Kraft Heinz Anticipating Higher Organic Sales Growth In Second Half
Kraft Heinz Co topped quarterly profit and revenue estimates as the ketchup giant raised product prices and posted higher-than-expected sales from the United States.
Many packaged food companies have been forced to nudge prices up in recent months to combat surging commodities and transportation costs. Prices had long been suppressed by fierce competition between retailers and changing consumer eating habits.
Kraft Heinz said it had raised prices everywhere but Europe, the Middle East and Africa.
The Chicago-based company said it still expects second-half organic sales to be higher than in the first half of the year, but warned that earnings would now be evenly split across both halves due to higher input costs and spending on commercial investments.
Longer Than Expected
Chief Financial Officer David Knopf said higher costs had persisted for longer than expected.
"Mainly at freight and transportation, packaging, both resins and cardboard as well as tariff risk currently impacting foil and aluminum costs in the U.S. and certain products we sell in Canada," Knopf told analysts on a post-earnings call.
Last month, Canada struck back at the Trump administration over U.S. steel and aluminum tariffs, imposing taxes on C$16.6 billion of U.S.-made products. The retaliatory measures included a 10 percent surtax on soup, ketchup, mayonnaise, strawberry jams and several other products that Kraft Heinz makes.
"That said, we do expect our constant currency adjusted EBITDA trend to improve by year-end," Knopf said, adding that core earnings would gain momentum into 2019.
Second-qaurter sales from the United States, the company's biggest market, fell 1.9 percent to $4.51 billion, but topped the average analyst estimate of $4.43 billion. It was the company's first better-than-expected U.S. sales performance in at least five quarters.
Excluding items, the company earned $1 per share in the three months ended June 30, beating analysts' estimate of 92 cents, according to Thomson Reuters I/B/E/S. The company said net sales rose 0.7 percent to $6.69 billion, topping the average estimate of $6.59 billion.
Stronger Than Expectations
“Our results through the first half were stronger than the expectations we put forward as recently as three months ago, and we have been even more encouraged by our recent performance in the marketplace,” said Kraft Heinz CEO Bernardo Hees.
“We believe we are now in a position to drive sustainable top-line growth from a strong pipeline of new product, marketing and whitespace initiatives that are backed by investments in capabilities for brand and category advantage."
Hees added that while cost inflation has been holding back the company's bottom line, "we expect our profitability to improve by year-end, with further momentum into 2019.”