Kraft Heinz raised its full-year 2026 organic-sales outlook after second-quarter results exceeded management’s expectations across U.S. retail, food service, and emerging markets. The company now expects organic net sales to decline between 0.5% and 2% compared with the prior year. Its previous guidance called for a decline of between 1.5% and 3.5%.
The midpoint of the new range represents a 1.25% decline, compared with a 2.5% decline at the midpoint of the previous outlook.
That represents an improvement of 125 basis points.
Kraft Heinz raised its sales expectations despite including an anticipated 100-basis-point headwind from additional pressure involving Supplemental Nutrition Assistance Program benefits.
Management attributed the improvement to better brand performance, strengthening market-share trends, and results that came in ahead of the company’s internal plan.
Kraft Heinz is using some of the improving sales outlook to support additional spending rather than maximizing near-term earnings.
The company increased its planned incremental investments by another $100 million to approximately $700 million compared with 2025.
Management said its brands have responded favorably when the company increases support behind them and believes the additional spending will strengthen the business entering 2027.
The investments include greater advertising and other initiatives intended to improve brand relevance, market share, product innovation, and long-term volume growth.
However, higher spending contributed to weaker adjusted profitability during the second quarter.
Adjusted operating income declined 18.4% to approximately $1.04 billion from $1.28 billion.
The decrease reflected increased advertising, unfavorable volume and product mix, inflation in manufacturing and logistics costs, and higher variable compensation.
Efficiency initiatives and higher pricing only partly offset those pressures.
Kraft Heinz consequently narrowed its full-year constant-currency adjusted operating-income outlook to a decline of between 16% and 18%.
The previous range called for a decline of between 14% and 18%.
The midpoint therefore weakened to a 17% decline from a 16% decline, even as the organic-sales outlook improved.
Management’s guidance assumes adjusted gross margin will decline by between 10 and 50 basis points.
The previous outlook anticipated a decline of between 25 and 75 basis points, meaning the gross-margin forecast improved even though operating-income expectations weakened.
Kraft Heinz also expects an approximately 500-basis-point headwind from comparison with unusually low incentive-compensation expense during the prior year.
Adjusted EPS is expected to reach between $2.03 and $2.09.
The new range compares with the previous forecast of $1.98 to $2.10.
The midpoint increased slightly to $2.06 from $2.04, while the lower end of the range increased by $0.05.
Expected interest expense declined to approximately $890 million from $920 million.
The expected adjusted effective tax rate was also reduced to approximately 24.5% from 25%.
Second-quarter net sales declined 1.4% to approximately $6.26 billion.
Organic net sales decreased 1.3%.
Pricing contributed 1.3 percentage points of growth, but volume and product mix reduced sales by 2.6 percentage points.
Pricing increased across all three geographic segments, primarily reflecting actions intended to offset higher coffee and ready-to-drink beverage input costs.
Volume pressure was concentrated in meats and spoonable products.
The timing of Easter reduced quarterly volume and mix by approximately 100 basis points.
An inventory pull-forward provided an approximately 80-basis-point benefit, meaning reported volume would have been weaker without the timing-related shipment increase.
North American net sales declined 2.7% to $4.63 billion.
Organic sales also fell 2.7% as a 1.1-percentage-point pricing benefit was more than offset by a 3.8-percentage-point decline in volume and mix.
International Developed Markets sales declined 3.5% to $865 million.
Organic sales fell by a more modest 0.7%, including a 0.7-point pricing contribution and a 1.4-point volume and mix decline.
Emerging Markets remained Kraft Heinz’s strongest growth business.
Segment sales increased 10.4% to $771 million, while organic sales rose 8.5%.
Pricing contributed 4.5 percentage points, and volume and mix increased four percentage points.
Emerging Markets was the only major geographic operation to produce positive contributions from both pricing and volume.
The segment’s constant-currency adjusted operating income increased 9.4%.
By comparison, North American constant-currency adjusted operating income declined 15.8%, while International Developed Markets fell 10.2%.
Kraft Heinz reported adjusted gross profit of approximately $2.14 billion.
Adjusted gross margin remained unchanged at 34.1%, despite lower sales and inflationary manufacturing and logistics expenses.
Reported gross margin declined 200 basis points to 32.4%, while gross profit decreased 7.1% to approximately $2.03 billion.
Adjusted EPS declined 18.8% to $0.56 from $0.69.
The company attributed nearly all of the $0.13 per-share decrease to weaker operating results, partly offset by a modest tax benefit.
Reported results included another exceptionally large non-cash impairment.
Kraft Heinz recorded $7.35 billion of goodwill and intangible-asset impairment charges during the quarter.
The impairment exceeded the company’s entire quarterly revenue and included $2.44 billion of goodwill charges and $4.91 billion of intangible-asset write-downs.
Those charges contributed to a reported operating loss of $6.43 billion and a net loss of $5.46 billion, or $4.60 per share.
The prior-year quarter included $9.27 billion of impairment losses.
Although Kraft Heinz’s reported operating loss improved from $7.97 billion, adjusted operating income declined because the reduction in impairment charges did not reflect stronger underlying earnings.
Cash generation remained substantially stronger than the reported net-loss figure.
Operating cash flow increased 8.2% to approximately $2.09 billion during the first half.
Free cash flow rose 10.3% to $1.66 billion, and free-cash-flow conversion increased to 123% from 96%.
The improvement was supported by working-capital movements.
Accounts payable generated $392 million of cash, compared with $109 million during the prior-year period, partly because of improved supplier payment terms.
Other current liabilities supplied another $318 million, while higher inventory consumed $228 million.
Kraft Heinz increased its full-year free-cash-flow conversion outlook to approximately 110% from 100%.
Management plans to use the company’s cash flow to fund business investments, maintain its dividend, and reduce debt.
Kraft Heinz repaid approximately $2.98 billion of long-term debt during the first half and issued $1.15 billion of new debt.
The company also paid $949 million in dividends.
No shares were repurchased under its publicly announced repurchase program.
Total current and long-term debt declined to approximately $19 billion at the end of June from $21.22 billion at the end of 2025.
Cash and equivalents totaled $2.42 billion, while marketable securities declined to $262 million from $1.06 billion.
The revised outlook shows that Kraft Heinz has become more confident in its ability to stabilize sales.
However, management is increasing spending while volumes remain under pressure and adjusted operating income continues declining.
The success of the strategy will depend on whether the additional $700 million of investment produces stronger market share, sustainable volume growth, and improved profitability during 2027 and beyond.
KEY QUOTES:
“We delivered another solid quarter, with results that exceeded our expectations across U.S. Retail, Global Away From Home, and Emerging Markets. Our brands are resonating with consumers, and our share performance is improving. The progress we are seeing gives us the confidence to raise our Organic Net Sales outlook for the year.”
“Building on this momentum, we are also increasing our incremental investments by $100 million, to approximately $700 million in 2026. We have seen that our brands respond well when we invest behind them. By accelerating these investments, we position the business even more favorably as we enter 2027.”
“I am proud of the progress our team has made. We are ahead of plan and remain focused on our ultimate goal to return the company to volume-led, sustainable and profitable growth.”
Steve Cahillane, Chief Executive Officer Of Kraft Heinz
