -2%%

    Product announcements

    2
    ProductTypeDetails
    Lunchablesupdate
    Capri Sunupdate

    Risks & headwinds

    5
    Macroeconomic uncertaintyFY25

    Impacted full-year organic net sales guidance, revised to 0% to -2% from 0% to 2%.

    Mitigation: Adjusting guidance, prioritizing investments in marketing, R&D, and technology to play offense with discipline.

    Commodity cost inflationFY25

    COGS inflation guidance increased to 5% from 3%, particularly in coffee and meat.

    Mitigation: Stepping up productivity, looking at alternative sourcing, mix management, and potential pricing as a last resort.

    Tariff impact on COGSFY25, mostly concentrated in H2

    Estimated 150-200 bps impact on COGS.

    Mitigation: Delaying, anticipating purchases, looking at alternative sourcing, reformulation, mix management, and stepping up productivity.

    Policy landscape changes

    Contributes to wider operating income guidance range.

    Mitigation: Maintaining flexibility in guidance to contemplate different scenarios and preparing for potential implications.

    Hedge lossesQ2 FY25

    Quite large impact on Q2 gross margin.

    Mitigation: Expected to roll off in Q3, with some commodities starting to come down.

    What to watch in Q2 FY25

    5

    North America Q2 Top Line Performance

    next quarter
    CurrentExpected to be better than Q1
    TargetConfirmation of improvement driven by Easter, cream cheese, Ore-Ida, and Lunchables.

    Why it matters

    Verifies the effectiveness of seasonal tailwinds and brand-specific recovery efforts in the largest segment.

    Look, we expect second quarter top line to be better than the first quarter top line.

    Q&A highlights

    5

    Is the current guidance cut and proposed investment strategy different from past approaches, or is it 'more of the same' given previous investment efforts haven't fully yielded results?

    Management asserts a disciplined 'offense' strategy, prioritizing investments in marketing, R&D, and technology. The key difference is the scaling of the Brand Growth System (BGS) to 40% of the business, which provides a proven model for effective investment and product renovation, giving confidence in the current approach.

    “And we are choosing to play offense with discipline. So we are, in fact, prioritizing investments in marketing, R&D and technology. And the way we're doing that, Andrew, is we focus on increasing returns of our marketing dollars by shifting more towards a consumer-facing marketing.”

    asked by Andrew Lazar · answered by Carlos Abrams-Rivera

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Investment Prioritization

    Kraft Heinz is prioritizing investments in marketing, R&D, and technology to play offense with discipline. This includes shifting towards consumer-facing marketing for increased ROI, optimizing brand and media allocation, and enhancing digital tools for efficiency. The company aims to close the R&D investment gap to 1% of net sales and continue automation efforts.

    02

    Brand Growth System Scaling

    A key differentiator in the current investment strategy is the Brand Growth System (BGS), a repeatable global model for identifying brand opportunities and driving superiority. After piloting on 10% of brands in 2024, BGS is being scaled to 40% of the business by the end of FY25. This system guides product and packaging renovation, ensuring effective consumer communication and supporting investments.

    03

    North America Q2 Outlook and Drivers

    North America's Q2 FY25 top line is expected to improve over Q1, benefiting from the Easter timing shift (90-100 bps tailwind). Categories like cream cheese and Ore-Ida are expected to restore growth after lapping prior-year competitor out-of-stock issues. Lunchables performance is also anticipated to improve, particularly after mid-May and June, as the company fully laps the consumer report impact and new renovations reach the market.

    04

    COGS Inflation and Tariff Impact

    The full-year COGS inflation guidance has been raised to 5% from 3%, primarily due to significant increases in coffee and meat commodity prices. Additionally, tariffs are estimated to contribute 150-200 bps to COGS inflation in FY25, with the impact expected to be concentrated in the second half. The company is exploring mitigation strategies such as alternative sourcing and productivity improvements to minimize pricing actions.

    05

    Gross Margin and Operating Income Pressures

    Q2 FY25 gross margin is expected to face pressure from increased promotional activity for the summer season, significant hedge losses that will roll off in Q3, and peaking commodity price increases. These factors, combined with stepped-up marketing investments and product renovation costs, are projected to result in a double-digit decline in operating income for the second quarter.

    06

    Disciplined Promotional Strategy

    Kraft Heinz maintains a disciplined approach to promotional activity, focusing on events that create sustainable base volume rather than short-term rentals. Investments are strategically aligned with key seasonal windows (e.g., Memorial Day, July 4, Back to School) and integrated with brand renovation efforts, ensuring consumers experience improved products like the renovated Lunchables and Capri Sun.

    AI-generated summary of the company’s earnings call. Not investment advice.