Kraft Heinz Reports Strong Q2 2024 Results Amid Challenging Market Conditions

The Kraft Heinz Company (KHC) Q2 2024 Pre-Recorded Management Discussion (Transcript)

Anne-Marie Megela - Head of Global Investor Relations Carlos Abrams-Rivera - Chief Executive Officer Andre Maciel - Executive Vice President and Global Chief Financial Officer Hello. This is Anne-Marie Megela, Head of Global Investor Relations at The Kraft Heinz Company. I'd like to welcome you to our Second Quarter 2024 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. 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-Q, 10-K, and 8-K filings 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.kraftheinzcompany.com, under News & 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 second quarter, and will discuss our 2024 outlook. We have also scheduled a separate, live question-and-answer session with analysts. You can access our question-and-answer session at ir.kraftheinzcompany.com. A replay will also be available following the event through the same website. Thank you, Anne-Marie. And thank you all for joining us today. As many of you are aware, the consumer environment remains challenged and was worse than we anticipated in the second quarter. Slowing income growth, dwindling savings, and inflation concerns continue to weigh on consumer sentiment and increase value-seeking behavior. These dynamics are now expected to continue for longer, which has led to a delayed recovery for growth across the industry. As a result, we are now expecting a more gradual top-line improvement from the second quarter into the back half of the year. I am encouraged that we continue to unlock efficiencies and are well on our way to generating the highest levels of productivity since we reset our strategy. These productivity gains are being realized today, and are a key reason for continued margin improvement. At the same time, we are generating increased profits and strong cash flow, as we protect the bottom line while actively responding to top-line headwinds. With these gains, and aligned with our strategy, we are continuing to make accretive investments in our leading iconic brands to drive top-line growth in 2025 and beyond. And importantly, we are confident in this strategy and the attractive categories in which we compete and have the right to win. We are committed to managing our business in a disciplined manner that preserves our ability to drive sustainable, long-term growth. In other words, we will not buy short-term wins at the expense of long-term success. Moving to our second quarter results. Organic net sales declined by 2.4% versus the prior year. This was lower than our original expectation and is primarily a function of the continued consumer pressure and cautious sentiment, as well as the unexpected impact from Lunchables sales. Our teams are continuing to unlock efficiencies at a greater pace than inflation, contributing to adjusted gross profit margin expansion of 210 basis points versus the second quarter of last year. As we reinvest in the business through marketing, R&D, and technology, we generated adjusted operating Income growth of 2.0% in the quarter. Meanwhile, as previously noted, Adjusted EPS declined versus the prior year, driven by the lapping of a one-time tax benefit in 2023. While top-line growth is slower to recover, we firmly believe in our path forward to deliver consistent profitable growth. We are committed to: Our strategic pillars as the drivers of future growth. Continuing to unlock gross efficiencies to drive margin expansion, investing in the areas that make sense for the long-term growth of the business, and powering brand superiority through innovation and renovation. Let's take a look at our performance across our three strategic pillars. We believe that recovery, while slower, begins in the third quarter. In our ACCELERATE platforms in North America Retail, Organic net sales declined 2.4%. This top-line decline was primarily a result of the current U.S. consumer environment, lower sales in Lunchables, and the planned exit of our unprofitable bulk vinegar business. We have already taken steps to mitigate the situation for Lunchables as kids return to school. Andre and I will talk a bit more about that later. At the same time, the ACCELERATE platforms continue to be attractive spaces. They generate margins substantially higher than the total company. With attractive historical industry growth rates and projected 4% annual compounded growth over the next 10 years, we are well positioned with our powerful iconic brands to drive profitable growth. We are pleased with the momentum we are seeing so far in the third quarter, particularly across our Heinz, Ore-Ida, and Philadelphia brands. We expect this improvement to continue into the second half, fueled by a ramp up in innovation as well as selective investments in trade. Turning to Global Away From Home, we knew going into the quarter that lower U.S. traffic particularly in QSRs, the temporary plant closure we highlighted during our last earnings call, and the two planned exits from margin-dilutive businesses were going to lead to a year-over-year decline. I am happy to report that the plant is back up and running, and the top-line impact came in at the lower end of our expectations. Plus, our Away From Home team continues to add new business and expand penetration across the non-commercial channels that are driving industry growth. We do expect performance improvement in the second half as we increase distribution globally, led by our go-to-market strategy. Finally, in Emerging Markets, we had originally anticipated year-over-year growth to accelerate from the first quarter to the second quarter with growth closer to mid to high single-digits. We continue to capture share and grow Organic net sales through both price and volume. However, consumer pressure in China and Brazil limited our ability to deliver on our expectations. We are anticipating gradual improvement in the back half of the year, as consumption continues to come in at healthy levels. On a positive note, we exited the quarter with top-line growth in the high single-digits. Moving to volume. The impacts from the temporary plant closure and Lunchables contributed approximately 0.9 percentage points of volume decline