Kraft Heinz Q3 2025 Earnings Call: Contradictions in Investment Strategy, Separation Costs, and Regional Contributions

Guidance:

• Updated 2025 outlook announced (no specific FY numbers disclosed).
• Remain on track to separate into two independent companies in H2 2026.
• Q4 expects headwind from inventory phasing (north of ~100 bps) and lower consumption.
• Global Taste Elevation expected to improve to low-single-digit territory in Q4 and targeted to return to growth in 2026.
• Emerging Markets: strong ex-Indonesia (9.2% YTD); Indonesia recovery expected in second half of next year.
• Capital priorities: organic investments first; target net debt near ~3x and below 4x to achieve investment-grade profiles.

Business Commentary:

* Revenue and Market Trends: - The Kraft Heinz Company (KHC) reported a modest year-over-year recovery in top-line performance in Q3 2025. - The operating environment remains challenging with worsening consumer sentiment and ongoing inflation, impacting buying behavior globally.

• Emerging Markets Growth and Indonesia Concerns:
• Emerging markets excluding Indonesia grew by 9.2%, with strong performance from key brands like Heinz (13% year-to-date growth).

• Indonesia, contributing 12% of Emerging Markets revenue, faced a decline due to weakened consumer sentiment, affecting sales and distribution.

• North American Grocery Company Performance:

• The North American Grocery Company experienced stable cash flows in Q3, though revenue declined slightly.

• The focus remains on ensuring stable cash flows and positioning the company for low single-digit growth by 2026.

• Investment and Marketing Strategy:

• Kraft Heinz increased promotional investments by $300 million in the U.S. in Q3, with additional $80 million in media spending.

• Investments are concentrated in the second half of the year to drive household penetration and future repeat purchases through new product offerings.

• Separation Plan and Strategic Focus:

• The company's plan to separate into two independent companies by the second half of 2026 remains on track, with ongoing assessments of brand allocations.
• The focus is on unlocking shareholder value by creating two stronger, more focused companies with distinct operational structures.

Sentiment Analysis:

Overall Tone: Neutral

• Management said "we delivered a modest year-over-year recovery" but highlighted the "operating environment remains challenging" and that they "have updated our 2025 outlook." CFO stated the profit revision is due to weaker U.S. consumption, slower-than-expected Taste Elevation recovery, commodity inflation and Q3 supply-chain one-offs; they are nevertheless increasing U.S. promotional (~$300M) and marketing (~$80M) investments.

Q&A:

• Question from Andrew Lazar (Barclays Bank PLC): Carlos, in light of the weaker consumer sentiment that you've talked about, we are seeing a number of food companies sort of lean in more aggressively on investment spend, both pricing related and broader A&C. I guess I'm curious how much of the '25 profit revision, if any, is due to more aggressive spending behind the brands than initially contemplated versus just the impact of sort of higher costs and volume deleverage. And if there's not significant additional spend, I guess I'm curious why wouldn't more make sense now to help jump-start volume improvement in a still tough consumer environment as you think towards next year?
  Response: Revision largely driven by weaker U.S. consumption, slower Taste Elevation recovery, commodity inflation (Meat/Coffee) and Q3 supply-chain one-offs; they are already adding ~ $300M promotions, ~$80M media, R&D and headcount and do not plan further near-term marketing or price increases because incremental spend now is unlikely to yield returns.

• Question from Peter Galbo (BofA Securities): I wanted to ask maybe a more conceptual question around the spin. And really, if I think about it, one of your CPG peers is going through a similar dynamic right now in terms of kind of a split and you're living kind of parallel lives, I guess, for lack of a better word. In the case of your peer, right, there was an announcement, the market responded the way that it did, and there's been a pivot on their behalf, not in terms of pursuing the split, but in terms of how they're going about it, right? There's been an alteration in terms of the path forward. I wonder just as you've solicited feedback from investors and as you've heard from investors since your announcement, has there been any thought as to a pivot for Kraft Heinz, whether that means the leadership isn't the way that you thought it would pan out, the brands that you announced at the spin now, maybe some of them move from one to the other. Just any thoughts, again, as you've heard feedback that you may potentially pivot versus the initial announcement?
  Response: They remain committed to the announced split and believe the chosen perimeter unlocks shareholder value; will continue bottom-up work and may adjust perimeter if it creates more value, but no pivot planned now; both companies targeted to be investment-grade with net debt aims around ~3x and below 4x.

