Good morning, and welcome to The Kraft Heinz Company Quarter 4 2024 Earnings. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Anne-Marie Megela. Thank you. Anne, you may begin.

Thank you, and hello, everyone. 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 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 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 exclude 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 & Events for a 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.

Well, thank you, Anne-Marie, and thanks, everyone, for joining us today. I want to thank the Kraft Heinz team for their hard work and dedication this past year. Even though it was a tough year, we stayed focused on building for the future and improving profit margins while boosting the free cash flow. We do know that the economic landscape is rough, but we are proud that we returned $2.7 billion to our stockholders through share buybacks and dividends, which provide the highest yield in the food industry. Looking ahead to 2025, we are seeing key successes that aren't yet showing up in our financials and we are expecting to see improving top line throughout the year while preserving profitability. Frankly, I'm proud of the progress the teams are driving and confident that our strategy will yield long-term returns for our shareholders. Now with that, today, I have Andre joining me. So let's open for the call -- for the Q&A.

[Operator Instructions] And our first question comes from Andrew Lazar with Barclays.

Great. Carlos, you mentioned a number of times in the prepared remarks the plan to be disciplined in how you approach reinvestment this year, specifically calling out your expectation for some gross margin expansion and flat price in '25 despite the stated plan to invest in price in some key areas. I guess, what I'm hearing most from investors this morning is that they're really wondering if this outlook provides enough room to do what's needed this year to get the key brands back into volume growth. So I guess, my question is sort of what gives you the confidence that this plan is accounting for an adequate level of investment given sort of current market share trends?

Thanks, Andrew. I think, first of all, I guess, let me put it into context of the margin expansion. If you think about 2024, we increased our margin by 100 bps. When you look at the way we're seeing 2025, it's somewhere between flat to 20 bps. So while, yes, it's an expansion, it certainly is much reduced than we have had in the past. And if I think about now our plan and what gives me confidence, let me just highlight a couple of things. First, if you think about our growth pillars, we actually have a head start going into this year and let me break it down in each of the growth pillars. In Away From Home, 75% of new customer wins are already locked in. That's about 40% of a year-over-year incremental growth in our Away From Home business. Now in Emerging Markets, we are building on the 17% distribution increase with new 40,000 additional points planned in 2025 that we have already mapped out and making sure that our teams are clear on where they're going to be able to secure those. And then frankly, in North America Retail and the rest of the business, what you see is that 75% of the 2025 innovation pipeline is already locked in. And on top of that, we also are leveraging our Brand Growth System that we have proven through the pilots that we did in 2024. So in each of our pillars, we have things going on already into 2025 that is about us continuing versus completely something new. And at the same time, and you mentioned this in your question, we are investing in certain places, we are investing in price, we are investing in product and we are investing in marketing. We're making sure we're prioritizing those brands, that we know that we can benefit from having the Brand Growth System insights. We are investing in technology-led solutions that are actually helping us drive the efficiencies that lead to improved margins. And then lastly, we continue to shift more marketing dollars towards consumer-facing marketing as we go into 2025. So again, those are -- that's the way kind of I see it is it gives an opportunity for us to expand in a more modest way our margins, but at the same time, coming into the year with things that we have built in 2024 that now we can see reaping benefits in 2025 along with investments specifically in price, product and marketing.

I'll just add to that, Andrew. So I will add that when we think about our top line improvement, as Carlos said, it does not only come from price. It comes also from lapping some of the challenges we faced last year and also comes from other product enhancements that we have been deploying since the second half of last year. When I think about the gross margin, we do expect another year of efficiencies higher than inflation. And we are going to price the inflation linked to commodity categories, coffee being one example, like we have done historically. So there is some price embedded into the plan in commodities and emerging markets. So the combination of efficiencies ahead of inflation, price in emerging markets and commodities give us some room to be investing more in price or trades in the places where it makes the most sense.

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

I wanted to ask about the top line and the pillars maybe in a slightly different way. Just within the organic sales guidance for '25, Andre, how are you thinking about the growth rates for each, ACCELERATE, PROTECT and BALANCE, within that organic sales guidance? And then the part B to that question, Carlos, I think a year ago you kind of gave us market growth rates for each of those ACCELERATE, PROTECT and BALANCE, how you see the market growth for '25 comparing to those targets you gave us a year ago.

