Kraft Heinz Q1 Earnings Call Highlights
by Doug Wharley · The Cerbat GemKraft Heinz (NASDAQ:KHC) reported first-quarter 2026 results that management said came in ahead of internal expectations, citing a smaller-than-anticipated decline in organic net sales and early signs of market share improvement tied to increased investments. Chief Executive Officer Steve Cahillane cautioned, however, that consumer sentiment remains low amid macroeconomic and geopolitical uncertainty, and that the company still has “necessary work ahead” as it executes its 2026 plans.
First-quarter performance and storm-related benefit
Cahillane said organic net sales declined 0.4% in the quarter, outperforming the company’s initial outlook for a low single-digit decline. He attributed the better-than-expected top line largely to “an estimated 150 basis points consumption benefit from winter storms in January and February,” adding that the storm impact was a one-time benefit that the company does not expect to repeat.
Chief Global Financial Officer Andre Maciel said price contributed 0.8 percentage points to organic net sales, while volume/mix declined 1.2 percentage points. He said higher pricing was “primarily driven by coffee,” while the volume/mix decline “largely reflect[ed] elasticities in coffee and softness in cold cuts.”
Profitability metrics weakened year over year, reflecting inflation and stepped-up spending. Cahillane said adjusted gross profit margin was 34.1%, down 30 basis points versus the prior year, “primarily driven by inflation, partially offset by productivity gains.” He added that a planned increase in SG&A, “primarily in marketing,” contributed to a 12.5% decline in constant-currency adjusted operating income. Adjusted EPS was $0.58, down 6.5%, driven by operating income performance and partially offset by a lower effective tax rate.
Segment trends: North America softness, emerging market growth
Maciel said North America organic net sales declined 1.1% but came in better than anticipated due to the winter storm consumption lift and “market share momentum.” He said growth in Canada was more than offset by U.S. declines, driven “primarily by cold cuts.” He also noted an approximately 100-basis-point benefit from an Easter timing shift in the first quarter, which the company expects to become a headwind in the second quarter.
In international developed markets, Maciel said organic net sales declined 0.1%, driven by pressure in Western Europe due to price negotiations. He said most of those discussions are now behind the company and that market share is “recovering across the region.” The headwind was “mostly offset” by growth in the U.K., where the company gained 60 basis points of share and saw share growth in meals, sauces, and pasta sauce categories led by Heinz.
Emerging markets organic net sales increased 3.8%, driven by “high single-digit growth” in LATAM and East regions, partially offset by a previously anticipated 400-basis-point impact from declines in Indonesia. Maciel said the company expects to start seeing recovery in Indonesia in the second half of the year.
Investments to drive share recovery and U.S. turnaround
Management emphasized that investments that began in the second half of 2025 are starting to show up in market share trends. Cahillane said 21% of Kraft Heinz’s business was gaining or holding share in 2025, improving to 35% in the first quarter of 2026 and approximately 58% in March. Within the company’s “Win Big” focus areas, he said 28% of the business gained or held share in 2025, improving to 51% in the first quarter and 59% in March.
Cahillane attributed much of the improvement to U.S. “taste elevation” categories such as ketchup and cream cheese. He said the percentage of sales gaining or holding share in that area was over 80% in the first quarter and reached 87% in March, supported by product and packaging improvements, higher marketing, and new creative. He also said the company invested last year to bolster its U.S. taste elevation team, increasing headcount by about 50% supporting core brands including Heinz and Philadelphia.
Looking across U.S. retail, Cahillane said the company moved from 29% of its portfolio gaining or holding share in the first quarter to 54% in March, with improvements in hydration and desserts. He said more work remains in meats and meals, describing “targeted actions” including price investment in Oscar Mayer and increased innovation and marketing for Mac & Cheese.
