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    KHC
    Earnings call· Mar 2025(Q1 FY25)

    Kraft Heinz Co KHC

    Apr 29, 2025 Source

    Executive summary

    Kraft Heinz Q1 FY25 — Lowered Sales & Operating Income Guidance Amid Macro Headwinds, Strong Cash Flow

    The company navigated a challenging Q1 FY25, delivering results in line with expectations despite macroeconomic pressures and a decline in organic net sales. Management lowered full-year guidance for organic net sales and adjusted operating income, citing worsening consumer sentiment and increased costs. However, strong cash flow generation and significant productivity gains remain key strengths, enabling continued investment in brands and strategic initiatives.

    Highlights

    5

    • Generated $482 million in free cash flow for the quarter, slightly above last year's performance, with free cash flow conversion increasing 9 percentage points year-over-year.

    • Maintained a targeted net leverage ratio of approximately 3x and returned nearly $900 million to stockholders ($500 million in dividends, $400 million in share repurchases).

    • Achieved $1.5 billion in gross efficiencies towards a $2.5 billion goal by 2027, with overall equipment effectiveness reaching an all-time high of 70% in Q1, up 5 percentage points from 2023.

    • Emerging markets organic net sales grew 3.9% year-over-year, with Heinz brand sales in emerging markets up approximately 11%.

    • Secured over 11 billion earned impressions for North America brands in Q1, the highest in Kraft Heinz history, demonstrating effective marketing.

    Concerns

    5

    • Organic net sales declined 4.7% versus the prior year, driven by declines in U.S. retail and U.S. Away from Home.

    • Lowered full-year organic net sales guidance to a decline of 1.5% to 3.5% (from flat to down 2.5%) due to worsening consumer sentiment and volume elasticity.

    • Widened full-year constant currency adjusted operating income guidance to a decline of 5% to 10% (from decline 1% to 4%) due to increased costs, inflation, and tariffs.

    • Adjusted gross profit margin contracted 10 basis points year-over-year in Q1, and is expected to be down approximately 200 basis points in Q2.

    • Adjusted EPS came in at $0.62 in Q1, including a $0.05 impact from a higher tax rate, and full-year adjusted EPS guidance was lowered to $2.51 to $2.67 (from $2.63 to $2.74).

    Guidance & targets

    14
    CategoryTargetConfidence
    Full-year 2025 organic net sales
    down 1.5% to down 3.5%
    high materiality
    Medium
    Full-year 2025 constant currency adjusted operating income
    decline of 5% to 10%
    high materiality
    Medium
    Full-year 2025 adjusted EPS
    $2.51 to $2.67
    high materiality
    Medium
    Full-year 2025 adjusted gross profit margin
    down 25 to 75 basis points year-over-year
    medium materiality
    Medium
    Full-year 2025 free cash flow
    flat versus prior year
    medium materiality
    High
    Full-year 2025 free cash flow conversion
    approximately 95%
    medium materiality
    High
    Full-year 2025 effective tax rate
    approximately 26%
    medium materiality
    High
    Q2 organic net sales
    better relative to the first quarter of 2025
    medium materiality
    High
    Q2 adjusted gross profit margin
    down approximately 200 basis points
    high materiality
    High
    Q2 adjusted operating income
    down double digits versus the prior year
    high materiality
    High
    Emerging markets growth
    double-digit pace
    medium materiality
    High
    Global Away From Home top line performance
    relatively flat
    medium materiality
    Medium
    Marketing as a percentage of sales
    up versus the prior year
    low materiality
    High
    Returns on marketing spend
    double-digit increase
    low materiality
    High

