Kraft Heinz Q4 2024 Prepared Remarks Earnings Report

Kraft Heinz EPS Results

• Actual EPS: $0.84
• Consensus EPS: $0.78
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: N/A

Kraft Heinz Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $6.67 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Kraft Heinz Announcement Details

• Quarter: Q4 2024 Prepared Remarks
• Date: 2/12/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, February 12, 2025
• Conference Call Time: 7:00AM ET

Kraft Heinz (NASDAQ:KHC) Co. is a global food and beverage company that manufactures and markets various household brands, including Kraft, Heinz, Oscar Mayer, and Planters. The company is headquartered in Chicago, Illinois, and operates in over 40 countries. Kraft Heinz Co. is a consumer staples stock because it sells necessary items regardless of the economic landscape. Kraft Heinz Co. is a defensive stock because it typically provides a steadier dividend and a consistent share price. 

Kraft Heinz has a long-standing history of producing food products that are high in quality and affordable in price. Their portfolio includes a wide range of products such as condiments, cheese, meals and snacks. Some of the most popular products in their portfolio include Kraft Macaroni and Cheese, Heinz Ketchup, Oscar Mayer Hot Dogs and Planters Peanuts.

In 2015, Kraft Foods Group and H.J. Heinz Company merged to form Kraft Heinz. The merger brought together two of the world's most iconic food brands. In 2017 the company acquired Big Food Group, a UK-based food company that produces a range of products, including sauces, soups, and condiments. In 2018, Kraft Heinz acquired Primal Kitchen, which makes a range of organic and paleo-friendly food products, including dressings, marinades, and protein bars. In 2018, Kraft Heinz acquired the food and instant coffee business of Cerebos Australia, a subsidiary of Japan's Suntory Holdings. In October 2020, Kraft Heinz acquired Assan Foods, a Turkish-based company that produces a range of sauces, tomato paste, and other food products. In November 2020, Kraft Heinz acquired  Primal Nutrition LLC, a collagen powder and bars maker, for an undisclosed sum.

Despite its strong brand recognition and wide range of products, Kraft Heinz has faced several challenges in recent years. One of the biggest challenges the company has faced is changing consumer preferences. Consumers are increasingly looking for healthier, organic, and natural food products, which has led to a decline in sales of some of Kraft Heinz's core products.

Kraft Heinz has focused on innovation and product development to address these challenges. The company has launched several new products recently, including its organic Capri Sun juices line and Planters Nut-rition line of snacks fortified with vitamins and minerals. The company has also focused on improving the quality of its existing products, such as removing artificial colors, flavors, and preservatives from its Macaroni and Cheese products.

In addition to product innovation, Kraft Heinz has also tried to improve its operational efficiency. In 2019, the company announced a plan to reduce its global workforce by 5%, or approximately 2,500 positions, to streamline its operations and reduce costs. The company also announced plans to invest in its supply chain and distribution networks to improve efficiency.

Investors in Kraft Heinz have seen mixed results in recent years. In 2020, the company's stock price declined by approximately 20% due to the COVID-19 pandemic, which impacted its supply chain and product demand. However, the company's stock price recovered in 2021, reporting solid earnings results and announcing plans to increase its dividend.

Kraft Heinz Q4 2024 Prepared Remarks Earnings Call Transcript

Presentation

[Anne-Marie Megela, VP & Global Head of Investor Relations at The Kraft Heinz Company]

Hello. This is Ann Marie Magella, Head of Global Investor Relations at The Kraft Heinz Company. I'd like to welcome you to our fourth quarter and full year twenty twenty four business update. During the following remarks, we will make forward looking statements regarding our expectations for the future, including related to our business plans and expectations, strategy, efforts and investments and related timing and expected impacts. These statements are based on how we see things today, and actual results may differ materially due to risks and uncertainties.

