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    KHC
    Earnings call· Sep 2025(Q3 FY25)

    Kraft Heinz Co KHC

    Oct 29, 2025 Source

    Executive summary

    Kraft Heinz Q3 FY25 — Updated Outlook Amid Challenging Consumer Environment

    Kraft Heinz delivered a modest top-line recovery in Q3 FY25, but the operating environment remains challenging due to worsening consumer sentiment and ongoing inflation. The company updated its 2025 outlook to reflect these macro trends, while continuing to prepare for the planned separation into two independent companies in H2 2026. Management emphasized strategic investments in brand building and renovation to drive long-term success, despite current cyclical headwinds.

    Highlights

    5

    • Emerging Markets (ex-Indonesia) grew 9.2% in Q3 FY25, accelerating from H1 FY25.

    • Heinz brand in Emerging Markets grew 13% year-to-date FY25.

    • Global Taste Elevation Co. trajectory improving to very low single-digit decline in Q3 FY25, with 70% of U.S. Taste Elevation business gaining market share in September.

    • North American Grocery Co. showed significant improvement in trends in Q3 FY25 compared to H1 FY25.

    • Back-to-school campaign improved cross-shopping purchase by 60 bps and base velocity for brands like Lunchables and Capri Sun.

    Concerns

    4

    • Profit revision for FY25 is due to lower consumption expectations in the U.S., elongated recovery in Taste Elevation, and incremental inflation in meat and coffee.

    • Indonesia, a $0.5 billion business, saw a meaningful decline in consumer sentiment (down almost 10 points YoY) leading to softening demand and distribution challenges.

    • Q4 FY25 revenue outlook implies a worse performance than Q3 FY25, impacted by inventory phasing (north of 100 bps headwind) and lower consumption.

    • Promotional ROIs are lower than last year, with lifts being low, despite increased investment.

    Guidance & targets

    7
    CategoryTargetConfidence
    2025 Outlook
    Updated
    high materiality
    High
    Separation into two independent companies
    On track
    high materiality
    High
    Global Taste Elevation Co. growth
    Back to growth
    high materiality
    High
    North American Grocery Co. cash flows
    Stable cash flows
    high materiality
    High
    North American Grocery Co. growth
    Growing low single digits
    medium materiality
    Medium
    Net debt target
    At or close to 3x
    high materiality
    High
    Indonesia recovery in P&L
    H2 next year
    medium materiality
    Medium

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Emerging Markets (ex-Indonesia)
    Accelerated growth compared to the first half of the year, driven by key brands like Heinz. This segment is seen as a key growth driver for the future.
    Heinz brand growth YTD: 13%
    		—9.2%——
    Indonesia
    Experienced a significant decline in consumer sentiment leading to softening demand. The company is rightsizing inventory, transitioning to a new distributor, and reducing price instability. P&L recovery is not expected until H2 next year.
    Consumer sentiment YoY: down almost 10 pointsRevenue contribution to Emerging Markets: 12%
    		$0.5 billionmeaningful decline——
    Global Taste Elevation Co. (pro forma)
    Trajectory is improving, with a priority to return to growth in 2026. The playbook for this business is showing success in market share gains.
    U.S. Taste Elevation market share gain (September): 70% of revenue
    		—low single digits decline——
    North American Grocery Co. (pro forma)
    Showed significant improvement in trends in Q3 compared to the first half. The priority is to ensure stable cash flows heading into 2026, with long-term prospects for low single-digit growth.
    		—low single digits decline——

    Operational metrics

    5
    Incremental promotional investment
    $300 million
    FY25

    Part of the company's investment strategy, not the cause of the profit revision.

    Incremental marketing spend in media
    $80 million-ish
    FY25

    Concentrated in the second half of the year, part of the company's investment strategy.

    Cross-shopping purchase improvement
    60 bps
    Q3 FY25

    Result of the back-to-school campaign's integrated approach.

    North American Grocery sales from commoditized categories
    40%
    Ongoing

    Analyst's figure, highlighting the significance of these categories to the future North American Grocery Co.

    Inventory phasing headwind
    north of 100 bps
    Q4 FY25

    Expected impact on total company revenue in Q4, contributing to the worse outlook compared to Q3.

    Industry KPIs

    2
    MetricValueDetails
    Brand platform growth13%%
    Elasticity consumer response commentarydown almost 10 pointspoints

    Deals & partnerships

    1
    Kraft HeinzProposed separation into two independent, publicly traded companies.

    The separation will create Global Taste Elevation Co. and North American Grocery Co. Management is committed to ensuring both companies are investment grade, targeting net debt at or close to 3x.

    Risks & headwinds

    6
    Worsening consumer sentimentOngoing

    Indonesia consumer sentiment down almost 10 points YoY

    Mitigation: Strategic investments in R&D, marketing, and product renovation to build stronger brands for the long term; tactical promotional activities.

    Ongoing inflationOngoing

    Incremental inflation in meat and coffee

    Mitigation: Strategic pricing decisions, but not pricing certain elements due to competitive dynamics.