• Question from Thomas Palmer (JPMorgan Chase & Co): I wanted to just ask on Emerging Markets. It seems like excluding Indonesia, trends were more encouraging. I guess, one, and you did provide some commentary here on Indonesia from a sales overhang. But how big is Indonesia within Emerging Markets? And then when we think about the fourth quarter, the mid-single-digit growth guidance for Emerging Markets, what does that assume kind of for the business ex-Indonesia and Indonesia in terms of potentially seeing some improvement?
  Response: Emerging Markets ex-Indonesia grew 9.2%; Indonesia is ~ $300M (~12% of EM) and is underperforming due to weak consumer sentiment and distributor issues; actions include rightsizing inventory, switching distributors and continued marketing; P&L recovery expected in second half of next year, so Q4 guidance assumes improvement ex-Indonesia while Indonesia remains muted near-term.

• Question from Stephen Robert Powers (Deutsche Bank AG): I don't -- Carlos, I don't believe I saw it anywhere this morning, and apologies if I missed the relevant disclosure, but are you able to frame maybe pro forma the performance of Global Taste Elevation Co. versus North American Grocery Co. in the third quarter? And then also update us on how you see those businesses progressing into the fourth quarter, just so we can better assess momentum into '26 and eventual separation. And maybe alongside that, Andre, I don't know if you -- where you're -- sort of where you are in this process. But as you think ahead towards separation, I'm just curious if you have a more formal estimate around any onetime restructuring costs or cash costs that Kraft Heinz is likely to incur in preparation for the split? I'm just trying to see how we should handicap those dynamics over the next 3 or 4 quarters.
  Response: Pro forma both companies declined low-single-digits in Q3; Global Taste Elevation improving to very low-single-digits and should continue in Q4 with aim to return to growth in 2026; North American Grocery improved vs H1 but still down low-single-digits and prioritized for stable cash flow; no formal estimate of separation one-time costs yet and they will be disciplined with cash.

• Question from David Palmer (Evercore ISI): In your slide presentation, you noted several of those key categories where you're clearly improving in terms of market share. Your guidance for the fourth quarter doesn't imply much improvement. And I just wanted to get your thoughts about maybe offsets. Is it categories that you're in? Are they slowing? Maybe there's some offsetting brands where you're seeing a little bit of deterioration? And then separately, there's that story of the promotion spending that you -- those investments, the $280 million that you're making. that's maybe 2% of North America retail sales. When we track in scanner data, I know these are audited numbers, but it only shows like that your volume on promotion is only up -- is only down, I'm sorry, 1%, basically unchanged. I'm just wondering what is going on with your promotions? Maybe you could tell us better than what the data is showing us, which doesn't show us much in terms of what activity you are doing?
  Response: Q4 revenue expected worse than Q3 by ~100–120 bps due to inventory phasing (mainly U.S.) and weaker consumption; market share should improve (especially Taste Elevation) but industry softness offsets gains; promotions are concentrated on holidays to drive distribution and trial—investments secure distribution and trial but ROIs/lifts are low, which explains limited scanner volume impact.

• Question from John Baumgartner (Mizuho Securities USA LLC): Just sticking with the promotional environment in U.S. retail. Despite the joint programming with retailers that you mentioned, Andre, and the larger investment dollars and the improving analytics, weak promos seem to be a theme right now across the center of the store. And Carlos, you mentioned some success with your lips around back-to-school, but lips have also been weaker in other parts of your portfolio as well. So I'm curious what you're finding that's working differently in the areas where the lips are stronger. Is there a distinction there? And then what changes are you making, if any, to your promo approach into '26 given the consumer environment?
  Response: Back-to-school worked due to integrated execution (in-store displays, marketing, in-retail promos) and renovated SKUs that raised cross-shopping and base velocity; for 2026 they will test shifting tactics—higher frequency over deeper discounts, cross-merchandising, bundling, more e-commerce events and spreading activity to improve ROI.

