Kraft Heinz, one of the largest food companies in the world, reported disappointing sales results for the second quarter of 2023. The maker of ketchup, cheese, macaroni and other packaged foods missed analysts’ estimates as higher prices deterred customers from buying its products.
Inflation Erodes Demand for Packaged Foods
Kraft Heinz said its net sales rose 7.3% to $6.49 billion in the quarter ended April 1, 2023, but fell short of the average estimate of $6.58 billion, according to Refinitiv data. The company attributed the sales miss to lower volumes across its segments, especially in North America and Europe, where inflationary pressures and competitive dynamics reduced demand for its products.
The company said it raised prices by 14.7% on average to offset higher costs of raw materials, packaging, transportation and labor. However, this strategy backfired as customers switched to cheaper alternatives or reduced their consumption of packaged foods.
- Some of the products that faced lower demand due to price hikes were cheese slices, macaroni and cheese, coffee and condiments.
- The company also faced supply chain disruptions and product shortages that affected its ability to meet customer orders and replenish inventories.
- The company’s organic net sales, which exclude the impact of currency fluctuations and acquisitions or divestitures, increased 9.4%, but lagged behind its peers such as General Mills and Conagra Brands, which reported double-digit growth in their organic sales.
Foodservice and Emerging Markets Provide Some Relief
Despite the challenges in its core markets, Kraft Heinz saw some bright spots in its business. The company’s foodservice segment, which caters to restaurants, hotels and other institutions, grew by 28% year-over-year, driven by the reopening of the economy and increased consumer mobility.
The company also performed well in its emerging markets, where organic net sales rose by 18.1%, led by strong growth in Brazil, China and India. The company said it benefited from its investments in innovation, marketing and distribution in these regions.
- The company launched several new products in its emerging markets, such as Planters nuts in China, Heinz ketchup in India and Quero tomato sauce in Brazil.
- The company also expanded its e-commerce capabilities and partnered with local platforms such as Alibaba in China and Flipkart in India to reach more customers online.
- The company said it expects to continue growing its presence and share in its emerging markets, which account for about 20% of its total sales.
Outlook Raised for Profitability but Not for Sales
Kraft Heinz raised its full-year outlook for adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted earnings per share (EPS), citing improved productivity and cost savings. The company now expects constant currency adjusted EBITDA to grow by 6% to 7%, up from its previous range of 4% to 6%. It also expects adjusted EPS to grow by 10% to 12%, up from its previous range of 8% to 10%.
However, the company did not raise its full-year outlook for organic net sales, which it expects to grow by 2% to 3%. The company said it remains cautious about the uncertain macroeconomic environment and the potential impact of inflation on consumer behavior.
- The company said it plans to reinvest some of its cost savings into marketing and innovation to drive long-term growth and brand equity.
- The company also said it is working on addressing its supply chain issues and optimizing its pricing strategies to balance profitability and volume growth.
- The company said it is confident that it has the right strategy in place to win with customers and consumers, and to deliver profitable growth and create value for its stockholders.