in the quarter. Aside from these events, we have seen sequential improvement in our underlying business since reaching a low in the second quarter of 2023. Looking to our share performance, we are gaining or recovering share across our International Developed and Emerging Markets compared to the first quarter. We are seeing a meaningful recovery in International Developed Markets, with a 70 basis point improvement from Q1, and we are gaining share in Continental Europe. In the second quarter, we gained 60 basis points of share in Emerging Markets, as we continue to capture white space through distribution gains. In U.S. Away From Home, we lost 10 basis points of share, primarily driven by the temporary plant closure impacting our ability to service. In North America Retail, we lost 50 basis points driven by the continued value-seeking behavior we are seeing from consumers. We are continuing to invest to support improvement across North America Retail. First, for Capri Sun, we are re-engaging consumers through a recent product renovation. We have also invested two times the media support and are investing in trade to incentivize trial. Turning to Lunchables, this is an iconic leading brand with the right to win in a very attractive category. Lunchables is a brand that I know well, as it was the first brand I worked for when I joined Kraft Foods. Starting at the beginning of the quarter, we saw a decline in sales, but we feel good about the recent improved trajectory. To build on that momentum, we are deploying a comprehensive strategy across marketing, renovation, and innovation. We're investing in R&D and doubling our marketing spend while optimizing our media mix, targeting strategies, and increasing our value equation. For example, in September, we are teaming up with the Transformers movie for the brand's first-ever on-pack partnership. And partnering with movies is something we know how to do well. And we see a lot of opportunity for long-term sustained growth in Lunchables from further penetration into existing channels and expansion into new channels and occasions. Beyond these two core brands, we also are increasing investments in marketing and innovation across our portfolio to reinforce our product differentiation to compete with private label. At the same time, we are promoting to preserve intended price gaps versus branded competitors. This spend is more than offset by productivity gains expected in the year, which we believe will offer incremental value that the consumer is seeking. Now, taking a closer look at these productivity gains. Our new ways of working through Agile@Scale and our approach to strategic partnerships are key ingredients in our success. In the first half of the year, unlocked efficiencies contributed to a 190 basis point increase in adjusted gross profit margin. This includes increased investments in trade as we are mindful of the consumer situation and are being selective in our investments. Year-to-date, with the gross margin dollar gains, we increased investments in SG&A by approximately $100 million, or 6% versus the prior year, driven by investments in marketing, technology, and R&D. We also are increasing our CapEx spend by $35 million, or 7%, as we focus our investments on generating growth, as well as digital advancements. We know that value is top of mind right now for the consumer. And Slide 12 highlights how our innovation continues to resonate and provide them value in their everyday lives. Whether it's through our high-quality, convenient solutions like our 360CRISP platform, or our Taco Bell Craving Kits, which make it easier for Taco Bell fans to re-create their favorite menu items right in their own kitchens. We are also satisfying changing consumer desires by evolving our core offerings to stay relevant to consumer trends. For example, our Pickle Ketchup is the latest Heinz innovation designed to deliver on fans' hunger for unique and elevated flavor experiences. It also marks the first Heinz innovation to launch globally following the brand's unification under one global creative platform. With Pure J.L. KRAFT, we have created a line of dressings and marinades that use simple ingredients and provide the homemade taste that consumers are looking for. They offer bold, globally inspired flavors often found in restaurants, now in the convenience of the grocery aisle. Expanding options and functionality is more important today than ever as consumers want choices that provide unique benefits, such as dairy-free, plant-based, and immunity support. Our partnership with NotCo has allowed us to expand such options while using AI technology to deliver delicious taste and texture. Additionally, earlier this year, Crystal Light introduced its first innovation in over a decade with the launch of its Mixology, Immunity, and Energy product lines. And finally, we continue offering accessible solutions for every budget by unlocking new formats and usage occasions like we did with Velveeta's first-ever jarred queso. We also expanded our offerings in club channels with the launch of Capri Sun Multi-Serve. As well as provided more entry-level price points and offerings in dollar channels, including doubling our store count on Oscar Mayer SKUs in Dollar General. I am proud of what our teams have accomplished in such a short amount of time. Our innovation pipeline is gaining momentum, and as expected, increasing as a percentage of Organic Net Sales to a pace of 2.4% year-to-date. As part of our Mexican food strategy, we've expanded our Taco Bell partnership, delivering an at-home restaurant experience for our consumers. We are extremely pleased with the initial results of our Taco Bell Craving Kits and Dips that together have exceeded our expectations on distribution by over 30%. And I am looking forward to the launch of our new 360CRISP Delimex Quesadillas, hitting stores in August! And as I just mentioned, we have had great success growing in the dollar channel. For example, our year-to-date sales in Dollar General increased 47% versus the prior year across Oscar Mayer Cold Cuts, Hot Dogs, and Lunchables. And finally, also from Oscar Mayer, we recently introduced its latest innovation, Stuffed Dogs. They started rolling out in retailers nationwide in May, and already have garnered the highest