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    KHC
    Earnings call· Jun 2025(Q2 FY25)

    Kraft Heinz Q2 FY25 earnings call KHC

    Jul 30, 2025 Source

    Executive summary

    Kraft Heinz Q2 FY25 — Emerging Markets Drive Growth, Reiterate Full-Year Outlook

    Kraft Heinz delivered Q2 FY25 results in line with expectations, showing sequential improvement in organic net sales and strong free cash flow generation. Emerging Markets continued to be a bright spot with accelerated growth and margin expansion, while North America faced headwinds from commodity inflation and volume declines. The company reiterated its full-year outlook, focusing on strategic investments in pricing, marketing, and productivity to drive long-term profitable growth amidst a volatile macro environment.

    Highlights

    5

    • Organic net sales declined 2% versus prior year, an improvement from Q1 FY25's 4.7% decline.

    • Generated $1.5 billion of free cash flow year-to-date, nearly 30% above prior year levels.

    • Emerging Markets organic net sales grew 7.6% in Q2 FY25, accelerating from 3.9% in Q1 FY25, with double-digit growth in LatAm and Middle East/Africa.

    • Adjusted operating income in Emerging Markets increased 52.3% and margin expanded by 440 basis points.

    • Productivity savings reached 4.1% of COGS year-to-date, exceeding the 3.5% goal for the year and on track to exceed the 3% long-term algorithm for the fourth consecutive year.

    Concerns

    5

    • Organic net sales declined 2% in Q2 FY25, driven by a 2.7 percentage point decrease in volume mix.

    • Adjusted operating income declined 7.5% and adjusted operating income margin decreased 120 basis points for total Kraft Heinz.

    • North America adjusted operating income declined 12.5% due to commodity inflation and volume declines.

    • Adjusted gross profit margin declined 140 basis points in Q2 FY25 due to increased commodity cost inflation.

    • Recognized an approximate $9.3 billion impairment charge driven by a sustained decline in share price and market capitalization.

    Guidance & targets

    12
    CategoryTargetConfidence
    Full-year 2025 Organic net sales
    down 1.5% to down 3.5%
    high materiality
    High
    Emerging Markets organic net sales growth
    double-digit pace
    medium materiality
    High
    Global Away From Home top line performance
    relatively flat
    medium materiality
    High
    Full-year 2025 Constant currency adjusted operating income
    decline of 5% to 10%
    high materiality
    High
    Full-year 2025 Adjusted gross profit margin
    towards the lower end of down 25 to 75 basis points year-over-year
    high materiality
    High
    Full-year 2025 Adjusted EPS
    $2.51 to $2.67
    high materiality
    High
    Full-year 2025 Effective tax rate
    approximately 26%
    medium materiality
    High
    Full-year 2025 Free cash flow
    flat versus prior year
    high materiality
    High
    Full-year 2025 Free cash flow conversion
    at least 95%
    medium materiality
    High
    Q3 FY25 Organic net sales
    down 1% to 2%
    high materiality
    High
    Q3 FY25 Adjusted gross profit margin
    comparable to the down 140 basis points we saw in the second quarter
    medium materiality
    High
    Q3 FY25 Adjusted operating income
    mid- to high-teen decline versus the prior year
    high materiality
    High

