Kraft Heinz retains annual profit target; demand woes drag sales

By Savyata Mishra

(Reuters) -Kraft Heinz slashed its organic sales forecast for 2024 on Wednesday, signaling subdued demand for its branded snacks and Lunchables meal kits, but its shares rose about 4% in early trading as the Jell-O maker maintained its profit expectations.

Packaged food companies such as Kraft Heinz and Mondelez are facing consumer pushback after double-digit price hikes over the past year dampened appetite in the key markets of North America and Europe, particularly for lower-income groups.

However, Kraft Heinz has ramped up promotions and product innovation, mirroring moves by bigger rivals PepsiCo and Coca-Cola which are offering different price tiers to attract value-seeking consumers.

"With consumer... propensity to trade down high, we are also increasing selective investments in trade above our original expectations," CEO Carlos Abrams-Rivera said.

Sales recovery is expected to be "more gradual" in the back half of the year, the company said.

"KHC results played out similar to what we'd expect to hear from others, which is building productivity... and modest inflation being used to lean into greater promotional and trade spend, to try to drive a better volume outcome," Barclays analyst Andrew Lazar said.

Adjusted gross profit margin rose 210 basis points, to 35.5% in the second quarter, owing to savings made from Kraft Heinz's investments in supply-chain and automation efforts.

That helped it beat estimates for adjusted profit and it logged earnings of 78 cents per share, above analysts' estimate of 74 cents.

Overall volumes fell 3.4 percentage points in the quarter, while prices rose 1.0 percentage point across its portfolio.

Kraft Heinz posted net sales of $6.48 billion, missing estimates of $6.55 billion.

Its fiscal year 2024 organic net sales is now projected to be flat-to-down 2%, from its prior forecast of flat-to-2% growth. The company maintained an adjusted profit growth forecast in the 1% to 3% range.

(Reporting by Savyata Mishra in Bengaluru; Editing by Pooja Desai)