distribution for any Oscar Mayer innovation in the last five years. I am very pleased to see our innovation pipeline building momentum, which gives me confidence for what is coming, particularly as we head into the second half. As I previously mentioned, our Capri Sun renovation is shipping now, with two times the marketing spend to support trial and summer initiatives. And our Capri Sun multi-serve bottles highlight another example of shifting our product offerings to meet the needs of our consumers today and in the future. We also are ensuring that we are bringing new and relevant items to our consumers to keep them excited. In the second half, we are launching new shapes, variety packs, and flavors across Mac & Cheese. Our new Super Mario Shapes are rolling out now in major retailers nationwide, and we have new exciting flavors coming soon. And finally, I'm looking forward to what is coming for Lunchables, where we are gearing up for the back-to-school season. Not only are we teaming up with Transformers as I mentioned earlier, we also have a lot of exciting innovation, including new combinations, that are expected to hit shelves this fall. They will expand Lunchables into snack spaces that consumers have never seen before. Our investments across marketing and technology are paying off. On the creative front, our Global Heinz Brand strategy has been amazing, resulting in several creative ideas that have generated sustained business impact. Ultimately, our collection of campaigns within this strategy helped generate double-digit Organic Net Sales growth in 2023 across the global Heinz brand, and also achieved Kantar's coveted "iconic status." In recognition of this strategy's impact, our team was awarded the Grand Prix for Creative Effectiveness in Sustained Success at the Cannes Lions International Festival of Creativity this year. With recent investments in technology, our Agile teams have built a digital platform that enables us to rapidly create media campaigns and content for all of our brands across web, social, and mobile apps. This new platform was built with our agile ways of working, and has achieved a 28% increase in customer satisfaction, a 30% increase in engagement, and an impressive 78% increase in conversion rate. Importantly, it provides us with the capabilities to create digital campaigns faster and at a lower cost. And was honored by MACH Alliance with its Grand Prix award for Best Digital Experience. So, you can see, while this quarter has been challenging for the industry, we are actively responding to drive our own recovery. We are managing the business in a disciplined manner to protect profitability and investing for growth. Today, we are creating solutions for our consumers and selectively investing in trade to drive volume recovery. We are not losing sight of our long-term strategy to drive profitable growth, generate strong cash flow, and return capital to our stockholders. Our teams have the highest employee engagement scores to date, and we are leveraging the power of our competitive advantages, including Agile@Scale, our Ownership-Centric Culture, and our unique approach to strategic partnerships. And with an eye towards fueling growth, we are accelerating innovation and renovation across our iconic brands. We are deploying our Brand Growth System to drive brand superiority and marketing excellence. By leveraging our Brand Growth System, we can prioritize our largest opportunities and optimize our returns in marketing and other investments. With that, let me hand it over to Andre to provide more details on our second quarter financial results and to discuss our 2024 outlook. In the second quarter, Organic net sales declined 2.4% for total Kraft Heinz with price up 1.0 percentage point and volume/mix down by 3.4 percentage points. As Carlos noted, we continue to manage our business in a disciplined manner that preserves our ability to drive sustainable, long-term growth. In North America, Organic net sales declined 2.9%. The volume declines were primarily driven by increased value-seeking behavior across U.S. Retail and Away From Home channels. And as a reminder, lower Lunchables sales and a plant closure further impacted the top line. In our International Developed Markets, Organic net sales declined 3.9%. Price was down primarily as a result of increased trade in the U.K. to selectively lower our price gaps. Volumes declined in part as we work through a customer negotiation. In Emerging Markets, Organic net sales was up 3.4% in the quarter, with growth coming from both price and volume/mix. Our China business had a negative impact on Emerging Markets top line due to worsening consumer sentiment. To a lesser degree, Brazil had challenges with both the consumer environment resulting in negative price from value-seeking behavior in commodity categories and the customer environment, where retailers reduced their inventory levels. In the third quarter, we do expect to lap the inventory buildup by retailers that occurred in the prior year, which will result in further expected top line pressure. Turning to the next slide, total Kraft Heinz Adjusted Operating Income grew 2.0% and our adjusted operating income margin increased 120 basis points, as the expansion in adjusted gross profit margin more than offset increased investments in SG&A. In North America, adjusted operating income grew 7.5% versus the prior year, with growth primarily driven by productivity gains. In International Developed Markets, adjusted operating income declined 10.0%. As we discussed on the last earnings call, the second quarter included an approximate $8 million headwind, or 5.7 percentage points. This was due to fixed COGS absorption benefits in the prior year as a result of Cyclone Gabrielle. As anticipated, year-to-date adjusted operating income for International Developed Markets is in line with expectations, increasing 6.4% compared to last year. In Emerging Markets, adjusted operating income declined due to lower than anticipated organic net sales growth while we ramped up our investments across people, logistics, and product development in the first half of the year to support our go-to-market strategy. In the second half of the year, we expect the top line to gradually improve and we should expect to see bottom line growth in