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    Total Kraft Heinz
    Organic net sales decline was an improvement from Q1 FY25. Experienced gross margin and bottom line pressure due to higher inflation and trade investments, partially offset by gross efficiencies and price.
    		—-2%improved from -4.7% in Q1Adjusted operating income declined 7.5%; Adjusted operating income margin decreased 120 basis points
    North America
    Organic net sales decline includes a 120 basis points benefit from Easter timing. Primarily driven by commodity inflation and volume declines, which more than offset productivity gains.
    		—-3.2%—Adjusted operating income declined 12.5%
    International Developed Markets
    Largely driven by sales declines in the U.K., primarily from pressure in the ambient meals category. Margin expansion due to FX, productivity savings, and disciplined fixed cost management.
    		—-2.2%—Adjusted operating income increased 8.2%; Adjusted operating income margin expanded 100 basis points
    Emerging Markets
    Results driven by both price and volume growth, with double-digit growth in LatAm and Middle East and Africa regions. Growth and margin expansion driven by improvement in Brazil, mix benefit of Heinz growth, and productivity savings.
    Heinz brand growth: 18%Distribution points added: ~6,000 vs Q2 2024
    		—7.6%accelerated from 3.9% in Q1Adjusted operating income increased 52.3%; Adjusted operating income margin expanded 440 basis points (highest ever)
    Global Away From Home
    Delivered growth in International Away From Home for the 17th straight quarter, while U.S. Away From Home faces pressure due to traffic headwinds.
    		—-1.9%——
    International Away From Home
    Delivered growth for the 17th straight quarter. Organic net sales grew nearly 10% in emerging markets away from home.
    		—growth——
    U.S. Away From Home
    Industry continues to face pressure due to traffic headwinds. Not contemplating an improvement for the rest of 2025.
    		—pressure——

    Operational metrics

    29
    Organic net sales
    -2%vs prior year; improved from -4.7% in Q1
    Q2 FY25

    Decline was an improvement from Q1 FY25 results.

    Brand Growth System sales coverage
    40%increase of 30% points compared to 2024
    by year-end 2025

    Systematic and repeatable data-driven methodology to drive brand superiority.

    Capri Sun dollar sales
    over 6%improved by 10 percentage points relative to Q1
    Q2 FY25

    Driven by superior taste, expanded reach, and improved brand resonance.

    Lunchables dollar sales
    improved by 9 percentage pointsrelative to Q1
    Q2 FY25

    Driven by relevant innovation, enhanced product offerings, and largest fall season campaign ever.

    Kraft Mayo dollar sales
    improved by 7 percentage pointsin Q2
    Q2 FY25

    Building on great taste, investing in packaging, price, and product-focused creative.

    Kraft Mac & Cheese sales
    increased by 1 percentage pointvs prior quarter
    Q2 FY25

    Several initiatives hitting the market in H2 to build upon improvements, including new flavors, revamped packaging, and value offerings.

    Steak Sauce growth
    5%
    Q2 FY25

    Consumers prioritizing protein in diets, turning to high-quality premium condiments.

    Worcestershire sauce growth
    17%
    Q2 FY25

    Consumers prioritizing protein in diets, turning to high-quality premium condiments.

    Heinz Simply Tomato Ketchup growth
    17%
    Q2 FY25

    Consumers prioritizing better-for-you options.

    Primal Kitchen portfolio growth
    24%
    Q2 FY25

    Consumers prioritizing better-for-you options.

    U.S. portfolio free of artificial colors
    90%
    current

    Company committed to remove artificial color from U.S. portfolio by end of 2027.

    Heinz Verified customer order lift
    14%
    null

    Partnership with Uber Eats yielded results for participating Heinz Verified customers.

    Heinz brand sales
    $1B
    annualized

    Heinz is the global anchor brand in emerging markets.

    Taco Bell market share
    over 20%
    current

    Achieved national distribution in less than 2 months and full year sales target in 4 months.

    Taco Bell growth
    double-digit growth
    second year

    Part of Mexican food strategy.

    Heinz Pasta Sauce sales
    over 20%
    YTD

    Leveraging Heinz's tomato expertise, expanding to over 8 countries.

    Media investment increase
    75%
    upcoming back-to-school season

    Leveraging portfolio scale for key must-win moments.

    Marketing as a percentage of sales
    at least 4.8%
    FY25

    Increasing investments in marketing, product, R&D, e-commerce, and sales force in emerging markets.

    Media spend
    at least 20%increase
    FY25

    Anticipate double-digit increase in returns on that spend by optimizing media mix and brand allocation.

