Christopher M. Jakubik - The Kraft Heinz Co.

Bernardo Vieira Hees - The Kraft Heinz Co. George Zoghbi - The Kraft Heinz Co.

Paulo Luiz Araújo Basílio - The Kraft Heinz Co.

Kenneth B. Goldman - JPMorgan Securities LLC Alexia Jane Howard - Sanford C.

Bernstein & Co. LLC Robert Moskow - Credit Suisse Securities (USA) LLC Bryan D.

Spillane - Bank of America Merrill Lynch Jason English - Goldman Sachs & Co. Christopher Growe - Stifel, Nicolaus & Co., Inc.

Andrew Lazar - Barclays Capital, Inc. Jonathan Feeney - Consumer Edge Research LLC Pablo Zuanic - Susquehanna Financial Group LLLP Matthew C.

Grainger - Morgan Stanley & Co. LLC

Hello everyone, and thanks for joining our business update for the first quarter of 2017. With me today are Bernardo Hees, our CEO, Paulo Basilio our CFO, and George Zoghbi, the Chief Operating Officer of our U.S.

Commercial Business. During our remarks, we'll make some forward-looking statements that are based on how we see things today.

Actual results may differ due to risks and uncertainties and these are discussed in our press release and our filings with the SEC. We'll also discuss some non-GAAP financial measures during the call today.

These non-GAAP financial measures should not be considered a replacement for, and should be read together with, GAAP results. You can find the GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation available on our website.

Now, let's turn to slide 2 and I'll hand it over to Bernardo.

Thank you, Chris, and good afternoon everyone. From an overall perspective, I will start by repeating what I said in today's press release.

While our top line results reflect a slow start to the year, we remain on track with the key initiatives that can drive another year of sustainable organic growth for The Kraft Heinz Company. There is no doubt that the U.S.

consumption was softer than expected. As you know, the shift in merchandizing windows such as Easter was expected, however other largely Canada-related factors caused our overall consumer takeaway to be weaker than anticipated.

George will discuss these in more detail. In addition, results in Canada also held back organic growth in Q1.

This was driven by go-to market agreements with key retailers being made much later this year than in past years. And this was largely due to our choice to not sign into significant price or reenter requests that have come about in the Canadian retail market.

As a result, we lost frequency and depth of promotional activity during the quarter. We also choose to delay several innovation launches from March to April.

In the end, however, we are confident that the sacrifice we made in sales will lead to a resumption of profitable growth for both Kraft Heinz and for our retail partners. Another area that makes me confident for organic growth in the year to go is the solid returns we are seeing from our Big Bets that are already in the marketplace and the fact that the rest of our 2017 pipeline is on track.

I'm not going to get into the specific initiatives that have not hit the market yet, but what we saw in Q1 was a very healthy contribution from both Year 2 Big Bets and the new-to-the-world initiatives. This included accelerated consumption in Mac & Cheese and frozen meals, from products like Cracker Barrel Mac & Cheese and Devour frozen meals that you have seen in the United States.

Further gains from Heinz Seriously Good Mayonnaise across Europe, Brazil and Australia, the growth of Planters in China, the launch of Heinz Seriously Good Sauces and No Salt, No Sugar Added Heinz Beans in the UK, just to name a few. Importantly, the investment we made are driving the solid organic growth trends we're now seeing in both Europe and the Rest of the World markets.

In short, our strategy of prioritizing fewer, bigger, and bolder bets is paying off. Underpinning all of this, we remain on track with our cost savings initiatives and the pace of savings is coming in very much as expected so far this year.

Cumulative savings from our Integration Program are approximately $1.3 billion and we continue to generate savings from ZBB and supply chain initiatives in all our zones outside of North America. Lastly, but just as important, in March, we strengthened our vision for Growing a Better World by unveiling new goals for sustainable sourcing and animal welfare.

This includes a commitment to reduce greenhouse gas emissions, energy, water, and waste across our manufacturing network by 15% over the next five years. We also committed to purchase 100% palm oil and derivatives from suppliers certified by the Roundtable on Sustainable Palm Oil.

And we implemented a zero-tolerance policy among suppliers for willful acts of animal abuse or neglect. Finally, our commitment to fighting global hunger is even more aggressive and I'm proud to say that by the year 2021, Kraft Heinz will donate one billion meals to families in need.

That's a broad overview of where we stand after the first quarter of 2017. Overall, a soft start to the year financially, but on track for another year of profitable organic growth.