the fourth quarter, as we fully lap these elevated investments. Being mindful of the consumer environment, we are funding increased trade with supply chain efficiencies to preserve our price gaps versus branded competitors. As you can see, our promotion levels have increased compared to 2023, while remaining below 2019 levels. At the same time, we are being selective in these investments and working alongside our retail partners to come up with solutions that work for both parties. We are not using tactics that undermine long-term profitability. We leverage different strategies beyond promotions to compete against private label, such as innovation, renovation, and marketing. Moving down the P&L, we are expanding gross margins through continued supply chain efficiencies. This allows us to invest more in the business and drive long-term growth. Year-to-date, adjusted gross profit margin expanded 190 basis points versus last year, primarily driven by approximately $375 million in gross efficiencies. This gave us the flexibility to increase year-to-date investments in marketing by 9%, R&D by 13%, and technology by 17% versus 2023. Turning to cash flow and profitability. We generated year-to-date free cash flow conversion of 65%, a six-percentage point increase versus the prior year, primarily driven by working capital improvement. This year, we realigned our company incentive structure to reward working capital performance, and we are starting to see this pay off in our results. Keep in mind that our free cash flow conversion tends to be higher in the second half of the year due to seasonality. At the same time, we have been increasing investments for growth, with CapEx spend increasing by $35 million, or 7% versus the prior year. In terms of adjusted EPS, we declined 1.3%. This was driven by lapping a one-time tax benefit in the prior year, partially offset by a positive impact from results of operations, share repurchases, and other income. We continue to strengthen our balance sheet while returning capital to stockholders. In the first half of the year, we returned approximately $1.3 billion while maintaining our target net leverage target ratio of approximately three times. Of this, $969 million was through our competitive dividend and $350 million was through share repurchases under our announced program. This leaves about $2.4 billion remaining of our $3.0 billion authorization. As a reminder, our share repurchase program is non-programmatic and a function of excess cash. As we look ahead to the remainder of the year, we are lowering our organic net sales outlook from flat to 2% growth to a range of down 2% to flat. This change contemplates a slower recovery than originally anticipated in the U.S. and Emerging Markets. Adjusted operating income growth is now expected to be in the range of 1% to 3% as compared to the previous expectation of 2% to 4%. For Adjusted Gross Profit Margin, we are increasing the expected year-over-year expansion to a range of 75 to 125 basis points, from a prior range of 50 to 100 basis points. This revised expectation is driven primarily by gross efficiencies coming in higher than anticipated more than offsetting incremental investments in trade. We are reiterating our Adjusted EPS outlook of 1 to 3% growth. The guide down in adjusted operating income is offset by year-to-date share repurchases and lower interest expense as we refinanced debt at a lower rate than originally anticipated. As a reminder, our outlook does not include any potential additional share repurchases in the second half of the year. Now, let me go into more detail regarding our sales outlook for 2024. There are many drivers giving us optimism for improved trends in the second half. However, given the uncertain consumer environment, the ultimate impact of these drivers can be quite broad. As these drivers take hold and build upon one another, we believe that there is potential for the top line to improve sequentially throughout the second half of the year. We are anticipating a continued ramp up of innovation and renovation to help improve the top line, particularly in North America Retail. We are increasing our marketing spend above what we originally planned to continue to drive brand superiority across our portfolio. In Away From Home, we are not assuming any industry growth given the current pressure, particularly in U.S. restaurant traffic. In the U.S., we do however continue to win new business, particularly outside of Ketchup and in non-commercial channels. We will begin servicing these contracts starting in the third quarter. In Emerging Markets, our Away From Home improvement will be primarily driven by increasing distribution through our go-to-market strategy and global activations, such as our Heinz Selection program. And finally, understanding that the consumer is looking for value and propensity to trade down is high, we are also increasing selective investments in trade above our original expectations as we head into the back half of the year. At the same time, we remain committed to our disciplined approach to drive sustainable, long-term profitable growth. With that, I will pass it back to Carlos for some closing comments. You can see that like many companies, we continue to navigate through short-term turbulence. Despite this evolving environment, Kraft Heinz is well-positioned to address these challenges, and we remain confident in our ability to execute on our strategic agenda. We have a portfolio of leading iconic brands that provide value across multiple price points and channels. Our brands sit in attractive categories that play in consumer spaces where we have the right to win. And our investments in Agile@Scale help us to continue to unlock end-to-end efficiencies, mitigating volatility and unpredictable changes. We also have a disruptive innovation engine that is gaining momentum and driving incrementality. And our effective marketing continues to engage consumers at the speed of culture. We have had great success in marketing, and now we are institutionalizing our philosophy of building superior brands, on a global basis through our Brand Growth System. Finally, our enhanced structure enables us to move globally, and with agility. This is why I am confident in and excited about the future of Kraft Heinz!