$600 million plan, higher marketing and R&D spending, and innovation pipeline
Cahillane outlined a $600 million investment plan across product superiority, select pricing, marketing, sales, and R&D, with the majority aimed at turning around the U.S. business. He said the company is seeking to deliver value through improved products, better promotional ROI, access to lower entry price points, and selective base price adjustments. Examples included adding “frequencies” to a Capri Sun 10-pack in the first quarter, new promotions on a 5-pack Kraft Mac & Cheese, smaller pack sizes in pasta sauce, and “optimal price curves” across select condiments including Heinz Ketchup.
Marketing spend is planned to rise to at least 5.5% of net sales, according to Cahillane. He said first-quarter marketing was up about 37% versus the prior year, and that return on ad spend improved, with “return on ad spend grew 8 percentage points globally.” Cahillane said the company is also increasing R&D investment by about 20% versus the prior year, aiming to bring it closer to 0.9% of net sales; first-quarter R&D spend was up 16%.
On innovation, Cahillane highlighted recent and upcoming launches:
- Kraft Mac & Cheese Power Mac: now on shelves nationwide; Cahillane said distribution is in “35,000 stores,” though it is “too early to gauge sell-out performance.”
- Capri Sun Hydrate: a functional beverage positioned between kids beverages and adult sports drinks, expected to roll out through the second quarter.
- Philadelphia lactose-free cream cheese: expected in early third quarter.
Margins, cash flow, leverage, and reiterated 2026 outlook
On cost pressures, Maciel said the 30-basis-point decline in adjusted gross margin was driven by inflation, “particularly across manufacturing and logistics.” He said Kraft Heinz expects its commodity hedging program to provide near-term protection, including for energy and edible oils, and noted hedges for certain resins and metals through mid-third quarter. As hedges roll off, he said the company expects increased exposure to spot prices in the fourth quarter. He added that Kraft Heinz delivered about $160 million of gross efficiencies in the first quarter—about 4% of COGS—and expects that pace to continue through the year.
Kraft Heinz generated $800 million in free cash flow in the quarter, up 59% year over year, with free cash flow conversion of 111%. Maciel attributed the increase primarily to working capital improvements across inventory and payables, supported by inventory reduction, digital demand planning integration, and improved payment terms. He also noted that free cash flow conversion benefited from marketing accruals booked in the first quarter, with the cash impact expected in subsequent quarters.
On capital allocation, Maciel said priorities remain “sustaining the dividend and protecting our investment-grade credit profile.” He said the company is using excess cash in the second quarter to reduce debt and expects 2026 net leverage to be no higher than 3.3x, with a path to return to its target in about two years.
Management reiterated full-year 2026 guidance. Maciel said Kraft Heinz continues to expect:
- Organic net sales: down 3.5% to down 1.5%, including an estimated 100-basis-point impact from incremental SNAP headwinds.
- Adjusted gross profit margin: down 75 basis points to down 25 basis points year over year, reflecting inflation and investments in price, product, and packaging.
- Constant-currency adjusted operating income: down 18% to down 14%, including about 13 percentage points from incremental investments and about 3 percentage points from lapping lower variable compensation in 2025.
- Adjusted EPS: $1.98 to $2.10, assuming an effective tax rate of about 25%.
- Free cash flow conversion: approximately 100%.
For the second quarter, Maciel said the company expects organic net sales to decline 3% to 5%, including headwinds of about 100 basis points from the Easter shift and 100 basis points from lower SNAP funding. He said adjusted operating income is expected to decline 18% to 20% in the second quarter due to top-line expectations, weaker year-over-year gross margin performance relative to the first quarter, and increased investment levels.
Cahillane said the company remains “confident” it can achieve its expectations for 2026 while retaining flexibility to increase investments in areas generating attractive returns.
About Kraft Heinz (NASDAQ:KHC)
The Kraft Heinz Company (NASDAQ: KHC) is a global food and beverage company formed in 2015 through the merger of Kraft Foods Group and H.J. Heinz Company. The combination created one of the largest packaged-food companies in the world, built around well-known consumer brands. The merger was supported by major investors and established a multi-national platform for branded food products.
Kraft Heinz develops, manufactures, markets and distributes a broad portfolio of branded packaged foods and condiments.