The paragraph is an introduction to The Kraft Heinz Company's First Quarter 2025 Earnings Conference Call. The operator begins by greeting participants and explaining that the call is in a listen-only mode with a Q&A session to follow. Anne-Marie Megela, the Head of Global Investor Relations, is introduced and begins by mentioning that forward-looking statements about the company's future plans and expectations will be made, but actual results may differ due to risks. She notes the availability of information about non-GAAP financial measures on their website. Anne-Marie then hands over to CEO Carlos Abrams-Rivera, who expresses gratitude and emphasizes the company's role as a trusted partner in kitchens during uncertain times.

The paragraph discusses Kraft Heinz's updated financial performance and outlook. Despite market pressures in the first quarter, the company achieved expected top-line results, strong cash flow, and a healthy balance sheet. They are making progress in brand improvement, though these enhancements aren't yet reflected in financial outcomes. The company remains committed to investing in quality and value for consumers, while also monitoring market tensions and adjusting their guidance as needed. During a Q&A session, Andrew Lazar from Barclays questions Carlos Abrams-Rivera about the company's strategy of revising its outlook for flexibility in investments, noting that past similar approaches had limited success in a dynamic consumer environment.

In response to investor concerns about the increased magnitude of guidance cuts, Carlos Abrams-Rivera explains that the company remains committed to investing in its business despite macroeconomic uncertainties. The company is choosing a proactive strategy by prioritizing investments in marketing, research and development (R&D), and technology. This involves focusing on consumer-facing marketing, optimizing brand presence across media types, and enhancing messaging quality. Additionally, the company is addressing investment gaps in its innovation pipeline and improving operational efficiencies through technology, such as automation and digital tools. A key difference in the current approach compared to the past is the focus on the brand growth system.

The paragraph discusses the company's brand growth system, which is a global model for identifying opportunities within their brands and ensuring superior products and packaging. They have successfully piloted this system with 10% of their brands and are scaling it to 40% by the end of the year. The company plans to increase investments in marketing and consumer communication to support product renovations and ensure effective brand growth. This approach has already shown success with their Philadelphia brand and in the UK business. Additionally, prior guidance included an increase in price investments and a double-digit increase in media spending.

The paragraph discusses the company's marketing expenditure and sales guidance updates. They previously maintained their marketing expenditure at 4.5% of revenue and have now adjusted this to increase investment in marketing, aiming for a 5% target in the long term. The current midpoint guidance is at 4.8%, with flexibility for minor fluctuations. They are also addressing the cost of goods sold (COGS) linked to product renovations to enhance product quality and messaging. The discussion then shifts to a question from Yasmeen Wandi of Bank of America, who inquires about factors affecting North American organic sales guidance, specifically impacts from Easter timing, a past plant closure, negative reports affecting Lunchables, and Capri Sun reformulation. Carlos Abrams-Rivera responds to provide further insights into the situation.

The paragraph discusses expectations for improved performance in the second quarter compared to the first. Factors contributing to this include a boost from the Easter holiday, accelerating growth in emerging markets outside the US, and anticipated growth in certain product categories such as cream cheese and Oreos, which previously declined in Q1. The Lunchables category is expected to improve after mid-May with market renovations. There may not be growth in the away-from-home sector due to a slowdown in the industry, but overall the "accelerate platforms" (including sausage, cream cheese, meals, and snacking) should perform better than in the first quarter. Yasmeen Wandi notes that despite February improvements in volumes, organic sales cuts were due to volume, with prices remaining unchanged.

In this exchange, Carlos Abrams-Rivera discusses the company's outlook on costs of goods sold (COGS) inflation and the impact of tariffs. Initially, the company projected a 3% inflation rate for COGS, but this was revised to 5% due to increased costs in commodities like coffee and meat. With additional anticipated tariff impacts, they expect an increase of 50 to 200 basis points in COGS by the second half of 2025, though timing is uncertain. Efforts to manage this include building some inventory to mitigate immediate impacts. Despite these changes, there has been no alteration in the company's pricing outlook.

In the paragraph, Carlos Abrams-Rivera addresses pricing strategies and investments for the company. He mentions that in their new guidance, they do not plan further investments in pricing beyond the initial 100 basis points already accounted for. Instead, the focus is on incremental investments in marketing, especially media and product renovation, including sampling to boost trials for newly renovated products like Capricorn. Following this, David Palmer from Evercore ISI remarks on updated inflation guidance and asks about the company’s approach to pricing strategies to counteract inflation, particularly regarding tariff impacts and potential price elasticity concerns. He also inquires about promotional activities and their returns.

The paragraph discusses The Kraft Heinz Company's strategic approach to promotions, highlighting its deviation from the norm of returning to 2019 promotional volume levels seen in other large food companies. Carlos Abrams-Rivera explains that this strategy involves disciplined investments aimed at long-term growth rather than short-term volume spikes. The company focuses on making thoughtful promotional investments during key periods, such as Memorial Day, July 4, and back-to-school season, to create sustainable base volume opportunities. These promotional efforts are aligned with broader brand growth initiatives.

The paragraph discusses a company's strategy during the back-to-school season, focusing on launching improved products like Lunchables and Capri Sun to drive consumer demand and ensure they experience their best offerings. The company emphasizes a disciplined promotional strategy, particularly during summer, and mentions a planned increase in promotional activities. They anticipate a 100 basis points increase in price investment in the US and aim to minimize necessary pricing changes due to tariffs by exploring alternative sourcing, delaying purchases, and reformulating products. Despite efforts to manage costs, some price adjustments may still be required, and productivity efforts are being heightened beyond initial expectations. The paragraph ends with a dialogue transition to a question by Chris Carey from Wells Fargo.

In the paragraph, Chris Carey asks Carlos Abrams-Rivera about the factors contributing to the anticipated weakness in Q2 gross margins, specifically whether it's driven by coffee inflation and the ability to pass through these costs. Carey also inquires about any positive market share trends within their portfolio despite overall category softness. Carlos responds by acknowledging the expected gross margin pressure in Q2, attributing it to increased promotional activities for the summer season leading to lower prices, and the impact of some hedge losses.

The paragraph discusses the company's financial outlook and strategic initiatives. Key points include the expectation of commodity price changes impacting gross margins, with some commodities peaking in Q2 before potentially declining in Q3. The company anticipates a double-digit decline in operating income in Q2 due to increased marketing investments and product renovations. However, there are positive developments in certain business areas, such as ready-to-eat meals and snacking, which are showing progress. The company's Philadelphia cream cheese and desserts businesses are experiencing growth, aided by reformulations and a focus on healthier products. Overall, the company expects these investments to yield positive results throughout the year.

In the paragraph, the speaker discusses the current progress and future expectations for their business, highlighting significant growth and innovation, particularly in their Mexican strategy, which has seen double-digit growth for two consecutive years. They express confidence in sustainable and profitable innovation driven by consumer insights. In response to a question from Alexia Howard regarding the wider operating income guidance, Carlos Abrams-Rivera explains that the range accounts for various scenarios due to potentially changing policies that could affect the business positively or negatively. The guidance aims to maintain flexibility for investments to support ongoing business growth.

The paragraph describes a focus on leveraging brand growth opportunities to shape the upcoming year. It concludes a teleconference with expressions of gratitude from Anne-Marie Megela and the operator, who also provides instructions for disconnecting.

This summary was generated with AI and may contain some inaccuracies.