Kraft Heinz Co

We manage our operating results through four operating segments. We have two reportable segments defined by geographic region: North America and International Developed Markets. Our remaining operating segments, consisting of WEEM and AEM, are combined and disclosed as Emerging Markets.

Management evaluates segment performance based on several factors, including net sales, Organic Net Sales, and Segment Adjusted Operating Income. In the first quarter of 2024, certain measures utilized by management to evaluate segment performance changed, including a change from Segment Adjusted EBITDA to Segment Adjusted Operating Income in order to drive a stronger connection to our long-term strategic plan. Segment Adjusted Operating Income is defined as operating income/(loss) excluding, when they occur, the impacts of restructuring activities, deal costs, unrealized gains/(losses) on commodity hedges (the unrealized gains and losses are recorded in general corporate expenses until realized; once realized, the gains and losses are recorded in the applicable segment’s operating results), impairment losses, and certain non-ordinary course legal and regulatory matters. Segment Adjusted Operating Income for Emerging Markets, which represents the aggregation of our WEEM and AEM operating segments, is defined and presented consistently with the Segment Adjusted Operating Income of our reportable segments — North America and International Developed Markets. Segment Adjusted Operating Income is a financial measure that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations. Management also uses Segment Adjusted Operating Income to allocate resources. We have reflected this change from Segment Adjusted EBITDA to Segment Adjusted Operating Income in all historical periods presented.

Under highly inflationary accounting, the financial statements of a subsidiary are remeasured into our reporting currency (U.S. dollars) based on the legally available exchange rate at which we expect to settle the underlying transactions. Exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in other expense/(income) on our condensed consolidated statement of income, as nonmonetary currency devaluation, rather than accumulated other comprehensive income/(losses) on our condensed consolidated balance sheet, until such time as the economy is no longer considered highly inflationary. See Note 2, Significant Accounting Policies, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 30, 2023, for additional information. We apply highly inflationary accounting to the results of our subsidiaries in Venezuela, Argentina, and Turkey, which are all included in Emerging Markets.

Net Sales:

Organic Net Sales:

Drivers of the changes in net sales and Organic Net Sales for the three months ended March 30, 2024 compared to the three months ended April 1, 2023 were:

Adjusted Operating Income:

(a) Segment Adjusted Operating Income for Emerging Markets, which represents which represents the combination of our WEEM and AEM operating segments, is defined and presented consistently with the Segment Adjusted Operating Income of our reportable segments - North America and International Developed Markets.

North America:

Net sales decreased 1.2% to $4.8 billion for the three months ended March 30, 2024 compared to $4.9 billion for the three months ended April 1, 2023. Organic Net Sales decreased 1.2% to $4.8 billion for the three months ended March 30, 2024 compared to $4.9 billion for the three months ended April 1, 2023, due to unfavorable volume/mix (3.7 pp), which more than offset higher pricing (2.5 pp). Higher pricing was primarily driven by increases to mitigate higher input costs, particularly in the first half of 2023. Unfavorable volume/mix was primarily due to elasticity impacts from pricing actions and due, in part, to the February 2023 reduction of Supplemental Nutrition Assistance Program (“SNAP”) benefits.

Segment Adjusted Operating Income increased 0.4% to $1.2 billion for the three months ended March 30, 2024 compared to $1.2 billion for the three months ended April 1, 2023, primarily driven by higher pricing taken predominantly in the first half of 2023. Further, we experienced reduced logistics costs and procurement costs, which were both due, in part, to our efficiency initiatives. These impacts more than offset unfavorable volume/mix; increased fixed cost of products sold, particularly for employee compensation related expenses and facility maintenance costs; as well as increased SG&A, driven by investments in advertising, research and development, and technology.

International Developed Markets:

Net sales decreased 0.6% to $855 million for the three months ended March 30, 2024 compared to $860 million for the three months ended April 1, 2023, including the favorable impacts of foreign currency (0.7 pp). Organic Net Sales decreased 1.3% to $850 million for the three months ended March 30, 2024 compared to $860 million for the three months ended April 1, 2023, driven by unfavorable volume/mix (3.8 pp), which more than offset higher pricing (2.5 pp). Higher pricing was taken in our Australia, New Zealand, and Japan (“ANJ”) and Continental Europe regions primarily to mitigate higher input costs. Unfavorable volume/mix within our ANJ region was due, in part, to an inventory reduction by a regional customer. Further, unfavorable volume/mix within our Continental Europe region was primarily due to elasticity impacts from pricing actions. These unfavorable volume/mix impacts more than offset favorable volume/mix within our Northern Europe region.

Segment Adjusted Operating Income increased 27.7% to $136 million for the three months ended March 30, 2024 compared to $107 million for the three months ended April 1, 2023, primarily driven by higher pricing, lapping the prior year business disruption caused by Cyclone Gabrielle within our ANJ region, and the favorable impact of foreign currency (3.8 pp). These favorable impacts to Segment Adjusted Operating Income more than offset unfavorable volume/mix and increased advertising expense.

Emerging Markets:

(b) Segment Adjusted Operating Income for Emerging Markets, which represents which represents the combination of our WEEM and AEM operating segments, is defined and presented consistently with the Segment Adjusted Operating Income of our reportable segments - North America and International Developed Markets.

Net sales decreased 2.1% to $728 million for the three months ended March 30, 2024 compared to $744 million for the three months ended April 1, 2023, including the unfavorable impacts of foreign currency (6.3 pp) and acquisitions and divestitures (1.3 pp). Organic Net Sales increased 5.5% to $734 million for the three months ended March 30, 2024 compared to $696 million for the three months ended April 1, 2023, driven by higher pricing (4.1 pp) and favorable volume/mix (1.4 pp). Higher pricing included increases across all regions taken to mitigate higher input costs. Favorable volume/mix within our Eastern Europe and Asia regions more than offset unfavorable volume/mix within our LATAM region, which was primarily due to the lapping of shipment timing in the prior year quarter within Brazil.

Segment Adjusted Operating Income decreased 18.4% to $82 million for the three months ended March 30, 2024 compared to $101 million for the three months ended April 1, 2023, primarily driven by higher SG&A as a result of increased employee compensation costs and advertising expense supporting our investments in our go-to-market strategy; higher supply chain costs, due, in part, for logistics in Brazil; and the unfavorable impact of foreign currency (9.0 pp). These unfavorable impacts to Segment Adjusted Operating Income more than offset higher pricing and favorable volume/mix.