The Kraft Heinz Company (KHC) Earnings Call Transcript & Summary

Greetings. Welcome to the Kraft Heinz Company Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to your host, Anne-Marie Megela, Vice President of Investor Relations. Thank you. You may begin.

Thank you for joining us today. Welcome to the Q&A session for Third Quarter 2026 business update. During today's call, we may make forward-looking statements regarding our expectations for the future. 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 and our most recent SEC filings pull more information regarding these risks and uncertainties. Additionally, we may refer to non-GAAP financial measures. Please refer to today's earnings release and the non-GAAP information available on our website for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. I'll now pass it over to our Chief Executive Officer, Steven Cahillane, for a few opening comments.

Good morning, everyone. Before we open the call for questions, I want to take a moment to highlight this morning's announcement regarding the definitive agreement to divest our North American coffee business to One Rock. This is an important study in simplifying and strengthening our portfolio. With this transaction, we can concentrate our capital and management attention where we see the greatest potential for growth and where we can create the most value for our consumers, our customers and our shareholders. I also want to acknowledge the people behind this business. These brands have a long and proud history with consumers, and that is a credit to the teams who have cared for them for over many, many years. Thank you for your dedication. We are confident these brands have a bright future under One Rock's focused ownership, and we are demonstrating that confidence by owning a 30% noncontrolling equity stake in the business, which allows us to share in their future success. With that, I'm joined by Andre Maciel, and we're happy to take your questions. Operator, please open the line for the first question.

[Operator Instructions] Our first question comes from the line of Andrew Lazar with Barclays.

Steve, I know you recently spoke a little bit a couple of weeks back about maybe some weakening category trends in sort of U.S. retail, but delivered the North America business organic as planned, even excluding the trade benefit, so I'm wondering how you sort of square those 2 and what you're expecting in 4Q regarding sequential improvement in U.S. retail, given I think the percent of revenue gaining or holding share seemed to take a little step back sequentially this quarter. .

Yes, Andrew, thanks for the question. We did deliver a better result than our original plan, and you can see that on our narrow top line guidance. And I think what you're seeing in terms of our share trajectory and our consumption trajectory, is what you would expect based on the investments that we've made. We've leveled out in terms of where we are in terms of holding share, we'll acknowledge that for certain but if you think about the investments we're making, we're making those and we're making those against the innovations that were in the pipeline from last year. So there's a lot of benefit that you'll see in the velocity, but there's not the same benefit that you'll see in total distribution points and the like. You'll see that really start to get kind of its next boost, if you like, in the first quarter, spring of next year with the resets. We've got very constructive dialogues going on with our retail partners. They love the fact that we're making these investments. They like what they're seeing in brands like Kraft Mac & Cheese and Power Mac and Capri Sun that are benefiting from that. They like what they're seeing in condiments but as we get into next year, you'll see we'll have a plan to actually grow TDPs and you'll see that next level of improvement starting next year, and that's exactly as we expected it.

And in really yes. keep you on, Andre.

Just to give a little more color as well. First, give credit inside North America to U.S. Away from Home in Canada. They both grew low single digit in the butter again. So which is great and encouraging to see that consistency. On U.S. retail, to your point, it did come a little better despite having probably more pressure from retailer inventory than we expected. So we mentioned 80 bps less invest earnings. There was a little more impacted than that, but the consumption came a little better. The category has indeed softened up the way you're expecting. So it was about in our portfolio, mix adjusted about 50 bps softer. But just to maybe adjust a little bit what you said. In the quarter, our percentage of revenue gaining share has improved a little bit. It went from roughly 25% in the first half to 28%. It's not a great improvement, but still another step in the right direction. So which I think helps you offset the headwinds we saw on the inventory.

And I know it's too early to talk about '27 and maybe we'll get more of that sort of next week. But just with expected higher inflation a higher year-over-year tax rate next year, maybe some of the incremental investment this year likely to still be a year-over-year headwind next year. I guess are there any other key puts and takes we should consider? And maybe what sort of opportunities do you have to help mitigate some of these items again as we go into '27? .

Yes. I think as we think about '27, we'll give more guidance than we normally would at an investor meeting next week or we'll talk more color about '27 next week. But we are seeing more inflation. I mean, I think everybody is seeing that. Our first-line defense is always productivity, and we're stepping up that productivity. As we think about price, we want to take as little price as possible because of the consumer dynamic but price is likely to have to be taken in '27 for sure. And as I mentioned earlier, we're very bullish about the investments that we've made and the fact that we will get better returns on those investments after the spring resets. And we'll, again, talk more about that next week at our investor meeting, which I hope many of you will be able to attend.

Our next question comes from the line of Nik Modi with RBC.

Steve, I was hoping you can talk about away from home. We've been hearing from some other companies. There's been some pressure from Away From Home, but obviously, you had a very good quarter there. So just wanted to get some more context. Is this something you think you can muscle through this some of this weakness simply because you have these new partnerships and you're really leaning in. Any context on that would be helpful. And then just kind of wanted to follow up on 1 of Andrew's questions regarding market share. You talked about better shelf resets next year, but something that we're picking up across a lot of different categories is how retailers are really kind of rethinking the aisle, generally. And I'm just curious, have you seen that, have had conversations with retailers around that, given how big you are as a supplier to many of your retailers?