[Anne-Marie Megela, VP & Global Head of Investor Relations at The Kraft Heinz Company]

Please see the cautionary statements and risk factors contained in today's earnings release, which accompanies these remarks, as well as our most recent 10 K, 10 Q and eight K filing for more information regarding these risks and uncertainties. Additionally, we will refer to non GAAP financial measures, which exclude certain items from our financial results reported in accordance with GAAP. Please refer to today's earnings release and the non GAAP information that accompany these remarks, which are available on our website at ir.kraftheinscompany.com under News and Events for a discussion of our non GAAP financial measures and reconciliations to the comparable GAAP financial measures. Today, our Chief Executive Officer, Carlos Abrams Rivera, will provide an update on our overall business performance. And Andre Maciel, our Global Chief Financial Officer, will provide a financial review of the fourth quarter and will discuss our 2025 outlook.

[Anne-Marie Megela, VP & Global Head of Investor Relations at The Kraft Heinz Company]

We've also scheduled a separate live question and answer session with analysts. You can access our question and answer session at ir.kraftheinscompany.com. A replay will also be available following the event through the same website. With that, I will turn it over to Carlos.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

Thank you, Ann Marie, and thank you all for joining us today. I would like to start with a big thank you to the Kraft Heinz team for working tirelessly in what proved to be a challenging year for us and for the industry. Together, we maintain our focus on building and investing for the future. We have demonstrated our ability to be efficient cash generators, delivering both industry leading gross margins and strong free cash flow. We have delivered efficiencies to fuel investments that are driving meaningful product renovation and innovation and enhancing our marketing capabilities, all of which are helping us build brand superiority.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

And despite a weaker macroeconomic backdrop, we will return meaningful capital to our stockholders in 2024 with $2,700,000,000 return through our dividend, which offers the highest yielding food and share buybacks. As we look ahead to 2025, we remain confident in our strategy. By building upon the advancements made in 2024 and executing with excellence, we anticipate improvements each quarter in our top line performance. This will be driven by growth in emerging markets and global away from home with U. S.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

Retail benefiting from actions we are taking to further implement our brand growth system. And we will do this while preserving profitability, something we have proven we know how to do well. With that, let us turn to our 2024 full year results. Organic net sales declined 2.1% versus the prior year. Through the lens of our strategic pillars, this was driven by the growth in emerging markets, which was more than offset by declines in North America retail and away from home in The U.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

S. Despite the top line pressure, we generated 100 basis points of adjusted gross profit margin expansion versus 2023. This was due in large part to the capability we have built over the years, including investments in technology that are driving efficiencies across areas like revenue management, manufacturing and logistics. These efforts enable us to deliver nearly $750,000,000 in growth efficiencies, a portion of which was reinvested in our brands. We remain committed to a disciplined approach to investing, ensuring that our resources are driving sustainable long term volume growth.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

Our gross margin expansion in addition to a benefit from lower viable incentive compensation for the year contributed to adjusted operating income growth of 1.2%. The reduction in viable incentive compensation reflect our culture of meritocracy, where performance is closely tied to rewards. This demonstrates the effectiveness of our compensation model in aligning pay with results. Our adjusted operating income growth along with share repurchases led to adjusted EPS growth of 2.7%. Finally, free cash flow came in at approximately $3,200,000,000 an increase of 6.6% versus the prior year.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

Moving to the details of our performance across the three strategic pillars. In our accelerated classrooms in North America retail, organic net sales declined 2.9%. This was primarily driven by weakening trends in three specific brands and the planned exit of our unprofitable bulk vinegar business. This overshadowed strong performances across our Ore Ida, Taco Bell, Philadelphia and Heinz brand, which together make up about 40% of sales in U. S.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

Retail accelerate. In global away from home, organic net sales declined 0.6%. Growth in international away from home was more than offset by a decline in The U. S. This decline was driven primarily by two planned business exits from margin dilutive businesses, a temporary planned closure in the second quarter and softer traffic trends relative to 2023.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

In the fourth quarter, Global Away From Home came in below our expectations. To improve our performance in 2025, we are committed to providing additional value to our customers. We will be increasing our investment in trade alongside our marketing initiatives and through our premium loyalty program, Heinz Verify, we will provide customers with access to bundles, traffic driving promotions and our state of the art culinary portfolio and equipment. Turning to emerging markets, we grew 4% versus full year 2023, driven by both price and volume mix. Excluding pressures experienced in Brazil and China, the rest of emerging markets grew double digits in line with our long term algorithm.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

