KHC · Q3 2025 Earnings

Bearish

Kraft Heinz

Reported October 29, 2025

30-second summary

Kraft Heinz lowered FY2025 guidance materially: Adjusted EPS to $2.50–$2.57 (from $2.51–$2.67), organic sales to -3.0% to -3.5% (from -1.5% to -3.5%), and constant-currency operating income to -10% to -12% (from -5% to -10%). Q3 organic sales fell 2.5% with volume/mix -3.5pp barely offset by 1.0pp price, and adjusted gross margin compression now expected at ~100bps for the year — 25bps worse than the prior worst case of -75bps. The separation announcement is now the story; the operating business is decelerating and management's "updated our 2025 outlook" language is a euphemism for a cut across every P&L line except cash conversion and below-the-line items.

Headline numbers

EPS

Q3 FY2025

$0.61

Revenue

Q3 FY2025

$6.24B

-2.3% YoY

Gross margin

Q3 FY2025

31.9%

Free cash flow

Q3 FY2025

$2.49B

Operating margin

Q3 FY2025

16.4%

Key financials

Q3 FY2025

Metric	Q3 FY2025	YoY	Q2 FY2025	QoQ
Revenue	$6.24B	-2.3%	$6.35B	-1.8%
EPS	$0.61	—	$0.69	-11.6%
Gross margin	31.9%	—	34.4%	-250bps
Operating margin	16.4%	—	-125.6%	+14200bps
Free cash flow	$2.49B	—	$1.50B	+65.6%

Guidance

Company significantly lowered full-year FY2025 EPS, organic sales, and operating income guidance amid worsening macro trends and consumer sentiment, with gross margin pressure now expected at -100bp; partially offset by raised FCF conversion to ≥100%.

Guidance is issued for both next quarter and the full year. Both may appear below.

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Adjusted EPS	FY2025	$2.51 to $2.67	$2.50 to $2.57	Low end unchanged, high end -$0.10 (midpoint -$0.05)	Lowered
Organic Net Sales YoY growth	FY2025	down 1.5% to down 3.5%	down 3.0% to down 3.5%	Low end moved down 150bp (from -1.5% to -3.0%)	Lowered
Constant Currency Adjusted Operating Income YoY growth	FY2025	down 5% to down 10%	down 10% to down 12%	Low end -500bp, high end -200bp (midpoint shift: -7.5% → -11%)	Lowered
Adjusted Gross Profit Margin change	FY2025	down 25 to down 75 basis points	down approximately 100 basis points	-100bp (versus prior high-end -75bp; -25bp beyond worst prior expectation)	Lowered
Free Cash Flow Conversion	FY2025	at least 95%	at least 100%	+500bp (from ≥95% to ≥100%)	Raised
Interest Expense	FY2025	approximately $960 million	approximately $950 million	-$10 million	Lowered
Other Expense/(Income)	FY2025	approximately ($230) million	approximately ($250) million	-$20 million (larger income benefit than expected)	Lowered

Reaffirmed unchanged this quarter: Effective Tax Rate on Adjusted EPS (approximately 26%)

Platform metrics

Q3 FY2025

Segment	Q3 FY2025
Organic Net Sales Growth	-2.5%
Price Growth	1.0pp
Volume/Mix Growth	-3.5pp
Year-to-date Operating Cash Flow	$3.1B

Profitability

Q3 FY2025

Segment	Q3 FY2025
Adjusted Gross Profit Margin	32.3%
Adjusted Operating Income	$1.106B
Free Cash Flow Conversion	109%

Other KPIs

Q3 FY2025

Segment	Q3 FY2025	YoY
North America	$4.641B	-3.8%
International Developed Markets	$0.895B	+1.6%
Emerging Markets	$0.701B	+3.8%
Year-to-date Capital Returns	$1.8B	—

Management tone

Q1 stabilization narrative → Q2 reaffirmed guide + $9.3B impairment → Q3 cut across the board + separation announced

The first shift is from "reaffirming outlook" to "updated our 2025 outlook" — a euphemism for cutting EPS, organic sales, operating income, and gross margin in the same release. Last quarter management explicitly held the FY range despite weakening fundamentals; this quarter they conceded. The chosen phrasing — "To reflect our third quarter results and the expected continuation of these macro trends, we have updated our 2025 outlook" — is the defensive communication tell: management is signaling that Q3 weakness is not idiosyncratic and will persist through Q4 at minimum.