The Kraft Heinz Company (KHC) Q2 2024 Earnings Call Transcript

Anne-Marie Megela - Head of Global Investor Relations Carlos Abrams-Rivera - Chief Executive Officer Andre Maciel - Executive Vice President and Global Chief Financial Officer Good day, and thank you for standing by. Welcome to The Kraft Heinz Company Second Quarter Results Conference Call. [Operator Instructions] Please be advised that the conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Anne-Marie Megela. Anne-Marie Megela Thank you, and hello, everyone. This is Anne-Marie Megela, Head of Global Investor Relations at The Kraft Heinz Company, and welcome to our Q&A session for our second quarter 2024 business update. During today's call, we may make forward-looking statements regarding our expectations for the future, including items related to our business plans and expectations, strategy, efforts and investments and related timing and expected impacts. These statements are based on how we think today, and actual results may differ materially due to risks and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release, which accompanies this call as well as our most recent 10-K, 10-Q and 8-K filings for more information regarding these risks and uncertainties. Additionally, we may refer to non-GAAP financial measures which excludes certain items from our financial results reported in accordance with GAAP. Please refer to today's earnings release and the non-GAAP information available on our website at ir.kraftheinzcompany.com under News and Events, or discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. I will now hand it over to our Chief Executive Officer, Carlos Abrams-Rivera for opening comments. Carlos, over to you. Carlos Abrams-Rivera Well, thank you, Anne-Marie, and thank you, everyone, for joining us today. Recognizing that it remains a difficult consumer environment, I am proud that we at Kraft Heinz are providing high-quality, convenient solutions that are a great value, brand worth paying for. And we will continue to stay focused on renovating and innovating with new benefits functionality and accessibility. At the same time, our teams have been relentless in unlocking efficiencies with a mindset of continuous improvements. And as a result of greater productivity and efficiencies, we have been able to hold prices below inflation this year while continuing to invest in innovation, marketing and R&D. And for our stockholders, through our dividends and share repurchases, we have returned over $1.5 billion in capital so far this year. I am very encouraged on how our focus on improving working capital is paying off. We increased free cash flow nearly $100 million or approximately 9% compared to last year and maintain our targeted leverage ratio. And finally, it's hard to believe that it has only been 4 months since my leadership team came together. We're on this journey together, all committed to driving improvements and achieving our company dream. I see the ownership and grit with my direct reports and across the organization. We are all embracing this new operating model and ways of working, and we are only getting stronger and stronger. With that, I have Andre joining me. So let's open the call for Q&A. [Operator Instructions] Our first question comes from Andrew Lazar with Barclays. Andrew Lazar Carlos, you mentioned the need for selective promotion and trade spend activity in the second half just to drive better volume results for a more value-seeking consumer. I'm curious if there's a way to dimensionalize the portion of the percentage of sales that are sort of in need some adjustments. And if there are any particular hotspots that require maybe more aggressive pricing actions or sort of a reset of sorts? Basically, I'm just trying to get a sense for how broad the price point issue really is across the portfolio with the understanding that, as you've talked about promotional right now are still below those you saw in 2019. Andrew, thanks for the question. Look, we -- as we said in our guidance, we're contemplating a step-up in trade investment level. You saw that in Q2, we already had a little more trade than what we had in the last year, where those are still well below 2019 levels. We believe that looking forward, we are more focused on those price gaps versus branded competitors and in places where it makes sense for the long term. We -- I think we have been saying all along, and we continue to stick to this that we believe that's the way we want to grow the business is not through over relying on promotions and rather continue to invest behind our innovation, our renovation and our market investments. And that's what we have been doing, and we're sticking to that. We are confident about that into the future. But in the short-term, we are seeing selected spots where it does make sense to add promotions to close those gaps. I'm not going to give you like an overly precise number to your question, but I estimate in the 30% to 40% of the portfolio where those price gaps require some incremental level of investments in the U.S. Andrew Lazar It's really, really helpful. I mean. Yes, and then just a really quick one. Do you anticipate volume inflecting to positive in the back half? Because I think by our math, it's still implied that, that's the case even by the new guidance range? And I guess, how do you see volume progress playing out specifically in North America in the second half? Andre Maciel We do expect revenue and volume to gradually improve throughout the quarters. In our midpoint of the new guidance we don't have -- we don't need volume to grow for us to achieve our guidance. So our price expected to be in the -- around 1% territory for the total portfolio. So if you think about the second half, what's impacted the guidance is sales declining 0.5% and so that you can see. Now it's good. The good thing is volumes in emerging markets, despite some headwinds in Brazil and China, continue to be positive. They are positive in the second quarter. They will continue to be so a year to go. And in the U.S., we're going to -- we expect to have volume continue to improve. Again, in our midpoint, we don't need the volumes to turn positive for us to achieve it. Carlos Abrams-Rivera And what I would say to add is -- also give me confidence as we think about that trajectory improving in the second half is that we are very much focused on driving that value in very much in a sustainable way. So it cannot just be value for the sake of value with delivering value in a sustainable way through innovation, renovation and marketing, for frankly, families that we know are spending more time cooking at home. So when you see some of our innovation around things like Mac & Cheese, where we're bringing new shapes, new flavors, new pack size to consumers at different price points. When you see us bringing New Mexican solutions with Taco Bell and Delimex, that allows us to, again, bring families solutions for their home when they're spending more time together. That is part of us kind of bringing new ideas and ways in which we can bring value to families at this particular time. And we're seeing that also