Kraft Heinz Reports “Better Than Expected” Results as Prices Rise

Kraft Heinz raised its 2021 earnings outlook today, with CEO Miguel Patricio noting the company has performed better than previously expected as it continues to mitigate inflation costs and supply chain shortages.

Net sales were down 1.8% year-over-year to $6.3 billion, which the company partly attributed to the divestiture of its nuts business in the second quarter. On a two-year basis, sales grew 4.1%. Its organic net sales were up 1.3% year-over-year and 7.6% over two years. Citing its notable organic net sales growth, the company raised its 2021 EBITDA from $6.1 billion to $6.2 billion.

“By leaning into our scale, agility and new operating model, we are advancing our transformation in a way that provides us both near-term benefits as well as long-term advantages including strategic actions that strengthen our portfolio and financial flexibility,” Patricio said.

Pricing increased 1.5% from the year-ago quarter in response to inflated input costs, the company said. As it faces both long-term and short-term challenges relating to supply chain and inflation, Patricio said the company’s supply chain and procurement teams have worked to mitigate the effects, while it has also adjusted product formulas with alternative ingredients and altered pack sizes, when possible. Patricio said the company is expecting inflation in the high mid-single-digit range for the remainder of 2021 and anticipates this will persist at least through the first half of 2022. Kraft Heinz is prepared to continue to raise prices should input costs continue to rise, he said.

“When we shared Q2 results in August, the world had felt some optimism around the pandemic as vaccines continued to roll out,” Patricio said. “But supply chain disruptions, labor issues, and raw material inflation had begun to take root. Today, all of those issues remain, and they have evolved to be more challenging not only for us, but for every company in our industry.”

In recent months food giants like Mondelez, Kellogg’s and Frito-Lay have been faced with labor strikes as workers demanded improvements in pay and working conditions. Carlos Abrams-Rivera, U.S. Zone president at Kraft Heinz, said possible strikes at the company are “not a concern on an ongoing basis.” However, he noted the company has seen “pockets of some places where we’ve had some labor challenges in terms of shortages.”

“We don’t see any risk of a strike, but that doesn’t mean that it’s not possible,” Patricio added.

As prices increase, Patricio said the company is also looking to “build relevance” for its brand portfolio. He said Kraft Heinz plans to “renovate” products, packaging and brand proposition across 70% of its portfolio by the end of next year. The company’s annual spending on advertising (+9%) and R&D (+17%) have both increased to support brand growth across its portfolio. In the U.S., household penetration for its Taste Elevation platform — which includes condiment brands from Heinz ketchup to Primal Kitchen — was up 5%, while its Easy Meals Made Better platform increased 12%.

In R&D, internationally Kraft Heinz is leveraging the “plant-based heritage” of its Heinz brand through recent launches like Heinz Beanz Burgerz, Plant Proteinz soups, and easy meal brand Purgrains. Patricio said the Taste Elevation group — which added Brazilian condiment brand Hemmer through acquisition last month — and emerging markets are current priorities for the company

“We have a portfolio that is better than we had two years ago and a much stronger balance sheet,” Patricio said. “With that comes more flexibility. I think that if we have opportunities for acquisitions, we’ll look at them and always with price discipline.”

Taste Elevation has helped to support the company’s foodservice business as well. The segment reported sales were up 20% year-over-year as the channel continues to rebound. Patricio said Kraft Heinz sees notable whitespace for growth in this channel through new flavors and innovations as well as working with ghost kitchens.

Looking ahead, Global CFO Paulo Basilio said the company expects organic net sales to be flat compared to last year’s notably high levels, though he anticipates that the company will sustain stronger consumption compared to pre-pandemic through 2022.