Dive Brief:
- Kraft Heinz, in its second earnings report as a combined company, reported a fourth quarter turnaround for both revenue and profits compared to third quarter results.
- Pro forma net sales came in at $7.12 billion, which was a 5% drop year over year but still an improvement over the 9% decline last quarter. Adjusted pro forma EBITDA was up 10.9% to $1.88 billion, which topped Wall Street estimates.
- Since the merger, Kraft Heinz has worked to offset decreasing sales by aggressively cutting department budgets, which includes employing zero-based budgeting, closing seven factories, eliminating thousands of jobs, and raising prices.
Dive Insight:
As Kraft Heinz continues to integrate its brands and identify synergies, analysts and the industry continue to wonder whether — or when — the company plans to begin divesting brands. Kraft Heinz's portfolio is primarily comprised of processed foods brands.
Instead of shying away from its legacy brands and acquiring natural and organic companies to fill in the space, Kraft Heinz has continued investing more into innovation for these iconic brands. This has included efforts like removing artificial colors and flavors from Kraft macaroni and cheese and changes to the Capri Sun brand, making an organic variety and removing high fructose corn syrup. This strategy stands in contrast to many other competitors, which are chasing acquisitions and even creating investment funds to capitalize on disruptive companies earlier on.
"I don’t have a solution for every part of our portfolio yet, but I do believe our pipeline is in better shape," George Zoghbi, COO of Kraft Heinz’s U.S. business, said on an earnings call with analysts.
The most under-performing brands would likely be the first to go, but it's unclear who would want them. An acquiring company would have to be confident it can turn around the brand or integrate it into its own portfolio. Given acquisition patterns, this seems unlikely unless it can improve positioning.