in Away From Home business, where we continue to see the improvements on the momentum of the business. We are seeing the improvements that we are now servicing better going into Q3. We are also getting new customers in Away From Home business that, again, help us make sure that we're building on the success we've had in the past. And as Andre said, we have been selective in our investments in trade, but we're also committed to a disciplined approach to the RGM tools that we have used in the past, and we know that help us make sure that we continue to make a balance on the profitability of how we spend in a smart way. Andre Maciel Just a final comment is I think our dated guidance also reflects this philosophy in this approach because you see we have adjusted our net sales guidance down, but we largely kept our EBIT growth and we kept fully capital EPS growth. So that's what we are sticking for. We have been very disciplined in being very thoughtful about the type of investments we make and what are the long-term implications of that, and we're going to continue to do so. Our next question comes from Ken Goldman with JPMorgan. Ken Goldman Just sticking on the subject of the back half. You provided a number of reasons for optimism. I think you've cited more innovation, renovation and marketing. You've talked about expanded distribution in certain parts of the business and then, of course, those targeted promotions. Just as we think about these drivers, plus the absence of the plant maintenance headwind, which are you counting on as being the most important and meaningful to hitting your updated outlook? Do the promos have to work? Is it really about innovation striking a note with consumer? I just want to get a better idea of kind of your visibility and reliance on the factors you're talking about. Carlos Abrams-Rivera Thank you for your question, Ken. I think, frankly, is a -- it depends a little bit on the region of the world. I think if you think about our emerging markets, as Andre pointed out, we have been growing volume. We continue to see improvements as we go into the second half of the year and we're ready. We exited June in a much better way than we had for the whole quarter. So we are seeing that in that case, distribution gains that we have invested in our go-to-market strategy in emerging marketing is working. And we continue to build the success we've had in the past. In our Away From Home business, it really is us continue to drive the improvements on our service, given our plant closure that we had in Q2, and those continue to start winning and winning some customers that we, in fact, already have qualify for us in the second half of the year, and that is both globally in the U.S. and outside the U.S. So we are not expecting initially a big improvement in the overall situation and away from home in the U.S. But what we do expect is that we are, in fact, continuing to see the progress in our distribution gains as we go forward. And in the U.S. and North America for all, is really driven by this balance between us driving this innovation, renovation of our brands, truly be more thoughtful about the value that we're creating with consumers in terms of the better products, the better ideas that we're bringing to market as well as being thoughtful on how we are going to spend on our revenue management tools -- spread our revenue management tools in order for us to make sure that we're having the right price gaps in the intended fashion across the branded competitors. So that would give you a little bit of sense of how we're thinking about the overall portfolio. I don't know, Andre, anything you want to add? Our next question comes from Steve Powers with Deutsche Bank. Steve Powers You called out a couple of overseas markets, specifically the U.K., China and Brazil, different dynamics in each of those markets. But obviously, a lot of work going on as you try to correct trade gaps -- or sorry, price gaps in the U.K. and fight through consumer demand softness in China and Brazil. I guess could you just expand on what you're seeing in those markets? And maybe a bit more color on what your expectations are for the back half in terms of any kind of sequential improvement? Andre Maciel Sure. So particularly maybe starting with the U.K. We -- as we said last year in earnings, this is a place that suffer a significant amount of inflation, probably even more than other developed markets. And private label in that particular market has started to get a lot of traction. And we decided in Q3 last year, to start to step up investments, to protect the volume. We do have some factories in the U.K. that also need to be mindful about the utilization of those factories, and protect the volume for some of the strong brands we have over there. We have put that in place since now almost a year ago, and we have seen the returns happening on the volume share side. So I think we're moving in the right direction. And with -- we were able to mostly protect even gross margin because of the amount of efficiency that we have generated there. So U.K., I think, is moving in the right direction. When it comes to China, a similar to what we have heard from others, the industry continues to be soft. I mean vessel the expectations that we do have about a country like China. So we continue to gain market share in modern trade. So that's a good thing. But the industry is just not working. And I think we set our expectation moving forward that it is for the short-term about China industry growth. In Brazil, we -- the good thing is we continue to gain market share. So that's been very consistent. And I feel good about that. Consumer has been demonstrating similar to other parts of the world fatigue and has been showing also vulnerability. So we saw some price gaps to branded players or private label that is negligible, also coming down. So we had to invest. But we face a situation where the customers adjusted their inventories down. You have to understand that in the emerging markets, the retailers tend to carry more inventory than in developed markets. So in a country like Brazil, you see inventories at the 45, 50 days level compared to the U.S., where you see 20 days, 25 days. So is very different. And what we have seen a situation like we are right now high interest-based consumer tightness, is [indiscernible] the inventories down. And honestly, we are not expecting that, and that created a challenge for us in Brazil in the first half of the year. We believe that inventories -- we believe now that they should be at the appropriate level, which should allow us to improve the situation. But yes, that's a little bit of a snapshot. Our next question comes from John Baumgartner with Mizuho Securities. John Baumgartner I wanted to come back to North America. Your portfolio in a lot of your categories, you're not the highest priced product. And you think there should be some benefit from trade down into your brands. But with the focus on managing price gaps to other brands, it also seems like the equation is still very much price based. So at this point, how do you feel about the ability to redefine your portfolio