In the fourth quarter, emerging markets of guided net sales came in below our expectations, driven primarily by performance in China, where consumer confidence continues to remain soft. As a result, we saw more than anticipated inventory de loading as retail customers and distributors are reducing working capital and costs. Now going a bit deeper into our North America retail business. Last quarter, we discussed a couple of core categories that are driving year over year top line pressure, including Lunchables, Craft mayonnaise, Craft Mac and Cheese and Capri Sun. Across each of these brands, we have ticked up the brand growth system running deep forensic like assessment that will uncover the most meaningful opportunities drive brands to priority.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

We are confident that the brand growth system will make a meaningful difference because we have already seen its success in action. In 2024, we run pilots on Philadelphia Cream Cheese and Heinz in The UK. On Philadelphia, we capture wide space in growing channels with 13% growth in club. And on Heinz Ketchup in The UK, we grew volume share by 2.3 percentage points, a category we haven't grown share in five years. We are now scaling this approach across these four brands with dedicated agile pods already in place for each.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

And importantly, we are committed to making necessary investments in the products and marketing to close those gaps. In parallel to starting the brand growth system, the initial actions we have taken are showing early signs of traction as we're investing in the products to drive to priority. On launchables, we are strengthening the core and expanding the occasions. Take for example, our recent launch of spicy nacho, which is 17% incremental to the meal combos category, driven by increases in both buy rate and consumption. We also continue to renovate as part of our ongoing commitment to deliver exceptional quality, including upgrades to our cookies and crackers to meet evolving taste.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

In our mayonnaise business, we are strengthening our value proposition to reengage with lapsed user and to attract new ones. We are bringing new flavors, including pickle mayo, which has successfully rollout in The U. S. And we're taking this flavor expansion strategy globally, launching new flavors in countries including Canada, Australia, The UK and The Middle East. In addition to our flavor strategy, we are delighting consumers with better for you options through our Primal Kitchen brand.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

For Kraft Mac and Cheese, we are connecting and engaging with families and younger consumers. We are doing this through the new bold flavors like ranch and jalapeno, better for you options, new pack sizes and unpack partnerships. And we are seeing momentum here with a one percentage point improvement in the year over year sales trends. And finally, on Capri Sun, I am very excited that we have generated a five percentage point improvement in year over year sales. We invested in the product innovation to win on taste and now we're bringing value to consumer through innovation, including a new 64 ounce multi serve and our single serve bottles.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

Our accelerated platforms represent the most attractive stages within our portfolio, where we have the highest right to win and in turn, where we have been prioritizing our investments. This prioritization has contributed to growth across several of our iconic brands, including Philadelphia, Heinz Ketchup, Ore Ida and Taco Bell. As I mentioned earlier, Philadelphia is one of the brands we piloted in our brand growth system in 2024. We uncovered opportunities to attract under index audiences to expand distribution in wide space channel and to highlight the versatility of cream cheese across new users occasions. Our initial learnings and actions are yielding results with 2% dollar gross sales despite lapping private label out of stocks in 2023.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

And Heinz ketchup grew dollar sales 2% versus 2023. This was driven by impactful marketing campaigns and by increasing distribution from innovation. We have innovated across formats and flavors to deliver on consumer desires, including the successful launch of our pickled ketchup, which has been 50% incremental to the flavor ketchup category and we are now expanding it to four continents. On Moraida, we have been able to meet the strong consumer demand for our products, which in turn enabled us to increase investments in marketing and promotions. This contributed to dollar sales growth of 8% in 2024.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

Lastly, Taco Bell had a great year, growing 24% versus 2023. This was driven by expanded distribution and share gains on both existing products and innovation as we doubled down on the fast growing Mexican cuisine category growing at a pace of 4.5%. Turning to our next strategic pillar, global away from home. Despite the decline in our top line growth, we are seeing wins across each key area of our strategy, growing in higher margin channels, increasing penetration beyond ketchup and go to market excellence. In The U.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