So, let's turn to slide three to review the details of our Q1 financial results. As it relates to total company sales, there are two things to highlight.

First, we had solid price realization in our Rest of the World market, particularly Latin America, to offset higher local input costs as well as in the United States. These gains were partially offset by promotional timing, primarily in Canada and Europe.

Second, for the reasons I noted earlier, we saw volume/mix declines in North America. And these more than offset the solid and encouraging gains in the Rest of the World and Europe markets from condiments and sauces as well as the Big Bets highlighted.

Net EBITDA, quite simple, our first quarter results were held back by a combination of the volume/mix declines in North America and the business investments to support our growth agenda in the Rest of the World markets. And these more than offset the benefit of ongoing cost savings and initiatives in North America and Europe.

That said, we expect this to improve in the second half of the year. As adjusted EPS however, we continued to see strong growth mainly driven by the refinancing of the preferred stock.

Going forward, we expect a combination of profitable top-line growth and EBITDA to again become the main drivers of the EPS growth for the full year. Now, I will hand it over to George and Paulo to highlight our performance in each reporting segment and what to expect in each area going forward.

George?

Thank you, Bernardo, and good afternoon, everyone. Let's turn to slide four and our performance in the United States.

There is no questioning the slow start to 2017 with greater than expected declines in January and February (8:40) forecast Heinz and the food industry in general. However, we saw marked improvement as the quarter progressed.

And we feel good about the early read of Easter trading and the balance of the year, especially the second half. Let's start with the two areas that have presented headwinds to us in Q1 versus prior year.

The first includes several calendar changes versus the prior year. As we highlighted on our Q4 call, we think the shift in our merchandising windows versus last year, driven by Easter timing and the impact on measured-channel consumption, as well as our market share where we typically over-index during that period.

We also experienced one less day in the quarter due to comparisons with Leap Year in 2016, as well as a delay in tax returns from February last year to March this year. That impacted families that claim charge tax credit.

Importantly, these families are a big, core component of the Kraft Heinz consumer base. Together, these changes in the calendar versus last year drove more than half of the 3.6% decline in measured-channel category growth and market share you can see in the chart on the right.

The second factor is distribution losses of certain less profitable products in measured-channel, primarily club that affected our consumption numbers in certain cheese and meat categories. Beyond that, the combination of our non-measured channel performance and other trade-related impacts essentially offset one another.

On our last call, I also mentioned that we exited the year with some of our Q4 shipments needing to be worked off in January. While this did, in fact, occur, it was partially offset by some shipments related to retailer demand for early Easter builds in certain categories, like cream cheese.

Going forward, however, I do feel good about our chances of driving sequential improvement in organic growth from Q1 to Q2, and more importantly, from Q2 through the second half of the year. As a start, we've already seen more favorable consumption trends in both March and April.

Also, our Big Bets that are now in the market are driving consumption gains, including double-digit growth in frozen entrees after years of decline behind the successful introductions of Devour and SmartMade brands. We also had strong growth in our mac and cheese portfolio from renovation and innovation last year, as well as ongoing innovation-led growth in Lunchables.

And we have more to come, including new ways to enjoy Philly with the launch of Philadelphia Cheesecake Cups, along with Bagel Chips and Cream Cheese Dips, which have had strong initial consumer response. The launch of Capri Sun Sport and Cracker Barrel Oven Baked Mac & Cheese, as well as the renovation of our Oscar Mayer hotdog line with simpler ingredients, no nitrites or nitrates, no artificial preservatives, no by-product and no change in the price.

Importantly, as we begin to complete key modernization projects within our footprint activity and remove a self-imposed restriction on introducing new products in our meat business, we will start to increase both innovation and renovation activities to improve our performance in challenged categories, particularly at the back half of the year. And beginning in Q2, you are going to start to see us better leverage Kraft Heinz scale at retail.

This will come in the form of increased in-store activity with several scale events in Q2, including Easter, Memorial Day and Feed Your Family, Feed The World, scale event we launched just last week as part of our fight to end the global hunger that Bernardo mentioned earlier. With that, I'll turn it over to Paulo.

Thank you, George, and good afternoon, everyone. I will start on slide 5 and our U.S.

financials. I think George covered off the key macro drivers.

In the end, we saw favorable pricing primarily in cheese that was more than offset by the volume/mix decline from consumption weakness across categories. Foodservice, cheese, meats and nuts were the categories most affected and they offset ongoing solid gains from Lunchables, frozen meals, and macaroni & cheese.

