Kraft Heinz Raises FY Outlook as Price Hikes Improve Margins

Global food giant Kraft Heinz reported a 1% increase in net sales this quarter, attributable to the performance of its core three pillars – U.S. Retail GROW Platforms, Foodservice and Emerging Markets.

In the company’s North America Zone, organic net sales declined 0.1%, dragged down by declining volumes in its meat business. However, those U.S. Retail GROW Platforms (Grow, Energize and Stabilize) grew 3.3% in the quarter. The Grow segment – which features brands like Philadelphia and Primal Kitchen – accounted for a majority of the boost.

Here’s the top-level view:

• Overall net sales for the quarter ended September 30 increased 1% year-over-year to $6.6 billion, including a -0.5 percentage point loss from foreign currency and a -0.2 percentage point impact from divestitures.
• Gross profit margin was $2.2 billion or 34% of net sales (compared to $1.8 billion in the prior-year period), a sequential improvement of 568 basis points primarily driven by value chain improvements as well as price hikes. Price grew 7.1 percentage points in the quarter.
• To accelerate future growth, the multinational food giant is investing more in marketing, R&D and technology. In Q3, Kraft Heinz increased marketing spend and R&D spend by 25% and 8%, respectively.
• According to the earnings report, the company “hit a milestone” in its transformation, reaching its target net leverage of 3.0x.
• As a result of its Q3 earnings, Kraft Heinz has raised its adjusted gross profit margin (now approximately +5-7% compared to fiscal year 2022) and adjusted EBITDA guidance for the fiscal year 2023. However, the company now expects organic net sales for the fiscal year to be at the low end of its 4-6% range.

In a prepared statement, Kraft Heinz’s outgoing CEO Miguel Patricio said he is “so proud” of what the company accomplished in the third quarter, with all three of its growth contributing to top-line improvements.

“Our share and volume trends continue to improve versus the second quarter of 2023 as we execute our action plans and reinvest unlocked efficiencies back into the business across marketing, R&D and technology,” he said in the statement.

Importantly, said Patricio, Kraft Heinz’s Taste Elevation (ketchup, mayonnaise and Mexican sauces) and Easy Meals (frozen potatoes) platforms in the U.S. are not just seeing an improvement in market share, they are also taking share from other players. Targeted categories for share recovery also include cream cheese, cold cuts and single-serve kids beverages.

Elsewhere, the Emerging Markets segment saw organic net sales grow 10%, outpacing total International sales. The company plans to maintain this momentum through a three-pronged approach that includes a data-driven, repeatable go-to-market strategy, the promotion of the Heinz brand beyond ketchup and the growth of its foodservice business. Currently, Kraft Heinz holds less than a 5% share of the global foodservice market.

Looking ahead to 2024, Carlos Abrams-Rivera, current EVP and president of the North America Zone, will take over as CEO from Patricio on January 1.

During a call with investors this morning, the company announced three additional upcoming changes to its leadership and organizational structure: the promotion of Pedro Navio to EVP and president of the company’s North America Zone; the elevation of its growth and omnichannel functions to a global level; and the division its International Zone into three separate segments. The sections will include Europe & Pacific Developed Markets (Australia, New Zealand, Japan and South Korea), West and East Emerging Markets (LATAM, Eastern Europe and the Middle East) and Asian Emerging Markets.

“For me, one of the critical aspects of this time where I have been transitioning has been listening to the organization and making sure we have the clarity of our strategy, and our structure is going to follow that clarity,” Abrams-Rivera told investors.

Notably, the Q3 earnings report didn’t mention the impact (or lack thereof) of Kraft Heinz’s joint venture with Chilean food tech company NotCo or its recent innovations in the plant-based category, such as the nationwide rollout of Philadelphia’s plant-based spreads in Original, Strawberry and Chive & Onion flavors.