Sales at Kraft Heinz continued to fall in the third quarter, but not as much as they had in the previous one. Meanwhile, profits rose and new CEO Miguel Patricio says he is working on a plan to turn around the company that includes spending more on marketing.
Investors, happy with the better-than-expected results and hopeful that Patricio, former global CMO at AB InBev, has a grasp of what needs to be done, gave shares a nearly 12% boost in after-hours trading.
“The earnings beat followed price hikes for key products like macaroni and cheese, and Philadelphia cream cheese. Kraft still faces headwinds from consumers leaving legacy food brands for newer, health-focused alternatives,” writes Ben Winck for Markets Insider.
“Four years after a merger that promised growth and innovation, the maker of iconic brands like Oscar Meyer, Kool-Aid and Jell-O is struggling to find its place in a rapidly changing market," writes the AP’s Dee-Ann Durbin.
“Sales are faltering as consumers increasingly seek fresh, minimally processed foods. In a recent Nielsen survey, 41% of consumers globally said they would pay more for foods with natural or organic ingredients. That’s not good news for a product like Kraft Heinz’s Velveeta cheese, which contains 20 ingredients and has no organic option.
“When shoppers do buy processed foods, they’re considering the growing number of store brands that compete with Kraft Heinz. Kroger sells a 20-ounce bottle of Heinz Ketchup for $2.79; on the same shelf, a 24-ounce bottle of Kroger brand ketchup is $1.00,” Durbin continues.
“Patricio said turning around Kraft Heinz will require discontinuing some low-margin brands, shifting innovation to fewer, more promising new products, and making its supply chain more efficient. The company is also working to improve relations with retailers. Kraft Heinz has struggled in recent years with late deliveries to stores, cut its promotions and wasn’t communicating enough with retailers, he said,” writes Annie Gasparro for The Wall Street Journal.
“I've been talking to customers and learning a lot from them. And I can tell you that their biggest concern is what you call the disputes and then that translates into service levels. … Although we haven’t had any big problem this year -- so we are in a much better year in terms of service level -- there are still scars from the past,” Patricio said on an earnings call transcribed by Seeking Alpha.
“Patricio told analysts on the conference call that the company is developing nine ‘transformational’ projects that will aim to make Kraft Heinz more efficient and improve its revenue. The company plans to significantly increase its media spending and revamp its product development process,” writes CNBC’s Amelia Lucas.
“‘Innovation is an area that we have to improve dramatically,’ Patricio said. He told analysts that in his previous role as chief marketing officer at Anheuser-Busch InBev, his team worked to reduce the timeline to bring new products to the market from two years to six months,” Lucas adds.
“His plan is to reduce the number of development projects by half and focus on fewer, bigger innovations that fit the company’s research on what consumers will want going forward. Patricio said a single head of all research and development across the company will also help unify the efforts that have been split between different areas of the global company,” Teresa F. Lindeman writes for the Pittsburgh Post-Gazette.
“Given the disappointing news earlier this year on weak sales and brand writedowns, and a massive drop in the stock’s valuation since February, the results are encouraging for investors who had been concerned about the company’s future, Bernstein analyst Alexia Howard said,” Reuters’ Aishwarya Venugopal and Richa Naidu write.
“Kraft Heinz’s earnings beat comes after a rough year that saw it slash dividends and scrap its full-year forecast after taking two major writedowns -- one in February of $15.4 billion and another in August of $1.22 billion. The company’s procurement practices are also under investigation by the U.S. Securities and Exchange Commission.
“We are making good progress in identifying and addressing the root causes of past performance, as well as setting our strategic direction. Although there is still much work ahead, we’re encouraged by our improving performance, and are even more confident in our ability to turn around the company and set a path of long-term growth and profitability,” Patricio says at the top of the news release announce the results.
How’s that for marketing speak?