Moving to EBITDA, we had incremental Integration savings, just less than $100 million. Note that in Q1, the pace of net savings versus the prior year was consistent with our expectations and we do expect that pace to pick up more in the second half of the year.

In the first quarter however, the incremental savings together with pricing were more than offset by both the decline in volume/mix and, to a lesser extent, unfavorable key commodity costs in coffee and bacon. Although I would note that, versus last year, adjusted EBITDA was down only 1.4%, considering we were up against significant key commodity costs favorability in Q1 last year.

Let's turn to slide 6 and Canada. Bernardo mentioned, Canada's Q1 results versus the prior year were significantly impacted by later-than-usual go-to-market agreements with key retailers.

As a result (16:03) was a double-digit decline in volume/mix from a combination of reduced in-store activity and a related decline in shipments. At EBITDA, we had a slightly greater percentage decline than what we saw in organic net sales, reflecting the volume/mix decline and change to promotional levels versus the prior year.

That being said, I think there are three important factors to consider as we move forward. First, we had significantly favorable pricing relative to local input costs within Q1 EBITDA last year.

Second, despite the headwinds seen in this Q1, Canada's adjusted EBITDA growth is still in the double-digits on a two-year basis. And third, we are confident that the new go-to-market agreements we've reached in Canada will lead to a resumption of run rate trends in growth and profit margins for the balance of the year.

That brings us to Europe on slide 7 where we saw sequential improvement in overall organic growth, including top-line growth in the UK. Strong currency headwinds continued to be a factor in reported results and net pricing declined due to timing of promotional activity, primarily in UK and Italy.

Volume/mix growth was driven by gains in UK condiments and sauces and this was partially offset by weakness in Italy infant nutrition as well as soup and beverage in Netherlands. Importantly, the ongoing stable consumption growth in the UK gives us the confidence that the business is on the right path, and that our investments with retailers in the second half of last year are now paying off.

At adjusted EBITDA, we had solid constant currency gains from strong cost favorability, mainly manufacturing savings that more than offset unfavorable input costs in local currency driven by transactional currency headwinds. Going forward in Europe, while we expect further improvement to our performance in the marketplace and across geographies, we expect Q2 organic top line and EBITDA to be held back by two factors: one, is shipments phasing versus the prior year where some July shipments were pulled into June last year; the second is the likelihood of unfavorable product costs as we will continue to face transactional foreign exchange headwinds within our supply chain in the near-term.

Finally, let's look at our Rest of the World segment on slide 8 where results were consistent with expectations we laid out on our last call. Specifically, our plan for 2017 called for us to go after growth opportunities aggressively and would include significant incremental investments in marketing, go-to-market capabilities and product development that would hold back margins.

And Q1 reflected the first stage of this plan. At volume/mix, we had positive on base performance in both China and from condiments and sauces in Latin America.

We also had favorable shipments related to the timing of Ramadan in Indonesia that were offset by actions we took to realign our distributor network in several countries and mainly affected our exports business. In the end, we are encouraged by seeing our investments paying off, from condiments and sauces across Latin America, and on a more local basis, a strong organic growth in China, India, Korea, and the Middle East and Africa.

At EBITDA, the strong contribution from volume/mix growth was offset by two factors: one, significant commercial investments in marketing and sales to drive top-line growth in our EMEA region; and two, higher input costs in local currency, particularly affecting our business in India, Egypt and Nigeria. Looking forward, while we expect our investments to continue as a headwind to EBITDA through the second quarter, we also expect organic sales growth to accelerate from Q1 levels as the year progresses.

That concludes our review of Q1 results, which brings us to our outlook for the remainder of the year. To begin, there is no doubt that the headwinds we've highlighted before will remain, from highly competitive retail markets to persistent foreign exchange headwinds, especially in Europe here in Q2.

But these factors are likely to affect everybody in our industry, not just Kraft Heinz. That said, we are expecting profitable organic sales growth to ramp up as the year progresses, especially in the second half.

Why do we believe this? First, as George noted, we have a much stronger retail calendar in the U.S.

for the balance of the year, beginning with better retail events in Q2. Second, we expect and have already being seeing our restoration of normal go-to-market activity in Canada, including our innovation and marketing agendas in light of having completed all agreements with key retailers.

And third, we expect the positive investment-driven consumption trends in Europe, Latin America and Asia, Middle East and Africa to continue. At the profit line, we still expect the progression of our 2017 results to reflect aggressive up-front investment in growth and favorable commodity trends to be followed by a step-up in cost savings in the second half of the year.