through innovation, marketing, where you can better compete on non-price factors? Because it feels like there's already been a lot of work done with ingredient reformulations and so on. How do you think about the non-price competition? Carlos Abrams-Rivera Yes. Well, first of all, thank you for the question. And as you pointed out, we have a series of iconic brands across our portfolio in North America that we feel great about. And you've seen already. I mean, you've seen brands from Philadelphia to -- or either where you are seeing the growth as we have continued to renovate those businesses are the success that we've had in a brand like Jell-O, where we have continued to renovate. So we have a playbook on how we continue to renovate our business, our brands to make sure that they, in fact, continue to be resonating with consumers today and for the future. I think in places where we are seeing that consumers are making choices as they are trying to manage the cash flow of the family, we also have to be aware that we have to provide consumers options at different price points so they can be part of their role basket size of the cash flow that they have available to them. That's why in a business like Mac & Cheese, well, it's certainly something that can fit the entire -- can feed the entire family. We want to make sure we have different price points in which we can come in to consumers and allow them to make sure they continue to enjoy our products. And it's also about us being able to be accessible in new places. One of the things we find right now is that consumers are actually increasing the number of trips and locations in which they shop. So for us, it's important that we continue to expand where consumers are going to try in our brands and why we have been so much focused on driving our improvements in terms of distribution in the dollar channel, whether that is with our Oscar Mayer businesses and making sure that we have the product they're looking for at that particular venue. But it's also us expanding our distribution in places like club, where we know consumers are also looking for different ways in which we can find value for the family. So for us, it's applying the playbook that we have from renovating and innovating and at the same time, making sure we have providing the access to families as they're shopping from -- in new spaces whether they're going from a dollar store to grocery to club and our brands continue to be there. Those are all things that you'll see us continue to add as we go forward into the second half of the year. Our next question comes from Michael Lavery with Piper Sandler. Michael Lavery Just was wondering in away from home, maybe two things. You called out that it had the 2.1% decline globally. Obviously, you had the plant closure and some discontinuations. Can you unpack maybe the components there and give a sense of how much the slower foot traffic was a headwind? Or what the -- what the growth rate was excluding those kind of onetime things and maybe how much was from slower foot traffic? And then also, you've given an update in the past on the remix launch in BurgerFi the test. And just curious how that's progressing there. Sure. So our Global Away From Home business declined 2.1% in the quarter. And the impact from the plant closure is about 200 bps. So meaning that we will be flat without that effect. That will put us in a situation of similar performance to Q1, if you remove the plant closure effect. The planned exits that we had at the end of last year, they had back in the quarter of roughly 150 bps. So will be then growing 1.5%. So we're still gapped versus our long-term ago. We have been gaining sustaining share. Again, if you remove the effects from the plant closure, what we saw in Q2 in the industry is in the category that in where we play is that industry was worse in Q2 than in Q1, which I think we were not really expecting that. So in the U.S., about 100 bps softer in Q2 versus Q1. So I think the performance on our side helped to offset that headwind that happened in Q2. Carlos Abrams-Rivera Yes. And then to your question about our equipment strategy is pretty comprehensive in terms of how we think about bringing innovation, but also solving pain points for the operators and Away From Home. So the HEINZ REMIX, today, we have that already in market. And the way I think about it is, it is really a moment for us to do the trial, making sure we get the learning from that so that we can scale that in a meaningful way in 2025. And so far, we're hearing great fear from operators. We're collecting a number of data from consumers, and we're seeing how that actually allows us to even improve as we think about how we are going to deploy this further in 2025. The interesting thing, too, is that initially, we thought this would be something that people would be using most in their burgers. We actually are seeing them using in other foods as well when they see that in the different QSRs. Now beyond the HEINZ REMIX, we also have been focusing on bringing new dispensers, tabs and bending into the pipeline. And again, it's part of us thinking about more comprehensive, about how do we solve the pain point for operators. So our dispensers, for example, that are much easier for operators to clean, and it allows us to actually make sure that they reduce the amount of labor involved in the collecting and changing of the dispensers, they began shipping to customers now in Q2 and we believe that actually it's going to continue to improve distribution as we go into the second half of the year. And already beginning to get much, much distribution that we had originally expected. So you'll see you'll continue to now drive some of the learning that we began in the U.S. globally as well as we continue to then bring more of those tabs and bending ideas into the marketplace. And thanks for the question. Our next question comes from David Palmer with Evercore. David Palmer Just looking ahead in the U.S. retail and you're looking to stabilize things there, and thanks for the commentary earlier on volume and pricing. But -- how are you thinking about improvement across the portfolio and what we're going to be seeing in the scanner data? You've called out Capri Sun and Lunchables as two areas that might improve, that are turnaround situations, those are down, certainly the most, but that doesn't necessarily mean those are the biggest areas of improvement that you're anticipating. How are you thinking about which brands and which categories will improve the most in the second half? Carlos Abrams-Rivera Let me start. And then what I would say is -- we called those out because there were a meaningful headwind for us and in our second quarter. And I think it's something that the teams have done an amazing job of making sure that we have the right plans as we go forward. I mean, it was meaningful to the point that in the case of Lunchables, we saw from a low point of, I would say, down 17%, the worst weeks in the second quarter. What we have actually seen a steady recovery since that particular point, and we're building that improvement. And the teams are