    Productivity savings
    4.1%exceeding 3.5% goal for the year; exceeding 3% long-term algorithm
    YTD

    Fourth consecutive year on track to exceed long-term algorithm.

    Efficiencies projected
    $2B
    through 2025

    Investments in technology, particularly AI, transforming ways of working.

    Adjusted gross profit margin
    -140 bpsdecline
    Q2 FY25

    Driven by increased commodity cost inflation, which more than offset gross efficiencies. Better than anticipated due to timing of additional inflation and trade investments now expected in Q3.

    Free cash flow conversion
    96%up over 30 percentage points versus prior year
    YTD Q2 FY25

    Primarily driven by improvements in working capital and other cash management initiatives.

    Adjusted EPS
    -11.5%or $0.09 vs Q2 2024
    Q2 FY25

    Driven by negative impact from results of operations and higher effective tax rate, partially offset by favorable impact from share repurchase.

    Impairment charge
    $9.3B
    Q2 FY25

    Driven by a sustained decline in share price and market capitalization.

    Net leverage ratio
    approximately 3xtarget ratio
    current

    Healthy balance sheet and strong cash flow generation.

    Capital returned to stockholders
    $1.4B
    YTD

    Includes competitive dividend with yield exceeding 5.5% and share repurchase program.

    Share repurchase authorization remaining
    $1.5Bagainst $3B authorization
    current

    Share repurchase program is nonprogrammatic, a function of excess cash and macroeconomic environment.

    Dividend yield
    exceeds 5.5%
    current

    Competitive annual dividend.

    Industry KPIs

    7
    MetricValueDetails
    Gross margin-140 bpsbps
    Brand platform growthPhiladelphia and Primal Kitchen brands: strong growth; Capri Sun: over 6% growth; Lunchables: 9 percentage point improvement; Kraft Mayo: 7 percentage point improvement; Kraft Mac & Cheese: 1 percentage point increase; Steak Sauce: 5% growth; Worcestershire sauce: 17% growth; Heinz Simply Tomato Ketchup: 17% growth; Primal Kitchen portfolio: 24% growth; Heinz brand (Emerging Markets): 18% growth; Heinz Pasta Sauce (U.K.): over 20% growth YTD%
    Organic net revenue growth-2%%
    Adjusted EPS operating income-11.5%%
    Volume mix vs pricing decompositionPrice up 0.7 percentage points, volume mix down 2.7 percentage pointspercentage points
    Elasticity consumer response commentaryConsumers are looking for value, whether that be through price or product benefits
    Category growth benchmark channel shift dataU.S. Away From Home industry continues to face pressure due to traffic headwinds

    Product announcements

    5
    ProductTypeDetails
    Lunchables peanut butter and jellylaunch
    Heinz Chipotle Honey Mustardlaunch
    Heinz TK Zerolaunch
    Taco Bell Mexican food strategylaunch
    Single-serve Capri Sun bottleslaunch

    Deals & partnerships

    3
    nullAgreement to sell infant and specialty food business

    Consistent with strategy to drive profitable growth through ACCELERATE platforms throughout Europe.

    Live NationNew customer for Global Away From Home

    Adding entertainment company, Live Nation, as a new customer, growing in higher-margin channels.

    Mustard (music producer)Collaboration for new Heinz Chipotle Honey Mustard sauce

    Exclusive launch at Buffalo Wild Wings, then available nationwide. First national innovation for Heinz Mustard in nearly a decade and first co-created innovation in the U.S. Brought to market in 4 months.

    Risks & headwinds

    6
    Volatile macro environmentcurrent

    null

    Mitigation: Delivering value through price or product benefits; reiterating full year outlook with wider range for constant currency adjusted operating income.

    Higher commodity inflation and trade investmentsQ2 FY25; expected to hit in Q3 FY25

    gross margin and bottom line pressure; adjusted gross profit margin declined 140 bps in Q2

    Mitigation: Gross efficiencies, pricing actions, productivity savings, increasing investment in price to reestablish optimal price gaps.