We are on track to deliver the $1.7 billion in cumulative Integration Program savings, net of inflation and business investments in North America by end of 2017. We do, however, have significant work ahead of us in order to deliver our plan.

We must continue to execute our footprint related manufacturing line start-ups, which are well underway. We have an extensive pipeline of Big Bets innovations in whitespace in Q2 and throughout the second half of the year.

And we will keep our focus on our defined strategy of investing, in innovation, marketing, and go-to-market capabilities as we ramp up the savings and efficiencies within our business. In the end, we continue to expect 2017 will be another year of sustainable profitable growth for The Kraft Heinz Company and another significant step forward in realizing our potential.

Thank you. And now, we'd be happy to take your questions.

Hi. A quick one and if you said this on the call I had a little trouble with some of the technology, I couldn't hear all of it so I apologize.

But you talked in the past, I think, about maybe a little bit of a headwind early in the year from temporarily shifting some production as you closed some plants. I'm just trying to get a sense if this affected your gross margin at all in the period?

Hi, Ken. Hi, this is Paulo.

So, I don't remember we mentioning it during the call, but in terms of the gross margin, which is pretty much flat year-over-year, it's kind of encouraging to us given the commodity headwind that we had this quarter comparing to the prior year's first quarter. And also the geographic mix that we have this year with the decline of the higher margin business in North America.

Okay. And then my follow-up is more generally there's been a lot of media stories lately about retail price "wars" right, people talking about Walmart and Amazon going to war with each other and pricing coming down and those customers of yours I guess "asking" companies like Kraft to help along with that process.

I'm not seeing as much of that as maybe the media is making of it, but I'm curious if you can give your perspective on really what's happening in the – and I'm really talking U.S. retail environment right now.

Are some of your customers, without naming any names, getting much more aggressive? Or is it more business as usual in terms of the pressures you're feeling in terms of pricing and so forth?

Hi, Ken. This is George.

The price competition among retailers is not like something new. And, as you know, it becomes usually a major focus every time you see a new entrant or a new format in the market, which happens that we are seeing both now.

Of course, we'd have to be mindful of the impact on us, particularly the one that we watch for the most is the equity, the impact on the equity of our brands, because we have certain expectation where we position our brands. So our approach to this will continue to be data-driven and discipline in deciding where and when to invest.

So sometimes we go along and we make investments, some other times we go dark. At all times, however, we continue to be using a data-driven disciplined approach.

Okay. Thanks so much.

Thank you, Ken.

Good evening, everyone.

Good evening, Alexia.

So in the wake of the Unilever proposal from a couple of months ago, we've heard concerns from some investors that your approach to reducing costs may cut into muscle and that in turn could make it harder for you to execute additional deals going forward. I guess the fear is that the board's a potential target.

Companies wouldn't want their legacy to be signed to a company that could then somehow damage what they've been building up over the decades. And so in this matter I think perception could be more important than reality.

It's probably not going to be enough simply to tell us that you don't cut too far. So in that context, do you agree that you may have an image problem with potential acquisition targets and what can you do to overcome that?

And then I have a follow-up.

Hi, Alexia. Here's Bernardo.

Thanks for the question. Look, I think, like you said, we need to separate what's perception and what are facts, right.

And so if you think about our culture and what it's all about, it's actually quite simple and very consistent over decades. It's all about ownership, meritocracy, high performance, (28:11) brands, and dreaming big.

It's all about those five things. And I truly believe those five things are applicable in many companies and many segments and so on.

So through this culture we have, and so I don't think it will be more difficult or easier to do any other transaction. About the perception, and again I think you pointed well, it's a little different story, right, because when people think about cost cutting and so on, we're much more in line to get efficient to fuel and invest behind profitable growth.

That's what we really do, right. Our selling expenditure is going up, our working dollar is going up, our go-to-market capability are going up because those are things we believe for the long run can build profitable growth like we're here for.

So, in a sense, you may be right there is a perception problem or not. That's not for us to judge.

What I can say that the values we have, those five things I just mentioned, we truly believe can be applicable in many companies and many segments.

Thank you very much for that. And just as a really quick follow up.

Can you quantify how much the timing shift of Easter affected your volumes this time?

Thank you, Alexia. This is George here.

So, look, we shared that with you at the last quarter that the Easter shift for us would be about 1% to 1.5%. However, we shipped, as stated earlier, around 40% of that in this quarter.

So it wouldn't have the big impact. If you want to get an idea where the underlying performance for the quarter would have been, so if you take out all the one-offs or the calendar effects, consumption really for our category would have been trending at minus 1.2% to minus 1.5%.

