Dive Brief:
- While sales were down from last year, Kraft Heinz saw its net income attributable to common shareholders jump more than 50%, according to the company's most recent earnings report. Sales dropped 1.7% from almost $6.8 billion a year ago to $6.67 billion in the quarter that ended July 1. The net income for shareholders went up to almost $1.16 billion from $770 million in the same period last year.
- In the United States, net sales were down 1.2% to $4.6 billion. While the company saw gains related to Easter sales — due to the holiday's relatively late date this year — as well as in frozen food, macaroni and cheese, and condiments and sauces, a loss of distribution, higher commodity prices in cheese and meats and lower foodservice shipments nullified the cash benefits of these gains.
- “As expected, our second quarter results were sequentially better than our first quarter, and we expect this momentum to continue into the second half of the year,” Bernardo Hees, Kraft Heinz's CEO, said in the report. “Our plan from the start has been to drive strong cost savings to fuel investments in people, capabilities and brands that can lead to sustainable, profitable growth. That's what we see happening now, and expect to continue going forward.”
Dive Insight:
Kraft Heinz delivered great results to investors — but sales didn't keep up. The huge increase in net income came from lower costs due to restructuring through integrating the two manufacturers who make up the food giant, refinancing preferred stock, and lower tax rates. All great aspects for improving returns for investors, but missing the mark when it comes to actual company growth.
Even though sales were a bit down for Kraft Heinz, the numbers are at least hopeful. The losses were mostly due to commodity prices and distribution — not reduced demand.
"On the top line, while we are not satisfied with our first half numbers, we are not discouraged with our ability to drive sequential improvement in organic sales and deliver our 2017 plan for profitable growth," Hees said in the earnings call, according to a transcript.
George Zoghbi, the company's U.S. chief operating officer, noted in the call that the new Devour and SmartMade frozen lines have helped build consumption. Meanwhile, Kraft American Slices, Philadelphia Cream Cheese, Oscar Mayer bacon, Lunchables and P3 snacks all saw ongoing growth. The company is getting better at shipping its products where there will be the most specific demand, and it posted a 60% growth in e-commerce — which still makes up about 1% of total sales.
Company leaders were optimistic in the earnings call that stabilizing prices and fewer promotions in coming quarters would contribute more to top-line growth. Whether that is the case remains to be seen, though they said an enhanced slate of more premium products would be helpful. The sales numbers also seem promising in that regard. The huge gains in administrative costs won't indefinitely repeat themselves, but raw costs and distribution challenges can be overcome.