Okay. I can start. So I think about the pillars of growth. First, Emerging Markets, we will see gradual improvements building from Q4 in all the quarters and we do expect to exit '25 at double-digit growth. In Away From Home, we do expect some slight improvement in Q1 to flat to Q4, but then building from the base gradually throughout the rest of the year and probably exiting around the mid-single-digit that we territory. So still below algo, but a good improvement versus 2024. And inside the ACCELERATE platforms in the U.S., we do expect an elongated recovery, as we have said before. And most of the U.S. improvement in trends in Retail comes from ACCELERATE. So that's where we are investing most of the price. That's where we are investing a lot of our product enhancements. So that's where we're going to see -- you should see a sharper improvement again throughout the year. Not as much in Q1 for the reasons I already mentioned before. I think investments get more concentrated from Easter and also there is the Easter effect between Q1 and Q2. But at the end of the year, you should see ACCELERATE being the one driving most of the improvement in the U.S.

I guess, what I would add is I think we all can agree that tactic wins battle, but strategies win wars. And our strategy hasn't changed. We have not only continued to drive resources and prioritizing our ACCELERATE platforms, but also making sure that a year later we continue to live under the roles of each of those particular categories. So I feel great about the fact that we see kind of how our balanced portfolio continues to live into the role of making sure they're contributing with the right margins, at the same time, making sure that they are bringing renovation and innovation into the categories to make sure they're relevant with consumers. But again, our strategies haven't changed and any 1 year is not going to make us change that. I think that we -- as we stand here, I'll tell you, I feel even more confident that we have this right strategy for us to deliver our long-term algorithms over the long term.

And our next question comes from John Baumgartner with Mizuho Securities.

I wanted to ask about the marketplace activities in the U.S. and the market share softness. As you reduce the unprofitable trade, which is net positive for margins, are you getting the sense that maybe your consumers have become a bit more accustomed or trained to buy on deals a bit more for your [indiscernible] Where you're reinvesting elsewhere, whether it's in marketing or display, the lifts on that are just sort of insufficient to counter the volume drag. I'm just curious if maybe making these changes to promo is a bit more painful upfront than you had anticipated with the elasticity to the consumer.

As we said throughout the last year, I think not all promotions are working the same as they used to. We do believe that base volume has also a significant implication on the size of lifts that we observe. So base volume is an area that we're paying too much attention to, especially, again, a lot of the product enhancements should help that base, which should give us a stronger starting point for the lifts to come up. There are places where we are contemplating as well base price changes instead of simply a promotion. So there is a discussion in some categories that might make more sense one versus the other. And on promotions, again, we have seen typically higher frequencies working better, not necessarily deeper discounts. You're going to see some of that reflected as we head into next year.

The only thing I would add -- this is Carlos, is one of the things that we continue to see is consumers increasing the number of locations in which they buy their food. So we are seeing smaller size of baskets per trip, but an increase in the number of trips. So for us, it's also important not just to make sure that we have the right price, but that we also have right distribution in different channels in the U.S., which is why our expansion in dollar channels, club channels where we actually are seeing growth as well, too. So for us, it's making sure that, again, we have that combination on where the consumers are shopping at the right price point for us to make sure that we are attracting the purchases for consumers at the moment they need it.

And our next question comes from Ken Goldman with JPMorgan.

I wanted to dig in a little bit on the increase in your tax rate, if I could, into '25. We've heard from a number of multinational food companies and beverage companies in the last couple of weeks, I don't think any of them have really talked about quite the increase in tax that you're about to experience. I didn't know if there's anything unique in how you had previously considered tax in some of these other countries that we should consider or if there's anything you know about that's slightly different in how you approach the way you think about tax rate and so forth with the understanding that, of course, your tax -- your cash tax rate isn't going up quite as much. So just wanted to get a little bit of color there. Just -- it just seems a little bit more unique to Kraft than what we might have expected given the size of the announcement.

Look, I think companies have different strategies when it comes to taxes, so it's difficult for me comment on what others have. We did have a more competitive tax rate in the P&L compared to other peers, you can see that very clearly. We had to record in December -- in Q4 a $2.4 billion tax benefit in the P&L -- in net income this quarter and that's linked to a transfer we did in a certain business operation. And that was part of the efforts to reduce the cash impact of several countries enacting the global minimum tax regulation. So we did have this relevant benefit in the P&L this year. But as a consequence, the tax rate in the P&L will have a 500 bps increase starting '25. On the flip side, a $2.4 billion P&L gain will translate into approximately $120 million cash gains per year for the next 20 years, which makes the impact in our cash tax rate, which ultimately is the one that I'm most interested at being about 200 to 300 bps, okay? So you will see this is one of the reasons, not the only, why also our cash conversion is expected to be around 95% into '25.

And our next question comes from Leah Jordan with Goldman Sachs.