So I think that's a good starting point for you to look at as you move forward, and then you overlay the full impact of our 2017 programs, which will be realized in the second half of the year. So you will see sequential improvement as the year progresses.

Thank you very much. I'll pass it on.

You're welcome.

Hi. Thank you.

I wanted to ask about your negotiating kind of approach with retailers because I think you also mentioned that you lost some distribution in club stores in cheese and meat, and I wanted to know what were the circumstances for that. And tying in with what's happened in Canada, are you satisfied that you've got what you wanted in those negotiations with Canadian retailers?

Did you have to hold off in order to maintain price? And was that the main objective, which eventually you got?

Thank you.

Hi, Rob. It's Bernardo.

In respect to Canada, I think it's a very fair question given our weak performance in the quarter, right. Yes, we are satisfied with the agreements we reached of which the five agreements were a top client that's about 80% of our sales in the beginning of March.

And the fact that took us a little longer to achieve those agreements will affect. Especially the inventory and activities we had in January and February that's reflected in the results we are all seeing, right.

Given what you're seeing now in April and May, we're already seeing the level of events and inventory coming back to normal and the planning looking at second half is a much stronger one. So we truly believe you're going to see sequentially better results as we move in the country.

Before moving to the U.S., I think it is important to say that we didn't believe at that time in January when we had agreements, we'll work in a win-win situation with our partners, the retailers, discussions about, between consumption and shipment, the level of profitability and price points in the market. All these make us pause and say, 'hey, it's better to delay a little bit the agreement, but get the right spot to have a win-win situation, what we believe we have moving forward.

Again, it was not without pain like we're seeing the results I just describe it, but we are confident that the performance will be improving from now on. George, can you say to the U.S., please?

Sure. Sure.

In the U.S. in Q1, look, we lost some distribution for certain retail items, namely when I speak about there is the cultured dairy, some cottage cheese and items and sour cream, and a little bit of natural slices that you could see in the Nielsen data.

This is part of normal course of doing business. After a range review, you win some, you lose some.

So for us, it's not a major one-off event. However, what I wanted to say, in general, our view is the following: we will not sacrifice the long term for short-term gain.

That we will not do. No way we will do that.

It is but against our principles. And, as I said, we are driven by consumer insight translated into data that helps satisfy consumer needs and/or retailers and the categories are better off.

And that is the approach that we take as we have our discussions with our trade partners.

Okay. Thank you.

Thank you, Rob.

Hi. Excuse me.

Good afternoon, everyone.

Hi, Bryan.

Just two questions for me. First one, I guess a more broad one.

One of the questions that I think we've certainly fielded more recently and even tonight is just company's at a point where the cost – I think the perception is the cost savings are close to fully identified and the revenues are declining and there's deleveraging, and it sort of underscores this notion that maybe the business – that the whole model is broken that it's not sustainable. So, Bernardo, can you sort of talk to that?

How do you respond to that sort of theory?

Hi, Bryan. Yes.

Look, I strongly disagree with this statement. And you can see it, actually our model has been working for many, many, many years, decades and so.

And if you look at the facts and data, you're going to see growing organic rates pretty much in line with average with our peers. But with the profitability level we have today allows us to invest strongly behind our brands and product quality.

So with that in mind, our strategy really continue to be focusing on creating profitable growth within the company to really four things: first, Big Bets innovation with bolder and stronger product development; second, achieving a higher share of voice with more working media dollars behind our brands; third, investing behind our go-to-market capabilities, touching the shelves in a much more structured way; and fourth, achieving the operational efficiencies, so we can support and invest behind growth. Those are the four things we have been doing since the merger and the things we will continue to build moving forward.

So I strongly disagree with this statement.

Thank you for that. And I guess just as a follow-up, Paulo, can you remind us, in the first quarter last year, the tailwind from commodities, if I remember correctly, were like $75 million or $80 million benefit to EBITDA or EBITDA growth in the quarter, and this year I think it's actually a little bit of inflation.

So can you just sort of remind us of what the benefit was and what the headwind is this quarter in terms of what that bridge was?

Sure. So if you think about – just let me step back to give more color on the main impacts we had in the quarter.

So pretty much our North America EBITDA declined around $40 million, $45 million. The main impact we had was driven by volume mix.

And this impact offset the savings initiatives around the $100 million that we have, additional savings, and the pricing we got in the quarter. So pretty much we had the commodity headwinds we faced this quarter being really responsible of the fact that the EBITDA decline.