S, we gained 70 basis points of share and grew sales mid single digits for the full year across higher margin non commercial channels. This includes wins in entertainment and travel. Earlier this year, we announced a new multi year partnership with the Chicago Cubs, where Heinz has been named the official condiment of Ricky Field. This included incremental distribution on Heinz ketchup, mustard, relish and more. I am also excited to share that we have signed a new contract with Hilton Hotels, making Kraft Heinz the preferred vendor for sauces and condiments globally.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

This presents a large opportunity for us and we are excited for the doors it unlocks. Partnering with Hilton to leverage the worldwide presence in over 130 countries to drive growth. We also continue to expand beyond ketchup. I just mentioned our partnership with the Chicago Cubs. This is one example where fans can also enjoy Kraft Mac and Cheese, Philadelphia and Primal Kitchen throughout the ballpark.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

And more recently, we further increased our penetration of Philadelphia cream cheese in away from home with Dunkin'. In U. S. Away from home, we grew Philadelphia Cream Cheese high single digits in 2024. And we are focused on go to market excellence, leveraging our proven model to not only gain distribution in retail within emerging markets where we have solid coverage, but also expanding the model into away from home channel.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

In 2024, we grew total distribution points in emerging markets away from home by 21%. As you can see, our away from home team has been busy this year and I'm happy to report that for 2025, we have already locked in 75% of the expected sales from new clients wins. Looking at emerging markets, we grew organic net sales both in the fourth quarter and the full year. While this growth was lower than we originally anticipated due to pressures in Brazil and China, the rest of emerging markets grew double digits, a testament that our strategy is working. Our growth drivers in emerging markets are twofold.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

Leveraging the strong brand equity of our Heinz brand and expanding distribution through our go to market model. We grew Heinz organic net sales in emerging markets approximately 8% in 2024. Heinz is our largest brand globally and it represents over $1,000,000,000 in sales in emerging markets accounting for roughly 40% of total sales in the zone. We also continue to expand distribution through our go to market model. We increased total distribution points by 17% in 2024 and plan to further increase by an additional 40,000 points of distribution in 2025.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

This sets us up well for accelerated growth. As we look to 2025, marketing innovation will be key enablers of our growth. Let's dive into both. First on the marketing front, we continue to make meaningful advancements in talent, tools and capabilities by building an ecosystem that fuels brand relevance and creative excellence. A key driver of this success is our in house agency, The Kitchen, which we launched four years ago to unlock creativity and deliver breakthrough ideas at the speed of culture.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

Since its launch, The Kitchen has garnered external recognition, earning numerous awards for the in house agency of the year. I am thrilled to share that our marketing team has been pushing the boundaries of innovation and creativity in the partnership space. We're not just talking about any partnership. We are talking about game changing culture shifting collaborations that are really finding the marketing landscape. For example, we finally got Monster on the beat with their electronic collaboration with the award winning producer Monster, which dropped during the biggest night in music to go Amis.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

And if that wasn't enough, we also brought our beloved brands to live in Instacart's first ever Super Bowl campaign, featuring the iconic Heinz Winter Dogs, the Cooling Men and the Oscar Mayer automobile. It was a moment that will go down in market history. These partnerships aren't just about generating buzz, they're about creating unforgettable experiences that leave a lasting impact on our consumers. And I couldn't be prouder of our team for their dedication to truly creating marketing that excites. Our brand growth system is another critical component of our creative ecosystem, providing a systematic and repeatable framework that complements our disruptive marketing and innovation efforts to drive brand superiority.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

You have heard that about the early success we've had with Heinz Ketchup in UK and Philadelphia cream cheese in The U. S. Now with this pilot complete, we are ready to scale. More on that as we get into CUNY next week. Turning to innovation, our strategy is working.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

We have significantly increased innovation as a percent of our organic net sales from 1.6% in 2022 to 2.9% in 2024. We are focused on creating and providing consumer with products that are worth paying for, whether that be through our cuisine and flavor exploration, high quality convenience solutions or expanding options and functionality through unique benefits. As part of our Mexican food strategy, we have expanded our Taco Bell partnership, providing our consumers with restaurant quality experiences at home. In 2024, this led to door sales growth of 24% and we increased market share by nearly a point. As consumers are looking for bolder, more exciting flavors, we are leveraging a flavor focused expansion strategy in Mac and Cheese.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

