Kraft Heinz lowers its outlook: “The consumer environment… was worse than expected in the second quarter”

Carlos Abrams Rivera, the company’s CEO, told investors at yesterday’s earnings call that the consumer environment remains challenging and worse than expected. Slowing income growth and declining savings continue to hurt consumer confidence and push consumers to seek value. This dynamic is now expected to last longer. The result has been a delay in the recovery of growth across all industries.

He added that "we now expect a more gradual improvement in revenue from the second half." This led the company to reduce its full-year organic net sales expectations from a flat or 2 1TP3Q increase to an expected range of -2 1TP3Q to flat. It also reduced the initial guidance range of 2 to 4 1TP3Q to a range of -1 to 3 1TP3Q, as well as adjusted operating profit of 1 to 3 1TP3Q. The company reiterated that it expects adjusted earnings per share growth of 1 to 3 1TP3Q.

Andre Maciel, EVP, Global CFO, said he was optimistic about “an improvement in trends in the second half of the year.” Abrams Rivera echoed that sentiment, predicting that “the recovery will begin in the third quarter, although it could be slower.”

The company has a multi-pronged strategy that aims to increase sales by promoting innovation, marketing and campaigns aimed at educating consumers about the value of their brands and encouraging them to pay a little more than private labels.

Abrams Rivera said the company continues to grow its distribution through the dollar channel and “unlock efficiencies at a faster pace than inflation.” That helped it expand its adjusted gross margin by 210 points compared to the year-ago period.

Our innovation continues to resonate and deliver [consumers] everyday value

Abrams Rivera said a key part of Kraft Heinz's recovery plan is to increase marketing and innovation across its portfolio. This will help consumers understand how its products are different and competitive with private brands, while also helping to "maintain expected price differentials versus branded competitors."

He said, “We understand that consumers are looking for value right now, and our innovations continue to bring value to their everyday lives, whether it’s through our convenient, high-quality solutions like the 360CRISP platform or Taco Bell Cravings Kits that make it easy for Taco Bell fans to recreate their favorite dishes in their own kitchens.”

He also highlighted how the company is “evolving” its core offerings to “stay relevant to consumer trends,” including its recent launch of Pickle Ketchup, its Pure JL. The company’s “Globally Inspired Flavors” line of Kraft salad dressings, made with “simple ingredients,” and a surge in plant-based and dairy-free products, thanks to the partnership between NotCo, Crystal Light and Oscar Mayer, as well as its recent launch of Fluffy Dogs, are all examples of how it is “evolving” its core offerings “to stay relevant to consumer trends.”

Abrams Rivera, CEO of Abrams Rivera, said the company will launch new shapes, varieties and flavors of Mac & Cheese in the second half of the year. The Super Mario shapes are already available.

Transformers co-branded Lunchables will also launch, offering new combos just in time for back-to-school. Abrams Rivera said the brand will also expand into “snack spaces that consumers have never seen” before.

Innovation as a percentage of organic net sales increased 60 basis points last year to 2.4 1TP3Q.

Kraft Heinz's expansion across value channels is a "big" success.

The company is also expanding its product selection across channels that deliver value.

Abrams-Rivera said that, for example, the company launched Capri Sun Multi-Serve in club channels. It also “delivered higher entry-level pricing and offerings in Dollar channels, including doubling our Oscar Mayer SKUs at Dollar General” and even “doubled the number of stores at Dollar General.”

The company's sales at Dollar General increased $47.1 billion year-over-year on Oscar Mayer hot dogs, deli meats and Lunchables.

Business investment has increased and “efficiency has been unleashed”

Kraft Heinz, to support the launch of its new products and show consumers how valuable they are, is increasing promotional activities. It finances them through improved supply chain efficiency, which allows it to maintain price differences with competing brands.

Maciel said the volume of U.S. products sold during the second-half promotion period was up 2% from the same quarter last year, but remained below 2019 levels.

He said his company "does not use tactics that are detrimental to long-term profits," but instead works with retailers "to find solutions that work for both parties."

He added that the company is also focusing more on marketing, innovation and renovation to increase sales, and less on promotions.