Prior year, in the same quarter, we had a much bigger favorability than that, almost twice this size if you go back to Q1 2016.

Okay. All right.

Thank you.

Thank you.

Hey, guys. Thanks for squeezing me in.

Hey, Jason.

A question on cash flow. Your cash balance ended a lot lower than we thought this quarter.

Looks like a lot of working capital leakage. Is this timing oriented?

What exactly drove that?

No. Yes.

So, yes, you're right. I think the majority of the cash declines we had was pretty much driven by typical seasonal working capital.

Q1 is a quarter that we normally lose a lot of working capital due to seasonality in that. And on top of that, we had inventory increase to prepare because we are preparing for all the footprint activities we are going to execute during the year.

So the majority of this is just the timing and we expect to recover in the following quarters.

Okay. Good to hear.

And then turning attention outside of the U.S., can you give us a sense of the magnitude of reinvestment in the Rest of the World? Because, jeez, the EBITDA decline on prior-year EBITDA declines for the Rest of the World and Europe combined from a headline perspective is discouraging to see.

I think when I see that – just we start. We're still seeing that and we've said that before that we would have had investments in the Rest of the World business.

The growth is coming and we expect the growth even to ramp up going forward. And I think to better answer the questions, we're still seeing the margin there is around 20% being representative of the margin that we're going to see in this unit going forward.

And, Jason, just to add on the commercial side, like we said before, a lot of the growth are coming really from two venues, right? One is whitespace and so penetrating new categories and establish ourselves like cheese in the Middle East, cheese in Russia; Kraft sauces in Europe, Australia, New Zealand; the nuts business in China and U.K.; Mac & Cheese in Latin America and UK.

So you have the core – and not only the whitespace, you have also the core that's pretty much the beans and soup in New Zealand and Australia, and condiments and sauces almost everywhere. It's still growing strongly on the Rest of the World.

So we will continue to see us investing behind and supporting this growth. So, looking at that, it's very in line what you have been saying we will be doing for the rest of the year.

Very good. Thank you for the answers.

Hi. Good evening.

I just had...

Hi, Chris.

Hi. Two questions for you as well.

First off would just be you've outlined some areas of reinvestment for the business in 2017. I saw it noted for the Rest of the World.

I just want to get a sense of how those phase through the year. And then will that spread across to the other divisions as well?

Or is Rest of the World where most of that quote-unquote reinvestment is occurring?

Yeah. So it's pretty much what I was saying.

So we expect these investments happening in the first half of the year in Rest of the World. And we expect this pay off and start seeing better margins going back to the normal margins of the business in the second half of the year.

Okay.

That's the second stage in that we're seeing those investments.

And then again, to be clear, mostly that's all in Rest of the World, right?

Yes.

Okay. And then just a second question for you.

You've talked before about your global brands and the focus on your global brands. And I know certainly you had a weaker sales performance in the U.S.

so that certainly would have affected their performance. But do those global brands gain share or can you give any kind of sort of metrics around how those brands performed in the quarter?

Hi, Chris. That's very much in line with what we said about the restructure plan to create the three global brands and platforms right behind Kraft, Heinz and Planters.

It's too early stage, but I think in most part of the countries, we wanted to penetrate on 2017. We already created supply chain and that's exactly the whitespace I was talking about early on when you talk about we're starting to penetrate on cheese, we're starting to grow on nuts, UK, China, and now going to Continental Europe, Mac & Cheese in Brazil and UK and so on.

So those brands are growing in line with our expectations for the year and it's starting to accelerate as much as we can. That being said, given the size of the business, and so on, the magnitude they have is still not significant, for example, to offset our performance we had in the United States and Canada.

Okay. Thank you for the time.

You're welcome.

Good evening.

Good evening.

I guess, first one would be the bid for Unilever was interesting on many levels, but maybe no more so than it was considered sort of a growthier asset than some of the others than you've done, given the emerging market exposure, the household and personal care exposure and such. So, I guess, more generally, my question really is when you think about synergies of a transaction, can they be enough almost at any level, I guess, to fully compensate maybe for a set of brands or assets that maybe might be in more of a structural decline?

In other words, how do you balance those two: the synergy capture versus maybe long-term structural decline in a set of brands?

Hi, Andrew. This is Paulo.

So, to think about – the way that we think about our M&A framework, which hasn't changed since the beginning, and the framework is pretty much that we want to own brands that we'd be happy owning these brands for the long run, brands with strong equity, strong relative market share, brands that can travel. But we also analyze a lot how the business operates, the go-to-market of the business, and more important than that, how the business operates better, how they would operate better, how they grow fast being together.

