- Kraft Heinz reported declines across the board in its first quarter earnings report as net sales were down 3.1% over last year to about $6.4 billion.
- The company's profits declined 0.3% to $893 million over the same period last year. Sales in the food giant's largest market — the U.S. — were especially soft, falling 3.5% from the beginning of 2016 down to nearly $4.6 billion.
- Executives were positive about the company's outlook despite the lackluster results. “Although our top line results in the first quarter reflect a slow start to the year, we remain on track with our key initiatives,” Kraft Heinz CEO Bernardo Hees said in the earnings report. “We are delivering product innovations, renovations and geographic expansion that positions Kraft Heinz to drive organic sales growth for the balance of 2017 and beyond."
Consumer goods behemoth Kraft Heinz has faced a difficult 2017 so far — and its Q1 2017 earnings report serves as the latest proof. The earnings come as Kraft Heinz has failed to make a big M&A deal happen this year after Unilever recently rebuffed its $143 billion takeover bid.
Net sales, which slumped in the last quarter as well, haven't picked back up. In the U.S., the foodservice, cheese, meats and nuts segments have been especially soft. The brightest spots for growth were Lunchables (which have been spared planned factory closures from budget cuts), new frozen meal brands Devour and SmartMade, and macaroni and cheese — both the brand's signature boxed variety and Cracker Barrel branded frozen versions.
According to a transcript of the earnings call, Hees and other executives seem confident that sales will improve in the next quarter. U.S. Chief Operating Officer George Zoghbi touted the some of the new innovations that have recently hit store shelves or are coming soon, including adding more Philadelphia Cream Cheese branded products, like Philadelphia Cheesecake Cups and Bagel Chips and Cream Cheese Dips. Capri Sun Sport and Cracker Barrel Oven Baked Mac & Cheese have also seen strong performance, and he said the company is excited about the renovation of Oscar Mayer hotdogs to align with the simple ingredients and clean label trends.
In addition to these new products, Zoghbi said the company will have more large-scale retail promotions in the rest of the year — as well as potential new meat products after ending an internal halt on their introduction.
Kraft Heinz has a bit of ground to make up: Obviously, rebounding from sales declines is a priority. But so is coming back from the bruising that the company's image took when Unilever rejected its takeover offer.
Time will tell what Kraft Heinz does next on the M&A front. Though the rumor mill has been spinning since February, no acquisition targets or potential deals have become concrete. Hees and other executives repeatedly said in the earnings call that they are still looking to acquire brands and companies that have strong market share, regardless of their core industries. The proposed Unilever deal showed that the company certainly does not lack for ambition and is always on the hunt for a takeover.
But companies may not want to be acquired by Kraft Heinz, considering its reputation for slashing costs at companies it acquires. Ever since the eye-opening 2015 Kraft Heinz merger — orchestrated by Warren Buffett’s Berkshire Hathaway and 3G Capital Partners — the combined company has been cutting what it sees as bloated costs and grow its earnings. One of its primary tactics for growth is zero-based budgeting, where employees have to justify all expenses and cannot rely on previous spending. A slimmed-down workforce has also been a priority — Kraft Heinz recently cut jobs at headquarters in March after cutting 1,000 jobs last year — as it moves toward its post-merger goal of trimming payroll by 5,150 jobs.
Hees rejected the characterization that the 3G Capital-backed company's culture of strong cost-cutting makes it an undesirable acquisition partner. "Ownership, meritocracy, high performance, brands and dreaming big" are the company's core values, he said. "And I truly believe those five things are applicable in many companies and many segments and so on. So through this culture we have, and so I don't think it will be more difficult or easier to do any other transaction."