    Segment performance

    8
    SegmentRevenueYoYQoQMargin
    North America
    Organic net sales declined with growth in Canada offset by lower sales in both U.S. retail and Away From Home, including a 120 basis point impact from the Easter shift. Adjusted operating income declined as productivity gains and lower incentive compensation were more than offset by sales declines and commodity inflation in coffee, eggs, and meat.
    		—declined 6.5%—declined 9.4%
    International developed markets
    Organic net sales decline was primarily driven by industry slowdown in the U.K. from weakening consumer sentiment. Adjusted operating income decreased mainly due to the lag between pricing and inflation, as well as softer sales.
    		—declined 1.7%—decreased 7%
    Emerging markets
    Organic net sales growth was driven by pricing in line with inflation, with volumes impacted by the timing of Ramadan. Adjusted operating income growth and margin expansion were driven by revenue management initiatives in Brazil and operational efficiencies across the zone.
    Adjusted operating income margin: expanded by 300 basis points
    		—up 3.9%—increased 20.3%
    U.S. Retail ACCELERATE platforms
    Primarily driven by a decline in Lunchables, lapping competitors out of stocks in Philadelphia and Ore-Ida in the previous year, and the Easter shift, which drove 110 basis points of the decline.
    		—declined 8.1%——
    Canada ACCELERATE platforms
    Strong performance in Canada.
    		—grew 5%——
    Global Away From Home
    Continued growth in international Away from Home for 16 consecutive quarters, offset by U.S. Away from Home industry pressures due to slowing traffic.
    		—declined 0.8%——
    U.S. Away From Home
    Achieved 4% of sales growth in higher-margin noncommercial channels. Philadelphia Cream Cheese brand saw substantial double-digit growth, driven by partnerships with Crumble and Dunkin' Donuts.
    Philadelphia Cream Cheese growth: double digits
    		—4% of sales growth——
    Emerging Markets Heinz brand
    Grew organic net sales approximately 11%, representing over $1 billion in sales in emerging markets, but still only 40% of total sales in the zone, indicating meaningful room for growth.
    Share of total sales in zone: 40%
    		$1 billionapproximately 11%——

    Operational metrics

    42
    Free cash flow conversion
    65%9 percentage point increase versus prior year
    Q1

    Primarily driven by lower cash outflows from variable compensation, partially offset by inventory phasing.

    Gross efficiencies
    $150 million
    Q1

    Offsetting some of the pressure primarily from commodity inflation.

    Gross efficiencies as a percentage of cost of goods sold
    3.7%Exceeds 3.5% goal for the year
    Q1

    Exceeds the 3.5% goal for the year.

    Total gross efficiencies unlocked to date
    $1.5 billion
    to date

    Towards a $2.5 billion goal by 2027.

    Overall equipment effectiveness
    70%up 5 percentage points from 2023
    Q1

    Reached an all-time high.

    Brand Growth System sales coverage
    40%up from 10% in 2024
    by year-end

    Scaling up from pilots in 2024.

    Share of shelf increase
    approximately 25%
    Q1

    Increased across approximately 25% of the portfolio.

    Easter shift impact on North America organic net sales
    120 basis points
    Q1

    Impact on organic net sales.

    Easter shift impact on U.S. Retail ACCELERATE platforms organic net sales
    110 basis points
    Q1

    Drove a portion of the decline.

    Capri Sun renovated product sales improvement
    8 percentage pointyear-over-year sales improvement from what ended in 2024
    Q1

    Improvement in year-over-year sales.

    Capri Sun single-serve bottles initial sales
    5xgreater than expected
    initial

    Initial sales coming in 5x greater than expected.

    Capri Sun on-the-go bottles velocity
    4xthe rate of a key competitor
    initial

    Generating velocities at 4x the rate of a key competitor.

    Capri Sun Moon Punch sales
    2xthe rate of core products
    limited time offer

    Sales exceeding 2x the rate of core products.

    Kraft Mac & Cheese Mario shapes sales
    highest level
    last 5 years

    Driving total shape sales to the highest level seen in the last 5 years.

    Flavor Mac & Cheese growth
    7xoutpacing total category
    last 5 years

    Outpacing the total category by 7x over the last 5 years.

    Kraft Mac & Cheese 11-ounce box volume
    50% more
    new product

    Provides 50% more at a price point that is 20% less per ounce.

    Heinz Mayo market share
    50%from 30% in 2020
    current

    Market share in Chile.

    Pasta sauce organic net sales growth
    5%
    Q1

    Increase in Q1 organic net sales.

    CRAVE frozen meals growth
    7%
    Q1

    Increased through innovation launches and more effective promotions.

    Primal Kitchen growth
    10%
    Q1

    Contributed to 10% growth.

    Mexican food and sauces growth
    15%
    Q1

    Second year of double-digit growth in this category.

    Emerging markets distribution points added
    21,000compared to Q1 2024
    Q1

    Added compared to the first quarter of 2024.

    Taco Bell partnership dollar sales growth
    12%
    Q1 2025

    Grew dollar sales in the first quarter of 2025.

    Heinz pasta sauce dollar sales growth
    26%
    Q1

    Generating dollar sales growth.

    ABC multipurpose peanut sauce market size
    $200 million
    current

    Market size in Indonesia.

    Global magnesium market size
    $6 billionprojected to grow at 5% annually
    current

    Projected to grow at 5% annually.

    Earned impressions
    11 billion
    Q1

    Highest in Kraft Heinz history for North America brand.