Okay? And, of course, doing this analysis, we take everything into consideration, including all the synergies that we have, all the options that we have in terms of getting a better performance.

And, again, everything that you said is always to improve our portfolio, right, when we have this type of framework.

Okay.

And more important and also very important is that we're always going to be very, very disciplined on price.

Got you. Thank you for that.

And then I think you mentioned cost savings incremental of about $100 million in the quarter. Am I correct in assuming pretty much all of that is carry-over saves from last year?

And I know you've said truly incremental cost saves are more back-half loaded this year. So, I guess, my question is, were there any incremental cost saves this quarter and/or how do you expect the truly new incremental cost saves to ramp throughout the year?

Is it primarily second half versus first half?

Hi, Andrew. So, it's Paulo again.

So when we're entering the second year of integration, it's much better to track for cumulative savings than trying to track a run-rate, given the structure of our savings that is net of inflation and net of investment. So we ended the prior year at $1.2 billion cumulative savings.

We are ending this first quarter at $1.2 billion level and we said that and we're still in the path to get to $1.7 billion. So, out of the $500 million that we expect to deliver this year additional, we delivered $100 million in the first quarter.

And again, we still have $400 million to deliver going forward in the next three quarters. And again, you're right that we said that we expect additional savings – the majority of the savings to be in the second half.

Thank you very much.

Thanks very much. I guess, a big picture question.

I know you've answered a lot of questions about the model existentially. As you look back over the past six months, are there any particular costs you could identify that you've reduced in the dramatic cost reductions you've made that had a meaningful impact this quarter that if you had it to do over again, you wouldn't have done?

That'd be my first question. And, I guess, my second question would be what are you seeing in developing markets, Rest of World right now that makes you want to accelerate your investment behind those particular businesses that you mentioned earlier?

Thank you.

Hi, Jon. The answer to your first question is, quite frankly, no.

The places we wanted to see increase cost that was selling and marketing, we did. Sometimes we ask ourselves on the things that have been working, and George talked about like the renovation of the Mac & Cheese, the hot dog campaign we're starting now in the United States, the Philadelphia Cheesecake, the Heinz Seriously Good in Europe, and the Heinz Seriously Good Mayonnaise in Brazil and Australia, Planters in China, Planters in Russia.

If we should not have grown even more. That's something we ask.

But that being said, there was absolutely no efficiencies or something that took over the capacities of the company to generate what, the things I said before, to focus on Big Bets, to focus on go-to market capability, to grow our share of voice behind our brands, and so on. So it's a no.

On the second part of your question about why we believe we can accelerate the growth on the Rest of the World, because we still want to penetrate in most parts of those markets, right, we see outside of the business in countries like China, Russia, Brazil, Eastern Europe, Middle East, Indonesia, even developed countries like Japan, and so it's still – we can't be much bigger through our core categories that you already operate in whitespace, as I mentioned. So we are confident in our capacity through the global brands and the local juries (50:58) we have to generate profitable growth.

Thank you very much.

Thank you. Two questions.

The first one is regarding divestitures. When I look at your cousins at Anheuser-Busch, they've divested assets worth almost $30 billion from the SABMiller transaction.

I realize that in their case they started with a lot more leverage, you don't have necessarily that pressure. But the complexity that you have inherited from all these two transactions would make you think that you would want to be more focused a little bit and exit some categories.

I mean, you have this baby food business in Italy, for example, and I could mention a host of other products. So just give us a sense of what should we expect?

And what is the reason why you haven't tried to focus your portfolio more? You would think that that would help in terms of your ability to ramp up the cost savings target.

That's the first question. And the second one is more just going back to Unilever.

The way I would like to ask the question is when you acquired Kraft Foods Group, you said that you were building a global food and beverage powerhouse. But now that apparently was going to include soap and shampoos.

So do you want to update us in terms of what your vision is? I mean, should we assume that someday you could own a tobacco company, a restaurant, or something else?

What can you comment on that, please? Thank you.

So hi, Pablo. This is Paulo.

So, on the first question – and let me start from there. So, the first question was about...

The divestitures.

Yes. So according to divestiture of the brands, today we feel comfortable with the brands and the capital that you operate.

We think we have scale and we operate well there. Again, as soon as if we decide to divest any categories or any brand in any specific geography, we will communicate this properly to the market.