    Lower consumption expectationsQ4 FY25 and beyond

    Industry decelerating further in the U.S. in Q3 and soft start to October

    Mitigation: Focus on driving household penetration and repeat purchases through renovated products and targeted promotions; preparing for a stronger portfolio post-cyclical downturn.

    Elongated recovery on Taste ElevationExtending into 2026

    Recovery still lower than anticipated

    Mitigation: Continued focus on the playbook that has shown market share gains (70% of U.S. Taste Elevation business gaining share in September).

    Inventory pullback from customersQ4 FY25

    North of 100 bps headwind for total company in Q4 FY25

    Mitigation: Adjusting internal inventory levels and managing distribution channels, particularly in markets like Indonesia.

    Low promotional ROIs and liftsCurrent

    ROIs lower than last year, lifts are low

    Mitigation: Testing different tactics for 2026, including higher frequency over deeper discounts, cross-merchandising, e-commerce events, and spreading resources more evenly.

    What to watch in Q4 FY25

    4

    Global Taste Elevation Co. growth trajectory

    next quarter
    Currentvery low single-digit decline
    Targetcontinued improvement towards growth

    Why it matters

    This segment is a key growth driver and a priority for returning to growth in 2026, impacting the investment thesis for the future Global Taste Elevation Co.

    We see the Global Taste Elevation trajectory improving and in the very low single-digit territory at this point. And the expectation is for Q4 that to continue. So our main priority is to put the Global Taste Elevation back to growth in 2026, as it has grown for several of the last 15 years.

    Q&A highlights

    7

    How much of the '25 profit revision is due to increased brand investment versus higher costs/volume deleverage? Why not more investment to jump-start volume?

    The profit revision is not due to incremental investments beyond what was planned. It's a function of lower U.S. consumption, elongated Taste Elevation recovery, and incremental inflation. The company is already increasing promotional investment by $300M and marketing by $80M, and doesn't believe further marketing spend would yield returns at this point, but is open to it in the future.

    “The profit revision is not linked to incremental investments beyond what we had previously communicated. The profit revision is a function of lower expectation on consumption in the U.S., which we can talk more about that. It is a function of elongated recovery on Taste Elevation, which has been improving in a meaningful way, 70% of the revenue now is gaining market share.”

    asked by Andrew Lazar · answered by Andre Maciel

    2 min read6 chapters

    Detailed Narrative

    01

    Updated 2025 Outlook and Macro Environment

    Kraft Heinz updated its 2025 outlook, citing a challenging operating environment characterized by worsening consumer sentiment and ongoing inflation globally. The profit revision is attributed to lower consumption expectations in the U.S., a slower-than-anticipated recovery in Taste Elevation, and incremental inflation in meat and coffee. Management noted that the consumer negativity is extending longer than originally expected, leading customers to pull back on inventory.

    02

    Strategic Investments and Brand Building

    The company is making significant investments, including an additional $300 million in promotional activities in the U.S. and $80 million in marketing spend. These investments are focused on R&D, marketing, and product renovation to build long-term brand strength and drive superiority. While promotional ROIs are currently lower, the strategy aims to drive household penetration and repeat purchases, particularly for renovated products.

    03

    Progress Towards Separation

    Kraft Heinz remains on track to separate into two independent companies in the second half of 2026. The goal is to create two more focused entities, Global Taste Elevation Co. and North American Grocery Co., to unlock shareholder value. Management is committed to ensuring both companies are investment grade, targeting net debt at or close to 3x, which implies below 4x for investment grade purposes.

    04

    Emerging Markets Performance and Indonesia Challenges

    Emerging Markets (excluding Indonesia) demonstrated strong growth of 9.2% in Q3 FY25, with the Heinz brand growing 13% year-to-date. However, Indonesia, a $0.5 billion business and 12% of Emerging Markets revenue, faced significant headwinds due to a nearly 10-point year-over-year decline in consumer sentiment. The company is taking corrective actions, including rightsizing inventory, transitioning distributors, and reducing price instability, with P&L recovery expected in H2 FY26.

    05

    Pro Forma Performance of Future Entities

    In Q3 FY25, both the pro forma Global Taste Elevation Co. and North American Grocery Co. experienced low single-digit declines. Global Taste Elevation's trajectory is improving, with a priority to return to growth in 2026. North American Grocery saw significant trend improvement compared to the first half, with a primary focus on stable cash flows into 2026 and long-term prospects for low single-digit growth.

    06

    Promotional Strategy and Effectiveness

    The company's promotional strategy has focused on higher frequency rather than deeper discounts, particularly around key holidays like Thanksgiving and Christmas. Investments were also made to secure incremental distribution and drive consumer trial of renovated products, such as during the back-to-school campaign for Lunchables and Capri Sun. While current ROIs are low, the company is testing new tactics for 2026, including cross-merchandising, e-commerce events, and a more even spread of resources throughout the year.

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