Based on market and social media trends, we are creating buzz worthy moments by launching limited time offerings to drive excitement and deliver unexpected new flavors to market in record time. This includes our most recent Everything Bagel Craft Mac and Cheese launch, which sold out in just one day online at one of our largest retailers. After one hundred and fifty years, leveraging our extensive agricultural heritage and tomato expertise, we launched the first Heinz pasta sauce in The UK A Couple Of Years ago. Now we continue to include new recipes disrupting and driving excitement in the pasta sauce category, making superior quality ingredients and the latest food trends accessible to all pasta lovers. And it's working with dollar sales growth of 45% in 2024.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

And by leveraging a global Heinz team that was established last year, we are quickly scaling what works, expanding Heinz pasta sauce into other countries, including Brazil, Chile and across Europe. And we are delivering deliciousness and convenience through a three sixty crisp platform, pushing the boundaries of what frozen food can deliver. This patent technology provides convenience and quality, creating crispy products like those on the stove in a matter of minutes in the microwave. Delhi Mexqueterillas marked our first launch on the brand in over five years and they are now available in over 20,000 stores as we continue to expand distribution. We entered 2025 with strong momentum on the innovation front and we will continue to double down innovation that worked well in 2024.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

In fact, over 75% of innovation sales in 2025 are expected to come from proven innovation already launched. Plus, we have an exciting array of launches ready for 2025, focused on our core brand. With that, let me hand it over to Andre to provide more details on our fourth quarter financial results and to discuss our 2025 outlook.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

Thank you, Carlos. In the fourth quarter, organic net sales declined 3.1% for total Kraft Heinz with price up one percentage point and volume mix down 4.1 percentage points. In North America, organic net sales declined 3.6% with growth in our Canada business offset by lower sales in both U. S. Retail and away from home.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

In our international developed markets, organic net sales declined 4%. This was driven by volume pressures due to customer negotiations in Europe and declines in non core categories. In emerging markets, organic net sales was up 2.2%. Results were impacted by Brazil, driven primarily by volume elasticity linkage price taken in commodity categories and China, where we continue to experience industry softness. The rest of emerging markets grew the top line double digits in the fourth quarter with particularly strong growth in The Middle East and Turkey.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

Turning to the next slide. Total Kraft Heinz adjusted operating income declined 0.3%, driven by declines in each of our zones, primarily due to lower sales. Our adjusted operating income margin increased 80 basis points, a result of lower variable compensation and unlocked efficiencies. Lower variable compensation was a benefit to adjusted operating income across each of our zones. In North America, adjusted operating income declined 2.3% versus the prior year, with declining sales more than offsetting productivity gains.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

In international developed markets, adjusted operating income decreased 3.8%, primarily driven by the decline in sales and incremental inflation, partially offset by operational efficiencies. In emerging markets, while adjusted operating income declined 0.8% on a constant currency basis, we grew 3.5% and adjusted operating income margin expanded by 70 basis points. This growth and margin expansion was driven by lapping elevated investments in both market, primarily in LATAM. As we think about improving overall competitiveness in the market, we are leveraging a combination of strategies. We are focused on growing our base volumes in a sustainable way.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

This includes through consumer driven innovation, portfolio renovation, marketing that matters as well as selectively investing in price. In the fourth quarter, our percent of volume sold on promotion was down 2% versus the prior year. This was primarily driven by lapping dynamics. In the fourth quarter of twenty twenty three, we were investing more in promotions on Oraida as we were coming back from service issues and in Philadelphia, we are lapping private label out of stocks. As we continue to balance long term profitability, our volume sold on promotion was 5% below levels that of 2019.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

Looking to 2025, we are planning an increased level of investment in price. Remaining mindful of the consumer situation, we plan to make investments to adjust price gaps in selected categories, primarily across the four key brands Carlos discussed, adding our U. S. Away from home. While we will be investing more, we are also taking actions to ensure we generate positive returns.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