• Question from Robert Moskow (TD Cowen): I wanted to drill in a little bit on the commoditized categories, Carlos, like Coffee and Meats. And I guess, Cheese to some extent, these 3 categories are going to be like 40% of the sales of North American Grocery. And as you can see in your results here, Sliced Meats and Coffee have become really problematic. I guess I wanted to know, have you started rolling out the Brand Growth System to these categories? Is it harder to implement it in these than it is in the others? In your CAGNY presentation, you yourself said that you have a much lower right to win in coffee and meat. And as a result, does that make it harder to get traction with Brand Growth System than the others?
  Response: No substantive response given—Q&A was interrupted by technical difficulties and the call was paused.

Contradiction Point 1

Investment Strategy and Consumer Sentiment

It involves conflicting statements regarding the company's approach to investment spending in response to challenging consumer sentiment, which could impact market perceptions and strategic direction.

Why isn't Kraft Heinz increasing investment spending despite potential volume benefits from weaker consumer sentiment? - Andrew Lazar (Barclays Bank PLC)

2025Q3: The profit revision is not linked to incremental investments. It's due to lower expectations on consumption, slower recovery in Taste Elevation, and incremental inflation in Meat and Coffee. Additional investments include $300 million in U.S. promotional investments, $80 million in marketing, and headcount increases. - Andre Maciel(CFO)

How are you setting your pricing and promotion levels now? - David Palmer (Evercore ISI)

2025Q2: Investments are concentrated in key windows, especially in the third quarter, with more product renovations and innovations expected. - Carlos A. Abrams-Rivera(CEO)

Contradiction Point 2

Separation Strategy and Costs

It involves differing statements regarding the company's plan for separation costs and commitment to cost discipline, which are critical for investors assessing the financial impact of the spin-off strategy.

How did the two companies perform in Q3, and what are the plans for separation costs? - Stephen Robert Powers (Deutsche Bank AG)

2025Q3: Separation costs are being evaluated, but Kraft Heinz is committed to cost discipline. - Andre Maciel(CFO)

What is your approach to driving growth in your business in the near term? - David Palmer (Evercore ISI)

2025Q2: We are very focused on cost control and will continue to look for ways to optimize costs and invest where we see opportunities to drive growth. - Carlos A. Abrams-Rivera(CEO)

Contradiction Point 3

North America's Contribution to Annual Guidance

This involves differing expectations for North America's contribution to annual sales guidance, which is directly related to revenue forecasting and strategic planning.

Are there offsets to market share growth in certain categories, and what is the effectiveness of promotional investments? - David Palmer (Evercore ISI)

2025Q3: We expect Q4 guidance includes headwinds due to inventory and consumption softness. Promotional investments focus on key holidays and consumer trial with mixed results. - Andre Maciel(CFO)

What are the key drivers for the expected improvement in Q2 2025 North American organic sales guidance, and how will the region contribute to meeting annual guidance? - Yasmine Deswandhy (Bank of America)

2025Q1: We expect Q2 top line to be better than Q1 due to Easter timing, improving ACCELERATE platforms like cream cheese and Ore-Ida, and recovery in Lunchables post-renovation. Emerging markets are also accelerating, contributing to the improvement. While we have some headwinds in North America, we expect contributions from international markets, particularly emerging markets, to offset any volume declines in the U.S. - Andre Maciel(CFO)

Contradiction Point 4

Emerging Markets and Indonesia Sales

It relates to the company's sales performance and strategy in emerging markets, particularly Indonesia, which is a significant market for growth.

What is the impact of Indonesia on emerging markets, and how does Kraft Heinz plan to recover its business there? - Thomas Palmer (JPMorgan Chase & Co)

2025Q3: Indonesia accounts for about $500 million in sales, with significant decline in consumer sentiment. The company is addressing this through rightsizing inventory, transitioning to a new distributor, and maintaining ABC brand superiority. - Carlos Abrams-Rivera(CEO)

What growth rates do you expect for the ACCELERATE, protect, and balance pillars in your 2025 organic sales guidance? - Peter Galbo (Bank of America)

2024Q4: Emerging Markets will see gradual improvements, exiting the year at double-digit growth. - Andre Maciel(CFO)