getting ready, both in terms of renovating, innovating, doubling the marketing spend, improving the media mix, improving the targeting strategies and increasing the value equation for the consumers as we go forward. And that includes innovation. Some of it we included already in some of the slides that you saw, but also we have other innovations that for competitive reasons, we're not including yet, but they will be coming in the second half of the year as well. For us, we continue to expand in the Lunchables within partnership with Del Monte in the second half of the year. So there is a meaningful amount of program that is supporting our Lunchables and you see that from -- and you begin to see that really come into fruition in our back-to-school program when we're teaming up with the Transformer movie, as something that, frankly, we have been successful in the past of doing movie tie-ins, as we have done with the Heinz brand. And we did point out as well Capri Sun because, again, it was a meaningful headwind for us in the second quarter that again, the teams have been very much focused on driving a change in trajectory as we go into the second half of the year. They have renovated the original Capri Sun to better align with the consumer taste preference, invested twice the marketing as we go into 2023 versus 2023. We have secured strong back-to-school displays with customers. We have invested in the right promotional events, and we have expanded into new channels with club. So again, it had both places where we have seen some meaningful headwind in Q2 that we now have also just as a meaningful reaction in terms of improving the trajectory as we go forward. And that will continue with the other things that are working for us. We do have some positive momentum in parts of our accelerated platform. I mentioned Narita, which is gaining almost a share point our Mexican business, we're also gaining 80 bps. Cream cheese business has sustained growth through the entire first half of the year. So those are business that we'll continue to see gain that momentum as we go into the second half of the year. Andre Maciel In think we should expect Mac & Cheese as well. There's a lot going on in the Mac & Cheese in the second half. That might be worth. Carlos Abrams-Rivera Yes, yes. I think that -- if I think about how do I round up the items and accelerated platforms. There's probably two areas in which we feel like we also have to be focused on, and we are. One is on our Spoonable business in which we are, in fact, making sure that we are having the right brand price gaps against our branded competitors. So we are investing in new flavors and making sure we have renovating the package design on a Spoonable business. And in Mac & Cheese, as you saw from our slides, you saw us making sure that we bring in, again, new innovation, new shapes, new flavors, tie in now with Super Mario Brothers. So that idea of us being able to bring innovation and exciting into the Mac & Cheese business is part of us continue to see us improving the momentum of that business we go into the second half of the year which we know is a product that the families really care about in moments in which they're looking for value to feed their entire family. David Palmer Great. And I was going to follow up and ask you about condiments and sauces, and in particular, the spoonables area like you discussed it, but you covered it. I'll pass it on. And our last question comes from Robert Moskow with TD Cowen. Robert Moskow Andre and Carlos, I think one of the concerns on Kraft Heinz stock is that all this great progress you've made on gross margin recovery might come under pressure over the next 12 months because you have to make some of these price investments and because volume has been weak. So maybe to address those, can you talk to -- what would gross margin have been in 2Q excluding some of these onetime issues like the plant closure and the other elements that maybe are more transitory? Could this have been an even higher number? And would that kind of give us confidence, therefore, that there's more room for gross margin expansion into 2025? Andre Maciel Rob, thanks for the question. Look, in both Q1 and Q2, we did have a few situations that negatively impacted gross margin like very onetime in nature. I'd be reluctant to give you a precise percentage points, but we did have quite a few substantial events in Q1 and Q2. And despite that, we are able to expand the way that we did it. As you head into the second half, last year, we had a big step-up in gross margin in the second half. So we're going to see a more muted year-over-year impact from gross margin. But -- so -- but that's part of the plan since the beginning. So we're not really worried about that. As we head in '25, and I'm not going to give guidance although, but if you remember our long-term algorithm, we do contemplate continuous gross margin expansion, not at the levels that we are seeing right now, but in the 25, 75 bps-ish. But as a consequence of the very strong efficiency that we have, I think we were able to fix the supply chain now a few years ago, and we have now for 4 consecutive years in very strong delivery coming from the team. We have -- we feel very good about the pipeline that we have. We have been able to see to not only -- remember, we had a 3% inflation this year. We're only pricing 1%, and we were able to offset that with efficiencies and still expand gross margin should we invest in the business. So we do expect that this equation might continue to work into the future. So we should expect a more gradual but continuous gross margin expansion. Carlos Abrams-Rivera The only thing I would build, Rob, is this idea was really changing the rewiring of the company, where we are all focused on driving efficiency because it's the fuel for us to drive profitable growth has now been embedded across the company. You see that with procurement, you see in operation, but you also see in marketing on us being able to have more efficiencies of how we go to market improving the return on investment. You see that in trade on how we apply AI to have better tools on how we actually have better investments and profitable ways in which we can embed our trade as we go into the marketplace. So it is not a one and done. It is something that we believe can be a sustainable strength for us as a company. And personally, I believe that having healthy gross margin is truly the key component of having a virtuous cycle of growth, and that is a big part of why we are so strong believers on a long-term algorithm for the company. Andre Maciel The changes in operating model that we have done a couple of years ago to really reintegrate commercial and supply chain, I think it's really paying off big time. And the incentive alignments that we have done, we mentioned this before, like everyone in the company has 2 KPIs in common, which market share and gross margin because we want people to grow profitably. So I think that also contributes to that. Anne-Marie Megela Thank you, everyone. Thank you for your interest in Kraft Heinz. Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.