    U.S. Away From Home industry traffic headwindsrest of 2025

    overall U.S. Away From Home industry continues to face pressure

    Mitigation: Expanding Heinz Verified program, growing in higher-margin channels, not contemplating an improvement in the U.S. industry for the rest of 2025.

    Impairment charge due to sustained decline in share price and market capitalizationQ2 FY25

    approximate $9.3 billion impairment charge

    Mitigation: Maintaining healthy balance sheet, strong cash flow generation, disciplined capital allocation.

    Higher effective tax rateFY25

    approximately 26% for FY25, a $0.23 headwind on adjusted EPS year-over-year

    Mitigation: Factored into adjusted EPS guidance.

    Lapping lower variable compensation in 2024FY25

    approximate 150 basis point headwind to constant currency adjusted operating income

    Mitigation: Factored into constant currency adjusted operating income guidance.

    What to watch in Q3 FY25

    5

    Emerging Markets organic net sales growth

    by year-end FY25
    Current7.6% in Q2 FY25
    Targetdouble-digit pace

    Why it matters

    Emerging Markets are a key growth engine, and achieving double-digit growth is critical for the company's long-term algorithm.

    This contemplates growth in emerging markets, which is expected to reach a double-digit pace by year-end.

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Pillars and Investment Focus

    Kraft Heinz is focused on driving long-term growth and value creation through prioritized investments in North America Retail ACCELERATE platforms, emerging markets, and expanding its Away From Home footprint. These investments are aimed at powering brand and product superiority, unlocking efficiencies, and accelerating profitable growth. The company is seeing progress in underlying sales in 14 categories in North America Retail and continued growth in International Away From Home.

    02

    North America Retail Brand Growth System

    The Brand Growth System, a data-driven methodology, is strengthening marketing and innovation efforts. It is on track to reach 40% sales coverage by year-end 2025, a 30 percentage point increase from 2024. Focused brands like Capri Sun, Lunchables, Kraft Mayonnaise, and Kraft Mac & Cheese are showing sequential improvements in dollar sales, driven by product improvements, innovation, targeted marketing, and value offerings.

    03

    Global Away From Home Expansion

    The Global Away From Home segment saw a 1.9% organic net sales decline, but International Away From Home delivered growth for the 17th straight quarter. The company is expanding beyond ketchup into higher-margin channels and through innovative offerings, such as the Heinz Chipotle Honey Mustard. The Heinz Verified program is also expanding in the U.S., with participating restaurants seeing a 14% lift in orders, nearly half from first-time customers.

    04

    Emerging Markets as a Growth Engine

    Emerging Markets continue to be a strong performer, with organic net sales up nearly 8% in Q2, accelerating towards a double-digit growth algorithm by year-end. This growth is driven by both price and volume mix, leading to the highest adjusted operating income margin ever for the segment. The Heinz brand grew 18% in these markets, supported by expanding distribution with approximately 6,000 new points compared to Q2 2024.

    05

    Innovation and Marketing Transformation

    Kraft Heinz is fueling growth through innovation, exemplified by the successful Mexican food strategy (Taco Bell) in Canada and the U.S., and the early success of single-serve Capri Sun bottles. The company is also stepping up marketing investments, with media spend expected to increase by at least 20%, heavily concentrated in North America in H2. The focus is on product-focused creative and leveraging portfolio scale for key moments like back-to-school, increasing media investment by 75% across several beloved brands.

    06

    Financial Discipline and Capital Allocation

    The company maintains financial discipline, generating strong cash flow with $1.5 billion year-to-date, nearly 30% above prior year. Free cash flow conversion was 96%, up over 30 percentage points. Kraft Heinz aims to maintain its competitive annual dividend, target net leverage ratio of 3x, and investment-grade status. Capital allocation priorities include investing in organic growth, active portfolio management (e.g., sale of infant and specialty food business in Italy), and returning capital to stockholders ($1.4 billion year-to-date, including $1 billion in dividends and $400 million in share repurchases).

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