Kraft Heinz became the latest global food giant to raise profit expectations this week after price hikes drove surging growth in its first quarter and helped expand margins.
Announcing its results for the first three months of the year on Wednesday, Kraft Heinz said its net sales had increased 7.3% compared with a year ago to $6.5bn, despite taking a 2.1 percentage point impact from the strong dollar.
Organic net sales were up 9.4% from the same quarter last year, driven largely by year-on-year price hikes of 14.7% across its portfolio. That price inflation unsurprisingly had a negative effect on sales volumes. Volume/mix was down 5.3%, driven by elasticity impacts from pricing actions.
Nevertheless, the group posted what it described as “strong” net sales growth across geographies, driven by foodservice, emerging markets and US retail.
The group said the sales volume drop was “anticipated” given pricing actions in February and the ongoing impact from pricing taken in 2022. However, it noted that, on average, these elasticities remained still 30% to 40% below historical levels.
Income
The price rises helped net income increase 7.1% to $837m, while gross profit margin increased 62 basis points to 32.6%. Adjusted EBITDA was up some 10.3% to $1.5bn, driven by pricing and efficiency gains. These offset higher supply chain costs related to procurement and manufacturing, and higher commodity costs, particularly in soybean and vegetable oils, energy and sweeteners.
As pricing action taken last year annualises and consumers react to the level of price hikes, Kraft Heinz predicted organic sales growth would tail off through the year to end up between 4% and 6%. However, it raised its 2023 constant currency adjusted EBITDA expectations to 6%-8% from 4%-6% on the strong first quarter performance.
Analysts at Morningstar praised the “solid” first quarter. The performance showed Kraft Heinz had “adeptly withstood commodity, transportation, and logistics inflation as well as lingering supply chain angst”, it said.
Bank of American said Kraft Heinz remains “positioned well in an environment where at-home consumption remains elevated given that food away from home consumption remains expensive.”
Mizuho praised management’s efforts at turning around the “enormous ship” Kraft Heinz represented, while JP Morgan expressed some surprise by the earnings upgrade in the first quarter, given the ongoing scale of inflation and expectations of its persistence through the year.
Kraft Heinz shares rose by more than 4% in early trading, but settled to close the day up 2% at $40.25. The shares remain marginally down so far in 2023.
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