Kraft Heinz 'big bets' take hold

by Eric Schroeder
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 In the quarter, Kraft Heinz launched Capri Sun Organic, Cracker Barrel premium macaroni and cheese and Classico Riserva pasta sauces.

PITTSBURGH – The Kraft Heinz Co. may not be claiming victory in any category, but the company believes its “big bets” activities in the United States are beginning to gain traction in the marketplace. “Big bets” are defined by the company as innovations that receive more assessing and consumer insights before launch.

George Zoghbi, COO for Kraft Heinz US 

“The launch of our Kraft mac and cheese renovation has been well-received by consumers,” George Zoghbi, COO for US, said during a May 4 conference call with analysts. “And we supplemented that with the launch of a new premium mac and cheese under the Cracker Barrel brand in the same category. We launched Capri Sun Organic and renovated our Kool-Aid Jammers product with fewer calories and no preservatives. We added a new line of premium pasta sauces under the Classico Riserva brand made with no artificial ingredients or added sugar. We strengthened our barbecue sauces business by adding new lines under the Heinz brand, betting on consumer regional preferences in this category. And we added new lines to our salad dressing business, including new packaging formats.”

Net income attributable to Kraft Heinz shareholders in the first quarter ended April 3 totaled $896 million, equal to 74 cents per share on the common stock, up 61 percent from $558 million, or 47 cents per share, in the same period a year ago. Net sales eased 4 percent to $6.57 billion, down from $6.83 billion.

Adjusted EBITDA for the US segment increased 33 percent to $1.493 billion, driven by gains from cost savings initiatives and favorable pricing net of commodity costs that partially were offset by volume declines in ready-to-drink beverages and frozen nutritional meals. US net sales, meanwhile, increased 0.2 percent to $4.715 billion.

 
Paulo Basilio, executive vice-president and CFO of Kraft Heinz 

“Within organic growth, pricing was flat, reflecting pricing gains across most categories despite headwinds from deflation in key commodities,” said Paulo Basilio, executive vice president and CFO. “Flat volume mix mainly reflected innovation in Lunchables and P3, the foodservice gains, shipment timing and gains in coffee that were partially offset by lower shipments of ready-to-drink beverages, where we were up against a pre-price increase buy-in with Capri Sun last year as well as lower consumption of bacon and frozen nutritional meals.”

In a May 5 report, Credit Suisse analyst Robert Moskow said Kraft Heinz’s strong revenue and EBITDA greatly improved his assessment of the company’s organic growth rate. As a result, Credit Suisse raised its revenue and EBITDA estimates for the company for 2016 and 2017, and raised its target price to $96 per share from $85.

“Synergies are dropping to the bottom line faster than expected, and the company isn’t stripping away trade promotion dollars at the expense of volume to the degree that we had assumed,” Moskow said. “As a result, we now expect a more stable year for organic sales and a more robust gross margin simultaneously. Some of the beat in 1Q came from one-time factors that won’t necessarily repeat next year (such as unusually strong new product pipeline fill and an early Easter). In addition, the margin benefits from commodity deflation will narrow as the year progresses. However, the company has a bigger long-term pipeline of new products than we thought, and the US business is growing at a (high-single digit) rate in non-measured channels thanks to good performance in food service, club and dollar stores.” 

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READER COMMENTS (1)

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