I wanted to ask about Lunchables. Just seeing if you could provide an update on how you see the recovery in that business. I know you had a supplier issue in the fourth quarter. It seemed like it was going to be resolved in 1Q, but the January data does still look a bit soft. So how should we think about the improvement from here? Is it more just needing price adjustments? Or is it more of a step-up in innovation as you're planning? And then just any color on the competition you're seeing in the category from private label and smaller brands.

Thank you for the question. First, I would say is that the supplier ingredient issue that we faced in Q4 still lingers through Q1. We will have that -- we will exit Q1 in a much better location in terms of service. So I think that, that you still see as we see the data in January. But again, as we go through the quarter, that will improve significantly. Now in terms of the overall category, what I'll say is our focus has been how do we continue to invest in the business that we believe can be a great source of growth for us as a company. And I'm proud of the fact that the team had been looking at using our Brand Growth System, looking at the places that actually can solve different pain points for consumers. So you'll see as we go through the rest of the first half a product that is much improved with better quality, better ingredients and us continuing to bring different innovation and marketing to our Lunchables business. So I think what you see right now, don't think of that as a sign of how the year is going to be, but you'll see that still there's a lingering effect of that Q4.

If you look at the sellout December and January, for example, for Lunchables, there are 4 SKUs in particular that are linked to the upstream supplier issue that we mentioned that are declining more than twice the average rate of Lunchables as a whole. And those are dragging the sellout down quite a lot in these last few months. We do expect that to continue to happen into February. We think the service issue will be fully resolved during the month of February and then we're going to see a gradual recovery on the sellout from that point onwards.

And our next question comes from Tom Palmer with Citi.

I wanted to just ask on, and this is a little bit of a follow-up, but on the organic sales growth and inflection as the year progresses. I think the comment in the prepared remarks was sequential improvement throughout the year. It sounds like the second quarter has maybe some unusual timing benefits with the Easter shift and then also lapping the plant downtime from a year ago. So just trying to understand, are we looking for kind of an underlying sales trends, this bigger inflection starting in the third quarter to overcome that? And if so, kind of what are the key drivers of that inflection?

Thanks for the question. So yes, in the second quarter, you should see a relevant improvement on the trends. But only because of Easter being about 100 bps shift from Q1. But also we start to lap the factory closure -- temporary closure we had in the quarter. We start to lap that Lunchables report that was issued early in April. So those 2 things alone will -- these 3 things alone will have a relevant improvement in the trends, plus the fact that, as we mentioned before, price investments start more pronounced as we head into Easter and beyond and as we continue to launch some product enhancements, Lunchables being one of them.

And our next question comes from Michael Lavery with Piper Sandler.

Wanted to ask a similar question to Andrew's, but with the advertising as opposed to promotional spending. You pointed out the 4.5% level, but that does include market research. And even for peers, excluding that, the advertising level is -- averages closer to 5% or more. Is your marketing spending enough? And I know it's come up, but with just competitive and consumer dynamics, is that at the right level? Does there need to be some upside to that figure as well?

Listen, I guess I will start by saying -- and thank you for the question, not all brands, not all countries are created equal. So I think one of the things you see is that we're also making sure that some of the analysis that we have done in the past years is that we have kind of the right levels of marketing in different categories and in different countries based on our needs and what it means to be successful. The second thing that you should also know is that we talked about earlier, we have especially designated categories to ACCELERATE, PROTECT and BALANCE. Our marketing dollars are going to continue to follow that. That is part of the strategy of us making sure we invest in those businesses that we believe have a bigger tailwind as we go forward. So again, in a different level of spending by different type of strategy. And the last thing I would say is one of our focus has been over the last 2 years doing 2 things: first, making sure that we improve the return of every dollar that we invest in marketing. So we have the analytical tools to allow us to do that. And second, that we continue to shift more dollar from nonworking into working. So I think as we go into 2025, you'll see us that even though we may stay at the same levels of overall spending, there's actually a dramatic shift in terms of how much consumers will see in terms of our marketing as we are shifting away from, again, places of nonworking dollars, being more efficient with those dollars so that actually can be beneficial to the brands.

And just to complement, as we have said before quite a few times, we do believe our sufficiency levels are around 5% and we're going to gradually get there. But to Carlos' point, one of the benefits, among others, of the Brand Growth System that we are deploying now is shedding light on opportunity for us to be a lot better in the returns of the marketing investments. So you'll see in '25 we are going to release $60 million to $80 million more marketing, like brand media marketing, which is quite a lot, more than a 10% increase, in our overall media investment. That's coming from nonworking dollars. And within the media, there is also a lot of efforts to redeploy media to places that provide higher return, be it about media levers or across certain brands. So even though the P&L will be flat as a percentage of revenue on a year-over-year basis, you'll see a lot more marketing pressure, which is important.