    Ore-Ida tot clock campaign earned media impressions
    3 billion
    campaign

    Campaign went viral.

    Ore-Ida tot clock campaign regional sales lift
    9%
    campaign

    Regional sales lift from the campaign.

    Ore-Ida tot clock campaign spend
    less than 5 basis points
    campaign

    Achieved more engagements than all March Madness sponsors combined with less than 5 basis points of the spend.

    Adjusted operating income decline
    5.2%
    Q1

    Total Kraft Heinz adjusted operating income declined.

    Adjusted operating income margin increase
    30 basis points
    Q1

    Total Kraft Heinz adjusted operating income margin increased as a result of strong performance in emerging markets.

    Adjusted gross profit margin decrease
    10 basis pointsyear-over-year
    Q1

    Limited decrease in year-over-year adjusted gross profit margin.

    P&L tax rate step-up
    500 basis point
    starting Q1

    Expected step-up in P&L tax rate related to the transfer of certain business operations completed in Q4 2024.

    Net leverage ratio
    approximately 3x
    current

    Maintained targeted net leverage ratio.

    Capital returned to stockholders
    $900 million
    year-to-date

    Returned year-to-date, comprising $500 million in dividends and $400 million in share repurchases.

    Dividend paid
    $500 million
    year-to-date

    Paid through competitive dividend.

    Share repurchase program executed
    $400 million
    year-to-date

    Executed through share repurchase program.

    Share repurchase authorization remaining
    $1.5 billion
    current

    Remaining against the $3 billion authorization.

    Adjusted EPS decline
    10.1%versus Q1 2024
    Q1

    Declined $0.07 versus the first quarter of 2024.

    Effective tax rate impact on adjusted EPS
    $0.23 headwindyear-over-year
    FY25

    Year-over-year headwind on adjusted EPS.

    Q2 Easter shift benefit on organic net sales
    approximate 100 basis points
    Q2

    Benefit due to Easter shift.

    Industry KPIs

    6
    MetricValueDetails
    Gross margin10 basis point contractionbps
    Brand platform growthLunchables Spicy Nachos: over 30% incremental growth; Capri Sun renovated product: 8 percentage point improvement YoY; Kraft Mac & Cheese Mario shapes: highest sales in 5 years; Flavor Mac & Cheese: outpacing category by 7x in 5 years; Pasta sauce: 26% dollar sales growth in Q1; CRAVE frozen meals (Canada): 7% increase; Primal Kitchen: 10% growth; Mexican food and sauces: 15% growth in Q1; Philadelphia Cream Cheese (U.S. Away from Home): double digits growth; Heinz (emerging markets): approximately 11% organic net sales growth
    Organic net revenue growthdeclined 4.7%%
    Adjusted EPS operating incomeAdjusted EPS: $0.62; Adjusted operating income: declined 5.2%USD; %
    Volume mix vs pricing decompositionprice up 0.9 percentage points and volume mix down 5.6 percentage pointspercentage points
    Elasticity consumer response commentaryworsening consumer sentiment and changes in volume elasticity

    Product announcements

    12
    ProductTypeDetails
    Lunchables Spicy Nachoslaunch
    Lunchables new game-changing launchlaunch
    Lunchables elevated experience (cookie, crackers)update
    Capri Sun Moon Punchlaunch
    Kraft Mac & Cheese Mario shapesupdate
    Kraft Mac & Cheese 11-ounce boxlaunch
    Kraft Mac & Cheese big cupslaunch
    Heinz Mayo linelaunch
    Taco Bell partnership (Canada)expansion
    Heinz pasta sauce (new formats, new countries)expansion
    ABC multipurpose peanut saucelaunch
    Mio Unwindlaunch

    Deals & partnerships

    3
    Chicago CubsHeinz became the official condiment of Wrigley Field.

    Partnership made Heinz the official condiment of Wrigley Field, leading to incremental distribution of various products.

    Hilton HotelsNew global contract designating Kraft Heinz as their preferred sauce and condiment vendor.

    Signed a new global contract designating Kraft Heinz as the preferred sauce and condiment vendor for Hilton Hotels.

    Crumble and Dunkin' DonutsPartnerships driving growth for Philadelphia Cream Cheese in U.S. Away from Home channel.

    Partnerships contributed to double-digit growth of Philadelphia Cream Cheese in the U.S. Away from Home channel.

    Risks & headwinds

    7
    Growing market pressures / macroeconomic conditionsQ1 and full-year 2025

    Organic net sales declined 4.7% in Q1; full-year organic net sales guidance lowered to down 1.5%-3.5%; full-year constant currency adjusted operating income guidance lowered to decline 5%-10%.