So related to the Unilever potential transaction, we really believe that as I said in the M&A framework it's kind of – again, if you go back here in terms of only consumer brands, brands with a strong market share, brands that can travel, similar go-to-market, similar operation, I think at the end of the day that these two segments of the consumer product goods are very similar and that's the reason why you see also many companies operating brands for consumers, sometimes food, sometimes personal care, sometimes healthcare.

Right. Thank you.

And just if I can squeeze one follow-up. So also in this idea of complexity, at the moment, you have center of the aisle categories, you have refrigerated categories obviously with cheese and hams, you don't have much snacks.

But can you talk about in terms of the many parts of the supermarket that you're in, I guess, you're trying to be in everything and at the same time, it's not just warehouse delivery, but it could DSD. Or is there a certain – or should we assume that structurally within the supermarket, you still want to be mostly center of the aisle and refrigerated is more ancillary because you inherited because of the Kraft deal?

Thanks.

Pablo, this is George here. Just to confirm a few things, one, our entire model is DC.

So we do not have any DSD in the United States. However, we've taken a very large number of categories.

Including categories in the fresh aisle, we have a business. I don't know if you're aware, but we sell in the deli specialty cheeses and under the Churny Company we have some very good business there.

We sell in the dairy refrigerated aisle as well as deli both in processed meat as well as the center of store and in the snack aisle under Planters. We feel very good about our portfolio and we allocated portfolio role to each category and brand as part of our long-term strategic plan.

So while we have a diversified number of categories and brands, we do not treat them all the same. We have a different role and that role would dictate the level of investment, the new product introduction, and the support that we give to these brands.

And that we see as a competitive advantage to be able to utilize in the marketplace.

Understood. That's very helpful.

Thank you.

Thank you.

If we could take one more question, that would be great.

Great. Thanks, everyone.

If I could just squeeze in two as well. The first, some of the renovation you talked about in certain areas of the business like Oscar Mayer increasingly now seems like a necessity for bringing momentum back to those categories and responding to consumer shifts.

So can you talk about the feasibility of doing that in a cost neutral way in the early stages? Or is it going to take some additional levers like managing price pack architecture or making upfront investments until you get the benefit of strong volume leverage to make that a margin neutral proposition?

Okay.

Thanks, Matt. This is George here.

It's a very good question. As a matter of fact, we like the renovation a lot more than innovation because the payback is a lot faster; in some areas, it's almost immediate.

And you mentioned some of the good ones like Oscar Mayer. And Oscar Mayer, as you know, about 18 months ago, we started transforming part of the range to Oscar Mayer Natural.

That's approaching about $100 million business now, and it will be a lot larger. We did similar things in Mac & Cheese last year when we removed artificial ingredients from Mac & Cheese, and we're very, very happy with the performance, we're growing share in the Mac & Cheese category at the back of renovation and innovation.

Couple years ago, we did that on Philadelphia and you see our share and our growth there, similarly when we did that on Kraft Singles, we're still growing share on Kraft Singles. In all of them, we actually catered our campaign and our communication to reflect that.

So while we did not change our communication strategy, we had very, very good growth rate both in term of absolute and market share and faster payback on all those things.

Okay. Thanks, George.

And then if I could ask you one follow-up as well. Just coming back to the update you provided on the U.S.

You highlighted an expectation of better execution in the second quarter. Is that just sort of related function of having a fuller merchandising calendar?

Or are there specific execution issues or tactical actions you wish you had sort of acted otherwise on during Q1 that you would see shifting going forward?

Yeah Good questions, both actually. One, there is a natural shift in the merchandising calendar.

One of them is Easter, and the second one, we introduced a scale program that I talked about in my remarks. So that is new or incremental to what we did in prior years.

So that is as far as the promotional calendar is concerned. And the third one, we restricted ourselves from promoting Oscar Mayer and meats for quite some time and while we were going through our footprint project.

That restriction has been lifted now and we are in full support of the brand. So you're going to see good improvement in both the cold cuts areas and other parts of the meat segment.

So the combination of both is going to improve the trends that you see in the market. As a matter of fact, if you look at the very recent trend, they're very different from January and February – much, much improved.

Okay. Great.

Thanks, again.

Thanks, Matt.

Thanks, everybody, for joining us this evening. For anybody within the analyst community has follow-up questions, I'll be around as well as Andy Larkin to take your questions.

And for anybody in the media, Michael Mullen will be here to take your calls as well. So thanks very much for joining us and have a good evening.

Thank you.

Thank you.

Thank you.