- Although Kraft Heinz narrowly beat analysts' expectations — by 7 cents earnings per share — in the company's first quarter, net sales were down compared to a year ago, according to the food giant's latest earnings report. Total sales were $6.3 billion, down 0.3% from 2017's first quarter.
- U.S. sales, worth $4.36 billion, were down 3.3% compared to last year. At the same time, the company's sales were up everywhere else — posting a 9.8% gain in Canada and a 14.7% increase in the rest of the world.
- Kraft Heinz CEO Bernardo Hees said in the report that these earnings are consistent with — or slightly better than — expectations laid out at the beginning of 2018. "The initial successes we’re seeing in the marketplace, together with the strong investments we’re making in marketing, new product innovation, and capability-building, give us increased confidence in delivering the top- and bottom-line growth we expect in 2018.”
The fact that there is celebration over the mega-company beating analysts' expectations by a few cents says a lot about the food business in the United States right now. Increasing costs for raw materials and distribution, coupled with tougher competition and trendy new better-for-you brands have made success elusive for Big Food. Largely staying the course, in this case, is better than posting more failure.
In the case of Kraft Heinz — owner of big brands including its namesake cheese and ketchup, Ore-Ida potatoes, Shake 'n Bake and Cool Whip — the issues facing the company are not new or unique. Prices increased across the board, perhaps inspiring consumers to take another look at a competitor. Shipments were down all places except Canada, offsetting gains in some categories. Specifically in the United States, stores offered less of the CPG giant's nuts, cold cuts and part of the company's cheese business — causing losses that more than canceled out Easter-related sales.
According to a transcript of the earnings call, CEO Bernardo Hees remained cautiously optimistic. He predicted sales would grow this year throughout the world, including natural cheese, meals, desserts, and ready-to-drink beverages in the U.S.; cheese and coffee in Canada; condiments and sauces across Europe; soups and meals in the UK; baby food in Russia; condiments and pasta sauce in Latin America; and soy sauce in Indonesia.
As many consumers seek healthier options and turn away from processed Big Food products, it's clear that Kraft Heinz needs to shake up what it's doing to meet current trends. While Kraft's iconic Macaroni & Cheese made a big splash with its all-natural ingredient reformulation, the company hadn't made any other high-profile changes.
What Kraft Heinz has done this year is plunge into innovation. On the earnings call, Hees said the company would be launching 60% more innovation projects this year than in 2016. In March, the company announced an incubator program for "disruptive" startups. Companies chosen for the incubator, called Springboard, will spend 16 weeks under the CPG giant's wing, and will also have the opportunity to raise funds. While this kind of a program will prove helpful in establishing partnerships with brands on the cusp of the latest trends, Kraft Heinz seems a bit late to the game. Other large CPG companies — including General Mills, Campbell Soup, Hain Celestial and Nestle — established their incubators years ago, giving them a jump on how to successfully leverage this kind of program.
Some other new products that may help the company's bottom line have also been recently announced. The first product to be launched through Springboard is a store version of Momofuku's Ssam Sauce. The popular and distinct Korean chili sauce taps into several trends, including international flavors, spice and cuisine from a hip New York restaurant. The company's new Mayochup — an orange sauce that is a mixture of mayonnaise and ketchup — is also due to hit shelves soon. Just Crack an Egg, the manufacturer's foray into breakfast foods, is selling faster than it can be manufactured, Hees said in the earnings call. A new partnership with Food Network is bringing branded sauces, salad dressings and meal kits to consumers through the channel's Kitchen Inspirations line. Additionally, reformulated and rebranded Boca Burgers are coming to stores in hopes of competing better in the plant-based meat alternatives segment.
But will these new launches be enough to make up for the declines in some of Kraft Heinz's legacy brands? Or should the company also be eyeing new acquisitions? While the company hasn't gone forward with any major M&A activity since Unilever rejected its $143 billion takeover bid last year, many have said that it's overdue for something big. What that may be and when it will happen could determine the fate of the company — and provide more cause for investors to celebrate than beating estimates by a few cents.