The second shift is from "improving consumer environment" framing to direct acknowledgment of deterioration. Last quarter's language emphasized brand growth system traction; this quarter the release leads with "the operating environment remains challenging, with worsening consumer sentiment and ongoing inflation influencing buying behavior around the world." The addition of "worsening" is the key word — Q2 framed the environment as challenging but stable, Q3 explicitly says it's getting worse.

The third shift is the strategic review resolving into a concrete separation. Last quarter management offered only "actively progressing"; this quarter the press release confirms separation is on track to close in H2 2026, and the Q&A disclosed both target companies will be investment grade with ~3x leverage targets. The "activist-style language without activist-style timeline" gap flagged last quarter has closed — but the resolution arrives alongside a guidance cut, not a recovery, which means the separation will be litigated by investors as a defensive restructuring rather than an offensive value-unlock.

The fourth shift is on promotional ROI. The CEO's measured "I am encouraged by our progress in the third quarter, recognizing there's more work to do" sits awkwardly alongside the Q&A admission that promotional lifts are weak and management is pivoting away from volume-lift promotions toward household penetration and trial of renovated products. That is a multi-quarter strategic shift: H2 spent ramping $300M in US promotions, Q3 acknowledging the ROI was poor.

Recurring themes management leaned on this quarter:

Consumer sentiment deteriorationInflationary pressures persistingSeparation execution on trackTop-line recovery modest but presentComplex macro environment navigation

Risks management surfaced:

Worsening consumer sentimentOngoing inflationComplex operating environmentSeparation execution riskMacro trend continuation into 2026

Q&A highlights

Andrew Lazar · Barclays

How much of the 25 basis point profit revision is due to more aggressive spending versus higher costs and volume deleverage? Why not invest more aggressively to jumpstart volume improvement given weak consumer sentiment?

Profit revision driven by lower U.S. consumption expectations, elongated taste elevation recovery, and incremental inflation in meat and coffee that wasn't priced competitively. Company already increasing promotional investment ~$300M, incremental marketing ~$80M, R&D, and headcount. Management believes adding more marketing won't yield returns; focused on building brands long-term through product renovation and tactical promotional campaigns like back-to-school (Capri Sun, Lunchables, Jell-O).

$300 million promotional investment increase in US$80 million incremental marketing/media spending70% of revenue gaining market shareBack-to-school campaign drove success in Capri Sun, Launchables, Jell-O

David Palmer · Evercore ISI

Q4 guidance doesn't imply much improvement despite improving market share in key categories. What are offsetting headwinds? Also, promotional spending disclosure of $280M doesn't align with scanner data showing minimal volume promotion changes—what's actually happening with promotions?

Q4 expects ~100-120 bps revenue decline vs Q3 driven by inventory phasing headwinds (>100 bps) and lower consumption. Market share expected to improve, especially in taste elevation, but industry expected to worsen. Promotional investments focused on key holidays (Thanksgiving, Christmas) and securing expanded distribution through joint business plans. ROI on promotions acknowledged as weak with low lifts; strategy shifted toward household penetration and trial acceleration of renovated products rather than immediate volume lifts.

Q4 revenue decline of 100-120 bps vs Q3Inventory headwind exceeding 100 basis pointsPromotional lifts acknowledged as low/weak ROICross-shopping improvement of 60 bps in back-to-school

Tom Palmer · JP Morgan

How large is Indonesia within emerging markets? What does mid-single-digit Q4 emerging markets growth guidance assume for Indonesia vs ex-Indonesia performance and potential recovery timeline?

Indonesia represents ~$300M revenue or ~12% of emerging markets business. Consumer sentiment down ~10 points YoY, driving meaningful demand softening. Recovery expected primarily in H2 2025 (Q2/Q3) after Q4 adjustments and Q1 Ramadan headwinds. Company taking actions: right-sizing inventory, transitioning distributors, reducing price instability. Ex-Indonesia emerging markets grew 9.2%. Heinz brand in emerging markets growing 13%, ABC brand (Indonesia) being reinforced with continued marketing investment.

Indonesia ~$300M revenue (12% of emerging markets)Consumer sentiment down ~10 points YoY in IndonesiaEx-Indonesia emerging markets growth: 9.2%Heinz brand emerging market growth: 13%

Steve Powers · Deutsche Bank

Can you provide pro forma performance of Global Taste Elevation Co. vs North American Grocery Co. for Q3 and Q4? What are formal estimates for one-time restructuring and cash costs for the split?

