Kraft Heinz is expecting a positive turnaround in volume and pricing in 2024, following a period of double-digit pricing losses in the first half.
After a 12.8% year-to-date price increase, CEO Miguel Patricio has confirmed that Kraft Heinz will no longer raise prices in an attempt to recover inflationary costs. Input pressures are expected to be in the low-to-mid-single digits for the latter half of the year, compared to mid-to-high single digits for the entire fiscal year of 2023.
Patricio highlighted that Kraft Heinz has outperformed its competitors in terms of pricing initiatives and promotional activity investments. As expanded gross margins approach levels seen in 2021, the company will now shift its focus towards investment.
Although Kraft Heinz experienced a loss of market share in the second quarter due to pricing above the market, Patricio emphasized that the pricing adjustments are complete. Furthermore, the company is not losing incremental share to private label brands. However, he acknowledged a loss of incremental share to brands that invest more in promotions. To protect profit dollars in certain categories, Kraft Heinz is employing a disciplined and surgical approach while generating margin gains through unlocking efficiencies across the value chain.
To drive further growth, Kraft Heinz is increasing investments in marketing, R&D, and technology. Marketing spending rose by 23% in the second quarter, while R&D investment increased by 10%.
Pricing initiatives contributed to a 2.6% increase in second-quarter sales, reaching $6.7bn. Year to date, sales have increased by 4.9% in reported terms and 6.6% in organic terms, amounting to $13.2bn. Adjusted EBITDA for the year-to-date period rose by 8% to $3.1bn, while operating profit increased by 58% to $2.6bn. Net income climbed by 75% to $1.8bn.
Kraft Heinz Margin Boost
Kraft Heinz experienced a decline in volumes, with a 7% drop in the second quarter and a 6.2% drop over the first half of the year. However, the adjusted gross profit margin rose by 180 basis points to 33.3% in the second quarter, and by 160 points to 33.1% for the first half.
CFO Andre Maciel provided insight into the trajectory of gross margins, anticipating a year-over-year expansion of 150 to 200 basis points in 2023. Gross margin levels for the second half of the year are expected to be similar to those seen in the first half, as inflation eases and promotions increase. In general, Q4 margins are typically higher than Q3 due to seasonality.
While Kraft Heinz is losing market share to competitors with higher rates of promotional activity (35% compared to Kraft Heinz’s 29%), the company’s promotional activity returns are improving. The average ROI increased by approximately 15 percentage points compared to 2019 and by approximately five percentage points compared to the previous year.
Patricio emphasized the importance of protecting margins and fostering a virtuous cycle of improvement in marketing, services, and innovation. The goal is to maintain rationality in the effectiveness of promotions while focusing on revenue management.
