Kraft Heinz’s revenue declined for an eighth straight quarter amid weak demand in the U.S. for processed foods but profits got a boost from higher pricing.
The maker of such products as Velveeta cheese and Heinz ketchup has been raising prices in the U.S. and other parts of the world, driving overall pricing up by 1 percentage point in the first quarter. That, along with the U.S. tax cuts, drove net income up to $993 million, or 81 cents per share, from $893 million, or 73 cents per share, a year ago.
Excluding items, earnings were 89 cents per share, beating the average analyst estimate of 82 cents, according to Thomson Reuters I/B/E/S.
But Kraft Heinz’s net sales dropped 0.3% to $6.30 billion as weakening demand for processed foods in the United States more than offset growth in Canada, Europe, the Middle East and Africa. Sales missed expectations of $6.33 billion.
The company is “facing the prospect that has bedeviled many of the food industry’s oldest firms: how to grow sales when shoppers are eating more ready-made meals and and buying food advertised as natural, while spurning packaged food brands like Kraft Heinz’s Kool-Aid, Velveeta and Maxwell House,” the Omaha World-Herald said.
Kraft Heinz has been using old brands to roll out new products such as Kraft Mayochup. CEO Bernardo Hees said the company’s “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.”
But some analysts are skeptical. “We harbor serious doubts about the management team’s ability to generate sufficient product innovation to grow its collection of ‘retro’ brands in highly commoditized categories,” Credit Suisse analyst Robert Moskow said in an April report.
Kraft Heinz’s stock dropped 2.7% in trading Wednesday, bringing its losses to 42% since its failed takeover bid for Unilever last year.
“If another deal isn’t imminent, what’s the next phase of growth? They’re under pressure to deliver sales,” Edward Jones analyst Brittany Weissman told Reuters.