We have additional opportunities identified for 2025 to remove non effective events that were not driving top or bottom line in 2024. And we know that promotions without product improvement and marketing will not get us to where we need to be. Moving down the P and L, we continue to generate margin expansion through end to end efficiencies. This help us to not only offset inflation, but it also enables us to invest in the business to support long term growth. In 2024, we generated nearly 4.5% of gross efficiencies as a percentage of cost of goods sold.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

This exceeds the target we had for the year and we are well on our way to achieving our goal of $2,500,000,000 inefficiencies by 2027. With $1,300,000,000 unlocked to date, we have significant runway ahead to capture at least $1,200,000,000 more. Through a giant scale, we have plans for further advancements, including but not limited to automation and network optimization in our supply chain, sourcing excellence within procurement and maintaining a disciplined execution and continuous improvement mindset. These efficiencies helped generate 100 basis points of adjusted gross profit margin expansion in 2024 and provided us with the flexibility to increase investments. We exited 2024 with marketing as a percent of net sales at 4.5% and R and D as a percent of net sales at 0.6%.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

On the marketing front, we are approaching optimal levels and are shifting more focus in 2025 on unlocking additional value from our marketing spend through data driven improvements to ROIs. We have plans in place that we optimize marketing mix across brands and media types to ensure our dollars are working hard for our brands. On R and D, we expect to further increase our investments to support future innovation and are targeting levels closer to 1% of net sales. Turning to cash flow, we generated full year free cash flow conversion of 85%, a four percentage point increase versus the prior year. This was primarily driven by the conversion of certain surplus plan assets related to The U.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

S. Post retirement medical plan to cash as well as improved working capital. At the same time, we continue to increase investments for growth with full year CapEx increasing to 4% of net sales up to 20 basis points from the prior year. In terms of adjusted EPS, we grew 7.7% or $0.06 versus the fourth quarter of twenty twenty three. This was driven by positive impacts from a lower effective tax rate and share repurchases.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

Keep in mind, our adjusted EPS does exclude an impairment charge of $1,400,000,000 that was recognized in the quarter, which was more than offset by a $2,400,000,000 tax benefit. This tax benefit is related to the transfer of certain business operations that was completed in the fourth quarter of twenty twenty four. The transfer was part of our planning for the changes in the international tax environment and also allowed us to achieve greater operational synergies. In accordance with GAAP, the P and L benefit from the transfer of certain business operations had to be recorded in the fourth quarter of twenty twenty four when the transfer was completed. On a cash tax basis, however, the benefit is recognized annually starting 2025 and going forward for the next twenty years.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

As a result, we expect a 500 bp to step up in our P and L tax rate starting 2025. However, we only expect a 200 to 300 bps step up in our cash tax rate. And we continue to maintain a strong balance sheet while returning capital to stockholders. In 2024, we maintained our net leverage target of three times ending the year at 2.9 times. We believe this is a good level that provide us with optionality.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

We also returned approximately $2,700,000,000 to stockholders, one point nine billion dollars to our competitive dividend with value that exceeds five percent and $800,000,000 to our share repurchase program. This leaves about $1,900,000,000 remaining against our $3,000,000,000 authorization. As a reminder, our share repurchase program is non programmatic, a function of excess cash and takes into consideration the macroeconomic environment. Now turning to our full year 2025 outlook. We are expecting organic net sales in the range of down 2.5% to flat.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

This includes full year growth in our emerging markets in global away from home pillars, with an elongated recovery expected in U. S. Retail challenged categories. We expect organic net sales in the first quarter to come in lower relative to the fourth quarter of twenty twenty four. This is driven primarily by an approximate 100 basis point headwind for total prepayments due to an Easter shift.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

As a result, we expect to see lighter sales in the first quarter with an offset in the second quarter. The second quarter should also benefit from lapping pressures on Lunchables performance and the temporary plant closure in the second quarter of twenty twenty four, as well as increased investments in price and product. We then expect the second half to gradually improve from the second quarter. Constant currency adjusted operating income is expected to be down 4% to down 1%. This includes the impact of lapping lower variable compensation in 2024, which is an approximate two ten basis point headwind at the midpoint of our guidance.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

This also contemplates an adjusted gross profit margin that is flat to slightly positive year over year, driven by our gross efficiencies that are mostly offset by incremental investments in price and product. We expect adjusted EPS to be in the range of $2.63 to $2.74 This reflects a $0.07 headwind versus the prior year from lower variable incentive compensation in 2024. Our adjusted EPS expectation also contemplates an effective tax rate of approximately 26%, which is a $0.23 headwind on adjusted EPS year over year. The step up in our effective P and L tax rate is primarily related to the dynamics I noted earlier. As a reminder, this outlook does not reflect any impact from future potential share repurchases.