Yes. Thanks, Nick. So in Away From Home, most of our if not all of our success this last couple of quarters has been through share gains. And a lot of that is based on the partnerships that you referenced, the NFL and Disney are just really starting, and proving to be quite valuable. We're taking share. We're gaining new distribution across not only catch up but also the other condiments. So we're feeling very good about our away-from-home performance. And as we look to the consumer recovering in '27, if we continue to gain share and get the category itself gets a little bit of tailwind it's a great place for us to be. So Global Away from Home grew nicely and North America away from home grew nicely. So we're feeling very good about that. In terms of the North American retail and the way they're thinking about the aisles we're involved in a lot of very constructive conversations around just that. How do you revitalize and how do you make the aisle more interesting. I wouldn't say there's anything dramatic in the offing for '27, but we're square at the table with those conversations and I think part of that is we punched that ticket when we made the investment of $600 million, now $700 million and was very bullish about we're going to grow we want to be a tailwind for our retailers, not a headwind. And part of that comes through innovative thinking about how we make the aisle more dynamic, more interesting, how we bring more innovation, how we drive more traffic. So that is clearly a conversation that we're engaging up and down with our retailers.

Our next question comes from the line of Thomas Palmer with JPMorgan.

I wanted to ask on the timing item you'd noted as it relates to operating profit in the quarter, the 450 basis points of help relative to your expectation from trade and marketing, what caused the timing shift was there anything more tactical on your end to kind of think about? And then just to clarify, you would look for this to be fully made up for in 4Q? Or is there a bit of a change in trade for the year as well?

Sure. Thanks for the question. Nothing in particular. It's just the way the programming ended up working. So we have by end of Q3, spent roughly 70% of the trade and the market investments planned for the year. Q3 year-to-date, we have already accrued in the P&L 6.1% of marketing. So we're going to -- we are facing that. So and there is no intention to change our plan whatsoever. . So we do have historically our market share peaks in thanksgiving and Christmas. So we decided to concentrate a lot of the efforts to the Q4. So nothing beyond that.

Our next question comes from the line of Max Gumport with BNP Paribas.

Andre to focus on your market share performance in U.S. retail. So previously, when you announced these investment plans, you discussed how you expected to see meaningful results in the second half. Do you expect to see a bend in the trend even in market share. You acknowledge here bit behind schedule, but you're also saying things are playing out exactly as you expected and you now expect a meaningful step up next spring. Can you just maybe provide a bit more color on why it does seem like market share has perhaps not really shown the progress you initially expected to see in the U.S.? And then a bit more color on why you remain confident that next year Yes.

Thanks, Mac. I'd remind you that we've never and we won't give market share forecasts. But our top line in North America and globally is moving better than we anticipated at the start of the year. And there's categories where we're doing better than we expected in these categories where we're acknowledging we're doing not as well as we expected. 1 of the not as well as expected is clearly in Philly, cream cheese. And it's an interesting 1 because we're gaining share, but we're losing consumption because the category is under pressure. And some of the pricing moves that we made proved to be deflationary to the category, so they didn't work. And so we're adjusting. And so I'd say, broadly speaking, the fact that we bend the trend and we're holding that improving it very modestly is a better place to be than the opposite. And we've also said all along that progress would not be linear. And so we reserve the right to continue to get smarter to make the reinvestments and move things around as we see what's working and what's not working. And so as we study our market share and we study our North American retail performance, what we've seen is we're gaining velocity and we are improving velocity against smaller shelf sets because we lost distribution last year, and we had an innovation pipeline that was based on the underinvestments of the years passed. But we looked at that pipeline and said, what could work for us. We think Kraft Mac & Cheese Power Mac could work. So we leaned into that. We thought Capri sun hhydrate could work. We leaned into that. We thought Oritaand shapes and some of those things were good. So we leaned into that. And what we're looking forward to is the investments that we've made this year and the pipeline that we've built this year for next year will prove to be more beneficial to us. And so nonlinear, but good progress. And we're feeling good about where we are from a top line perspective. We're feeling good about the constructive discussions we're having with retailers about next year and so that's kind of where we stand. We're feeling good about the innovation pipeline for next year. If you look at 1 example of what's happening in Canada, we introduced Katy Ramin. And literally, we sold 3 months of inventory in a week and great innovation and we're going to bring that to North America next year. And so we'll continue to hold ourselves accountable for market share and for consumption growth. And we're feeling okay about where we are right now, and we're feeling better about what we're building for next year. .

Our next question comes from the line of Peter Galbo with Bank of America. .

Andre, I know you mentioned that inflation maybe could still be higher into '27? I think last call, you had provided kind of some early thoughts on, I think, 4% to 5% inflation guidance for '27. I didn't see an update on that today. So I was just hoping to get some clarification there and obviously, on some of the raw materials, we've seen some deflation. So just curious kind of where you're falling in that band for next year.

As Steve said, we're going to provide a little more color on '27 next week, but I can tell you on inflation that we previously said in the prior call, we're expecting 4% to 5% next year. The expectation is now slightly above 5%. So we continue to see, on 1 hand, what inflation coming from packaging and from certain commodities, soybean oil remains a good item of pressure. We are having a lot of favorability this year from dairy and we do expect some of that to reverse into next year, which you create contribute to the year-over-year pressure. And that's why Steve mentioned a little while ago that even though productivity remains the first line of defense, and you feel good about the pipeline we have for next year, there will be an element of price across all regions, so we can protect our gross margins.

Our next question comes from the line of Leah Jordan with Goldman Sachs.