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 and six months ended June 29, 2024 compared to the three and six months ended July 1, 2023 were:

Adjusted Operating Income:

(a) Segment Adjusted Operating Income for Emerging Markets, 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 3.1% to $4.9 billion for the three months ended June 29, 2024 compared to $5.1 billion for the three months ended July 1, 2023, including the unfavorable impacts of foreign currency (0.2 pp). Organic Net Sales decreased 2.9% to $4.9 billion for the three months ended June 29, 2024 compared to $5.1 billion for the three months ended July 1, 2023, primarily due to unfavorable volume/mix (4.2 pp), which more than offset higher pricing (1.3 pp). Higher pricing was taken in certain categories to mitigate higher input costs. Unfavorable volume/mix was primarily due to waning consumer sentiment, a temporary plant closure, the exit of our bulk vinegar business, and a decline in Lunchables.

Segment Adjusted Operating Income increased 7.5% to $1.3 billion for the three months ended June 29, 2024 compared to $1.2 billion for the three months ended July 1, 2023, primarily driven by lower commodity costs, including the favorable impact of commodity hedges, higher pricing, and reduced logistics costs, which more than offset unfavorable volume/mix, increased investments in advertising, and the unfavorable impact of foreign currency (0.2 pp).

Net sales decreased 2.2% to $9.7 billion for the six months ended June 29, 2024 compared to $10.0 billion for the six months ended July 1, 2023, including the unfavorable impacts of foreign currency (0.1 pp). Organic Net Sales decreased 2.1% to $9.8 billion for the six months ended June 29, 2024 compared to $10.0 billion for the six months ended July 1, 2023, primarily due to unfavorable volume/mix (4.0 pp), which more than offset higher pricing (1.9 pp). Higher pricing was primarily driven by increases to mitigate higher input costs, particularly during 2023. Unfavorable volume/mix was primarily due to waning consumer sentiment due in part to the February 2023 reduction of Supplemental Nutrition Assistance Program (“SNAP”), a temporary plant closure, the exit of our bulk vinegar business, and a decline in Lunchables.

Segment Adjusted Operating Income increased 4.0% to $2.6 billion for the six months ended June 29, 2024 compared to $2.5 billion for the six months ended July 1, 2023, primarily driven by higher pricing, lower commodity costs, including the favorable impact of commodity hedges, and reduced logistics costs, which more than offset unfavorable volume/mix, increased investments in advertising, increased depreciation expense, higher employee compensation-related expenses, and the unfavorable impact of foreign currency (0.1 pp).

International Developed Markets:

Net sales decreased 5.0% to $885 million for the three months ended June 29, 2024 compared to $932 million for the three months ended July 1, 2023, including the unfavorable impacts of foreign currency (1.1 pp). Organic Net Sales decreased 3.9% to $896 million for the three months ended June 29, 2024 compared to $932 million for the three months ended July 1, 2023, primarily due to unfavorable volume/mix (2.4 pp) and lower pricing (1.5 pp). Lower pricing was predominantly the result of increased investments in trade within the United Kingdom and Italy. Unfavorable volume/mix was due in part to a cease in shipments due to an ongoing contract negotiation with certain customers within our Continental Europe region.

Segment Adjusted Operating Income decreased 10.0% to $126 million for the three months ended June 29, 2024 compared to $140 million for the three months ended July 1, 2023, primarily due to the factors discussed in net sales above, as well as increased SG&A and the unfavorable impact of foreign currency (0.2 pp).

Net sales decreased 2.9% to $1.7 billion for the six months ended June 29, 2024 compared to $1.8 billion for the six months ended July 1, 2023, including the unfavorable impacts of foreign currency (0.3 pp). Organic Net Sales decreased 2.6% to $1.7 billion for the six months ended June 29, 2024 compared to $1.8 billion for the six months ended July 1, 2023, primarily due to unfavorable volume/mix (3.1 pp), partially offset by higher pricing (0.5 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 was driven by a cease in shipments due to an ongoing contract negotiation with certain customers within our Continental Europe region as well as an inventory reduction by a regional customer within our ANJ region.

Segment Adjusted Operating Income increased 6.4% to $262 million for the six months ended June 29, 2024 compared to $247 million for the six months ended July 1, 2023, primarily driven by lapping the prior year business disruption caused by Cyclone Gabrielle within our ANJ region, higher pricing, and the favorable impact of foreign currency (1.6 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 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 5.7% to $670 million for the six months ended June 29, 2024 compared to $710 million for the three months ended July 1, 2023, including the unfavorable impacts of foreign currency (7.0 pp) and acquisitions and divestitures (2.1 pp). Organic Net Sales increased 3.4% to $698 million for the three months ended June 29, 2024 compared to $675 million for the three months ended July 1, 2023, primarily driven by higher pricing (1.9 pp) and favorable volume/mix (1.5 pp). Higher pricing was taken primarily in our Eastern Europe region to address higher input costs, which more than offset lower pricing in Brazil as a result of maintaining price gaps to competition. Favorable volume/mix within our Eastern Europe and LATAM regions more than offset unfavorable volume/mix within our Asia region.

Segment Adjusted Operating Income decreased 32.7% to $66 million for the three months ended June 29, 2024 compared to $97 million for the three months ended July 1, 2023, primarily due to higher supply chain costs reflecting inflationary pressures in our Eastern Europe region and for logistics in Brazil, increased SG&A as a result of our investments in our go-to-market strategy, and the unfavorable impact of foreign currency (6.6 pp). These unfavorable impacts to Segment Adjusted Operating Income more than offset higher pricing and favorable volume/mix.

Net sales decreased 3.8% to $1.4 billion for the six months ended June 29, 2024 compared to $1.5 billion for the six months ended July 1, 2023, including the unfavorable impacts of foreign currency (6.6 pp) and acquisitions and divestitures (1.6 pp). Organic Net Sales increased 4.4% to $1.4 billion for the six months ended June 29, 2024 compared to $1.4 billion for the six months ended July 1, 2023, primarily driven by higher pricing (2.9 pp) and favorable volume/mix (1.5 pp). Higher pricing was taken primarily in our Eastern Europe region to address higher input costs, which more than offset lower pricing in Brazil as a result of maintaining price gaps to competition. Favorable volume/mix within our Eastern Europe more than offset unfavorable volume/mix within our LATAM region.

Segment Adjusted Operating Income decreased 25.4% to $148 million for the six months ended June 29, 2024 compared to $198 million for the six months ended July 1, 2023, primarily due to higher supply chain costs reflecting inflationary pressures in our Eastern Europe region and for logistics in Brazil, increased SG&A as a result of our investments in our go-to-market strategy, and the unfavorable impact of foreign currency (7.7 pp). These unfavorable impacts to Segment Adjusted Operating Income more than offset higher pricing and favorable volume/mix.