And our next question comes from Chris Carey with Wells Fargo Securities.

I wanted to ask, I guess, a bigger picture question. I think one of the things I personally struggle with is that the categories in which you compete are actually running more or less in line with historical growth rates. Not amazing, but more or less in line. And your business is just underperforming those categories in which you compete. And certainly, there are specific categories that have had some issues and you'll be lapping those and clearly that will be helpful. But it does feel like there's a bit broader of a dynamic underway. And I think that's where some of these questions are coming from around pricing investments and what's potentially needed in the acceleration of organic sales growth. I guess if you could diagnose what you think is driving some of this underperformance relative to categories on a broader level, whether that's execution, whether that's affordability. And really what I'm getting at, I suppose, is say we're sitting here in a few months and we're not seeing the pickup, what is the correct action to take? Is it incremental pricing, incremental advertising, a rethink of execution? So I realize that's a big question, but I'd love your observations or thoughts on this topic.

Thank you. Appreciate the question. I guess, let me just start by putting things in perspective a little bit in terms of the way I see it. Our portfolio is about over 200 brands and over 40 countries. If you think about today where we see our challenges, they are concentrating in 4 brands and only in the U.S. Retail business. And so it actually helps quite a bit for us to make sure that we are being focused on our investments in products and pricing in order to drive top line improvements in particular in those areas that, again, there are a subset of the large brands that we have in a number of countries we participate. At the same time, we're doing that, we're also being conscious of making sure we manage through our margins so that we don't go backwards in our gross margins. And in terms of the investments we're making, I think that it's easy for us to just point to the things that we actually have proven already. Let me give you an example of Capri Sun . We've actually improved 5 points in dollar sales in the fourth quarter. And that came about us renovating the product to make sure we win on taste, innovating, we're bringing new multi-serve packaging, single-serve bottles, bringing value to consumer, expanding into convenience channel. And at the same time, we're already seeing how the multi-serve product in club is actually becoming a top quartile item. So for us, it is that we already have kind of a blueprint in which we have applied our Brand Growth System to the critical brands in order to see results that we will continue to see -- experience as we go forward. So I know that sometimes it can seem like a lot. But again, for us, it's specific, it's a few brands, it's in the U.S. Retail and it's places in which we are attacking, leveraging kind of the proven methodology that we have now developed through our Brand Growth System in order to drive top line growth.

The other thing I will add is, look, there is not one answer, like there's not a silver bullet. I think given the different categories that we play in, different dynamics, the approach differs a lot. So there are places where, yes, it's affordability and that's where we are going to invest the price the most, to ensure that the price gaps are established. There are places, which is about continuing to invest in the products to maintain or increase product superiority. And that's where we see investments in places like Capri Sun, Lunchables and there are a few others. So you will see next week in CAGNY, I think that there are good answers for what you're seeking for because there is a lot of time in that presentation that we're going to be talking about, our path to growth, given specific themes across the different platforms. So I think you're going to see what you're asking in more detail over there.

And our last question comes from Alexia Howard with Bernstein.

Okay. Can I hit on the GLP-1 topic? We've seen other protein-focused companies in North America already announcing plans to lean into the rising uptake of these GLP-1 injectable weight loss drugs. First of all, do you believe Kraft Heinz is seeing any impact from them? And what opportunities are there to meet the unmet needs of these patients over time?

Thank you, Alexia. I guess, let me start with the last part of your question. And no, we have not seen any meaningful impact from GLP-1 in the business. Now we do know that consumers who do use GLP-1s, typically what they're looking for is more protein and more hydration alternatives. So here at Kraft Heinz, we're making sure we continue to provide those choices for every consumer. And we've seen that, whether that is making sure in our portfolio that we highlight in products like Oscar Mayer, Lunchables, P3, even our quesadillas and Delimex and Heinz Beans, the amount of protein that actually can deliver for consumer in taste and accessible and affordable way. And then at the same time, we're also making sure that we are continuing to drive the importance of us elevating the portfolio of any product that has protein. So the fact that we have this Taste Elevation product platform within our company allows us to make sure that no matter what protein people are using at home, that we can actually elevate it and make sure that it delivers a great taste they're looking for. So I think you'll see us continue to emphasize this in approach as we go forward because, for us, it's important that we provide choices for every consumer and every lifestyle. Thank you, Alexia.

Thank you, everyone, for your questions. Thanks, everyone, for your questions today. We look forward to seeing you all at CAGNY next week.

See you next week. Thank you.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.