[Andre Maciel, Executive Vice President and Global Chief Financial Officer at The Kraft Heinz Company]

From a free cash flow perspective, we expect 2025 to be flat versus prior year, with free cash flow conversion of approximately 95%. This is driven by working capital efficiencies and lower cash outflows for variable compensation, partially offset by the net cash impact of a higher tax rate. We also want to acknowledge that the macroeconomic landscape remains uncertain, particularly as it relates to potential tariffs, food regulations, changes to SNAP and foreign exchange headwinds. Our current outlook does not contemplate significant worsening of these macroeconomic pressures. With that, I'll pass it back to Carlos for some closing comments.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

Thank you, Andre. At Kraft Heinz, we're acting with urgency, building upon our proven ability to unlock efficiencies, benefiting from twenty twenty four foundational accomplishments in our strategic pillars and investing for the now and the near to support the next. We have established our ability to be an efficient operator through the capabilities we have developed doing large part to our agile ways of working. We are generating best in class efficiencies with $1,300,000,000 captured today with line of sight to an additional $1,200,000,000 These efficiencies along with working capital improvements have led to an increase in free cash flow conversion from 81% in 2023 to 85% in 2024 with expectations to increase to approximately 95% in 2025. Last year, our teams were busy laying a solid foundation for 2025.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

Our top line improvements in the year will be driven by building upon the momentum of strategic growth drivers, leveraging initiatives already set in motion. Earlier, I talked about a couple of our successful innovation launches across Heinz, Mac and Cheese and our Mexican strategy. As we think about 2025, over 75% of the forecasted sale from innovation will come from launches already proved out. Being away from home, I am excited to enter the year with 75 of expected sales from new customers wins already locked in and a strong line of sight to additional customer wins as we progress throughout the year. In emerging markets, we will continue to execute against our go to market model in both retail and away from home, building upon continued distribution gains.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

With significantly wide space and a proven planning emerging markets, we have meaningful opportunities to continue to grow. And what really excites me is we completed two successful pilots of our brand growth system. Although it's still early, we are seeing promising initial results across Philadelphia and Heinz in The UK. And in 2025, we will be investing for the now and near to support the next. We are scaling a brand growth system, utilizing agile scale ways to work and to grow our core must win brands.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

This deep forensic like assessment of our brands uncover meaningful opportunities to invest in the product, ensuring that we are driving superiority on all fronts, delivering on consumer desires and creating marketing that resonates with consumers. And importantly, we are dedicated to making these investments while protecting profits. We're also honing in on our sales capabilities, ensuring our products are available and visible whatever, whenever and however a consumer wants. This includes strengthening our capabilities across our go to market model and join business planning to drive further distribution and reach. All of this combined along with the highest employee engagement yet being named a great place to work in 22 countries, including in The U.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

S. For the first time gives me excitement headed into 2025. I know we got some work ahead of us to really drive growth, but I got to tell you, I am feeling pretty optimistic about the momentum we have built. We're making strides and that's something to be excited about. As we look to the year ahead, I'm confident that we got the right strategy in place.

[Carlos Abrams-Rivera, CEO at The Kraft Heinz Company]

We'll keep innovating, we'll stay focused and we'll keep driving towards our goals. Together, I'm excited to see what we can achieve. Thank you for your time and interest in Kraft Heinz.

Participants

Executives

• Anne-Marie Megela, VP & Global Head of Investor Relations
• Carlos Abrams-Rivera, CEO
• Andre Maciel, Executive Vice President and Global Chief Financial Officer