Kraft Heinz has slashed its full year sales and profit expectations as price hikes hit snack and ready-to-eat demand.
The business painted a poor picture in its first quarter trading update for the year, its financial scorecard bleeding with net sales down 6.4% along with organic sales down 4.7% and gross profit margin down 60 basis points.
Kraft Heinz now forecasts an up to 3.5% decline in its full year organic net sales, this is in contrast with a previous “flat” expectation.
This reduced guidance would provide flexibility for Kraft Heinz to “step up investments to close price gaps and raise trade spends,” says TD Cowen city analyst Robert Moskow.
Despite a negative report, there remains optimism in the business as CEO Carlos Abrams-Rivera reiterates his belief in his transformative vision for the business.
“I believe our strong balance sheet, scale and proven ability to generate efficiencies will help us navigate today’s challenges,” he says.
The impact of inflation on Kraft Heinz
“We’re closely monitoring the potential impacts from macro-economic pressures such as tariffs and inflation, and we are dedicated to increasing investments to drive product and brand superiority to deliver more value for our customers.”
The CEO near batted away the poor Q1 performance, saying the results were in line with expectations and he was committed to “controlling the controllables” and would continue to invest in brand quality, taste and value.
“We are encouraged by these results, and we will build on the progress we have made to drive consistent growth profitability,” he adds.
However, Kraft Heinz’s performance echoes that of other major food firms, especially in the US where Conagra and General Mills have also experienced struggles.
Difficult trading is especially compounded by president Donald Trump’s pendulous tariffs, which have caused market stress and concerns over inflation hikes and stunted economic growth.
“We are also closely monitoring implications from market tensions such as tariffs, inflation and the consequences to consumer behaviour,” says Abrams-Rivera.
Areas of the business worst affected include its Mac & Cheese brand, kids’ Lunchables and also mayonnaise as consumers turn to cheaper, often unbranded, options.
However, Abrams-Rivera will continue this year to deliver on the business’ long-term priorities of driving efficiencies, investing in brands, driving power brands’, such as Philadelphia, sales higher higher and focusing harder on profitable brands.
Areas of Kraft Heinz growth
Areas of growth include a 5% organic net sales uplift for pasta sauces in the US; 7% for frozen meals in Canada; a 10% sales boost for its Primal Kitchen condiments brand; and a 15% sales rise for its Mexican foods and sauces ranges.
By 2027, the business aims to unlock $2.5bn of efficiencies and is over halfway there at $1.5bn.
Just like competitors, including Unilever and Nestlé, Kraft Heinz will also focus on driving value from its emerging markets, which have delivered +3.9% in net sales for the quarter.
Recovery in Brazil has added value to the balance sheet, with an expectation of double-digit market growth by the end of the year.
To bring down the price gap between own-label and its branded products, Kraft Heinz is expanding what it calls value formats, including bigger Mac & Cheese boxes that can “feed a family of five for less than $2″.
It boasted the launch of the full Heinz sauces line in Canada, however the trade spat between the two countries could hamper progress, analysts have speculated.