Both companies declined in low single digits in Q3. Global Taste Elevation trajectory improving, expected to continue very low single digit decline in Q4, with priority to return to growth in 2026. North American Grocery had significant improvement vs H1 but declining more than Taste Elevation; priority is stable cash flows into 2026. Management declined to provide specific restructuring cost estimates, emphasizing disciplined cash use and noting that despite EBITDA decline, cash flow is up YoY. Noted playbook (e.g., Lunchables, Capri Sun) already deployed to NAG brands.

Both companies: low single-digit declines in Q3Global Taste Elevation: very low single-digit decline trajectory, target return to growth 2026North American Grocery: low single-digit decline, priority on stable cash flowsCash flow up YoY despite EBITDA decline

Peter Galbo · Bank of America

Given a peer company's pivot on their split announcement after investor feedback, has Kraft Heinz considered pivoting on perimeter, leadership, or brand allocation between the two companies? How is feedback shaping the separation approach?

Management has spent months with board ensuring value unlocking through creating two stronger, focused companies. Playbook already proven in taste elevation (70% of US taste elevation in September gained share). Currently doing bottom-up work and open to adjustments if they create more shareholder value, but believe current perimeter decisions were thoughtful. Clarified that both companies targeted to be investment grade (below 4x net debt), committed to maintaining net debt at reasonable levels and ~3x leverage. Balance sheet approach remains unchanged with capital allocation priorities: organic investment first, then maintain net debt.

70% of US taste elevation gained share in SeptemberBoth companies targeted investment grade (below 4x net debt)Target net debt: ~3x leverageOpen to perimeter adjustments if value-accretive

Answers to last quarter's watch list

Strategic review disclosure timing — Resolved. Separation is on track to close H2 2026, both entities targeted as investment grade with ~3x leverage. The framework exists, but restructuring costs remain undisclosed and management was visibly evasive when pushed.

Resolved negatively

North America organic ex-coffee, ex-cold cuts/bacon — Headline North America organic declined 3.8%. Management did not refresh the management-curated ex-cold-cuts/bacon subset disclosure this quarter, leaving investors without the comparison the prior quarter established. The headline number deteriorated.

Resolved negatively

Gross margin trajectory — Adjusted gross margin landed at 32.3%, down 200bps YoY. FY guide cut to ~-100bps from -25 to -75bps. Margin compression is worse than even the prior worst case.

Resolved negatively

Emerging Markets growth sustainability — Disclosed EM reported growth was +3.8% (organic +4.7%), dragged by Indonesia (~$300M, ~12% of EM). Ex-Indonesia EM grew 9.2% and Heinz brand grew 13%, but the bull case for the segment as a separation value-unlock weakened materially with Indonesia recovery pushed to Q2/Q3 2026.

Resolved negatively

Free Cash Flow pacing — YTD conversion was 109%; YTD FCF $2.49B; FY conversion floor raised to ≥100% from ≥95%. The one watch item that resolved favorably.

Resolved positively

What to watch into next quarter

Q4 organic sales versus the -100 to -120bps incremental decline management guided — if Q4 prints worse than Q3's -2.5% organic by more than 120bps (i.e. worse than ~-3.7%), the FY guide will be at risk again and the implied 2026 starting point deteriorates further.

Separation restructuring cost disclosure — management refused to quantify one-time and cash costs of the split this quarter. Watch whether Q4 brings a dollar range; continued silence past year-end will become a credibility issue for the H2 2026 close timeline.

Adjusted gross margin trajectory — Q3 landed at 32.3%; Q4 needs to hold near that level to deliver the ~-100bps FY guide. A print below ~31.5% would imply a further FY miss and suggest -100bps becomes the 2026 starting deficit, not the floor.

Indonesia stabilization — management committed to a Q2/Q3 2026 recovery timeline. Watch whether Q4 EM growth ex-Indonesia sustains the disclosed 9.2% and whether Indonesia-specific actions (distributor transition, inventory right-sizing) show in the segment print.

Promotional spend versus volume/mix delta — company volume/mix was -3.5pp in Q3 despite the $300M US promotional ramp. If Q4 volume/mix doesn't show response to the H2 marketing concentration, the strategic pivot away from paid promotion toward brand renovation will need to be formally costed for 2026.

Sources

Kraft Heinz Q3 2025 Earnings Press Release, SEC EDGAR Filing — https://www.sec.gov/Archives/edgar/data/1637459/000163745925000164/ex991-erq32025.htm

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