    Mitigation: Controlling controllables, making necessary investments, leveraging Brand Growth System, agile ways of working, unlocking efficiencies, optimizing marketing spend, investing in price.

    Tariff inflation and new regulationsFull-year 2025

    Reflected in updated guidance; contributes to increased cost of doing business.

    Mitigation: Tariff mitigation efforts, additional pricing.

    Impact on elasticities / worsening consumer sentimentFull-year 2025

    Primary driver for change in organic net sales guidance.

    Mitigation: Delivering products that meet needs at affordable prices, value-driving initiatives, stepping up price investments, optimizing media spend, innovation.

    Commodity inflationQ1, Q2, and full-year 2025

    Primarily in coffee, eggs, and meat; resulted in 10 bps margin contraction in Q1; expected to drive Q2 adjusted gross profit margin down ~200 bps.

    Mitigation: Gross efficiencies ($150M in Q1), additional pricing.

    Higher tax rateStarting Q1 2025 and full-year 2025

    $0.05 impact on Q1 EPS; approximate 500 bps step-up in P&L tax rate; $0.23 headwind on adjusted EPS year-over-year.

    Mitigation: Related to transfer of business operations for international tax environment changes and operational synergies.

    U.S. Away from Home industry pressuresQ1 and ongoing

    Slowing traffic across the sector; led to decline in total U.S. Away from Home business.

    Mitigation: Expanding footprint in higher-margin channels, diversifying portfolio beyond ketchup, leveraging go-to-market model.

    Lapping lower variable compensation in 2024Full-year 2025

    Approximate 150 basis point headwind on constant currency adjusted operating income.

    Mitigation: Factored into guidance.

    What to watch in Q2 FY25

    5

    Organic net sales trend

    Q2 FY25
    CurrentDown 4.7% in Q1 FY25
    TargetBetter relative to Q1 FY25

    Why it matters

    Indicates whether the company's strategies to counter macroeconomic headwinds🌐 and improve U.S. retail performance are gaining traction.

    Looking at the second quarter, we expect year-over-year organic net sales to come in better relative to the first quarter of 2025.

    2 min read6 chapters

    Detailed Narrative

    01

    Q1 Performance Overview

    Organic net sales declined 4.7% in Q1, in line with expectations, driven by growth in emerging markets and international Away From Home, offset by declines in U.S. retail and U.S. Away from Home. Adjusted gross profit margin contracted 10 bps due to commodity inflation, despite $150 million in gross efficiencies. Adjusted operating income decreased 4.4%, and EPS was $0.62, impacted by a higher tax rate.

    02

    Productivity and Efficiency

    Kraft Heinz is making significant progress on its $2.5 billion gross efficiency goal by 2027, having already unlocked $1.5 billion. Overall equipment effectiveness reached an all-time high of 70% in Q1, up 5 percentage points from 2023, demonstrating a continuous improvement mindset and exceeding the 3.5% goal for the year.

    03

    Brand Growth System and U.S. Retail Strategy

    The company is scaling its Brand Growth System to cover 40% of sales by year-end 2025, up from 10% in 2024, to drive brand superiority. This system is being applied to key brands like Lunchables, Capri Sun, Kraft Mac & Cheese, and Kraft Mayonnaise, with targeted innovation, marketing, and channel strategies to improve performance and drive top-line recovery.

    04

    Emerging Markets and Away From Home

    Emerging markets organic net sales grew 3.9% in Q1, with Heinz brand sales up approximately 11%, and are expected to reach double-digit growth by Q4 2025. Global Away From Home organic net sales declined 0.8%, with international growth offset by U.S. pressures, leading to adjusted expectations for the segment to be relatively flat for the full year.

    05

    Innovation and Marketing

    Kraft Heinz is focused on innovation with over 75% of 2025 innovation sales expected from proven launches, expanding brands like Taco Bell and Heinz pasta sauce into new markets and channels. Marketing efforts are leveraging data-driven insights and agile execution, exemplified by successful viral campaigns for Jet-Puffed and Ore-Ida, generating significant earned media impressions with less spend.

    06

    Capital Allocation and Balance Sheet

    The company maintains a healthy balance sheet with a net leverage ratio of approximately 3x. It returned nearly $900 million to stockholders in Q1 ($500 million in dividends, $400 million in share repurchases) and has $1.5 billion remaining on its $3 billion share repurchase authorization, demonstrating confidence in its improved trajectory and financial flexibility.

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