Kraft Heinz has ruled out growth in organic sales for the year as the ketchup maker registered a second-quarter decline linked to “cautious” consumers.
Sales fell 2.4% on an organic basis to $6.5bn and were down 3.6% in reported terms in the three months to 29 June, the Heinz and Lea & Perrins brand owner reported today (31 July).
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Operating income also fell, down 62.1% at $522m, although on an adjusted non-GAAP basis the metric rose 2% to $1.4bn.
CEO Carlos Abrams-Rivera explained: “Our second-quarter net sales growth came in lower than originally anticipated, as consumer sentiment remains cautious.
“While we are now expecting a more gradual top-line improvement in the back half of the year, we continue to unlock efficiencies that are allowing us to make accretive investments in our brands, grow profits, and drive future sales growth.”
Consequently, Kraft Heinz lowered its full-year 2024 fiscal sales outlook to flat to down 2%, from a previous forecast of flat to up 2%.
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By GlobalDataAdjusted operating income is now expected to increase by 1-3%, compared to growth of 2-4% previously.
Kraft Heinz anticipates a 210-basis-point second-quarter improvement in the adjusted gross margin to 35.5% will be supportive of operating income through the year. The company expects the metric to now rise by 75-125 points, compared to a prior 50-100-point estimate.
“As we enter the second half of 2024, many drivers are giving us optimism for improved top-line trends,” Abrams-Rivera said.
“We are anticipating a continued ramp-up of both innovation and renovation, particularly in North America retail, and we are increasing our marketing investment to continue to drive brand superiority across our portfolio.
“Finally, understanding that the consumer is looking for value, we will selectively increase investments in promotions.”
As inflation still lingers, Kraft Heinz pushed up prices by 1% during the quarter. Volume-mix, however, dropped 3.4%.
“Favourable price was primarily due to pricing taken in certain categories to mitigate higher input costs,” the Lunchables brand owner said. “Unfavourable volume-mix was primarily due to waning consumer sentiment.”
John Baumgartner, a US-based managing director at Japanese investment bank Mizuho Securities, said the sales downgrade was “largely expected” due to continued pressure in the out-of-home channel.
He wrote in a research note: “We believe guidance cut is pragmatic and would be surprised with another reduction before FY-24-end. We see shares already having priced in the news, which is likely better than feared.”
The shares were up almost 5% at $35.42 as of 4:21pm BST today.
Kraft Heinz kept the adjusted EPS outlook at $3.01 to $3.07 for the year, representing an expected increase of 1-3%. It fell 1.3% to $0.78 in the second quarter.
