The Kraft Heinz Company 1Q24: Consumers Are Looking Up

May 29, 2024 | Corporate Insights, No Bull Economics

While Kraft Heinz reported a notable uptick in consumer sentiment during the quarter, there remains a wide gap between high & low earners. Lower-income consumers are challenged with high interest rates & gas prices as their savings dwindle. There is a clear pullback of spending by these lower-earning households in restaurants & convenience stores as they seek more affordable food at home options. In any case, management feels very good about Away from Home as it believes trends there will eventually improve.

Big Picture

  • Last year’s SNAP benefit reduction is pressuring its current U.S. Retail sales in the range of a few hundred bps.
  • Domestic Away from Home should remain pressured during 2H24 but is expected to gradually improve.
  • Meaningful growth in travel, hospitality & entertainment spend is driven by a bounce back among higher earners. This growth is taking some share from restaurants.
  • The Mac & Cheese category was disproportionately impacted by SNAP reductions. To address this, Kraft plans a plethora of new innovations ranging from gluten-free options to new flavors.

Revenue Trends

  • 1Q24 net sales decreased -1.2% y/y (+2.7% price/-3.2% volume/mix) & organic net sales decreased -0.5%.
  • Management reported that it is on track to meet its goals of generating $2B in incremental net sales from innovation. Expanded consumer choices include: more multipack value options; plant-based options such as its newly released NotCo Mac & Cheese; and expanded choices for its iconic brands such as Zero Sugar Heinz Ketchup.

Margin Trends

  • While Kraft reported +3% y/y inflation during 2023, it only passed along +1% pricing to consumers.
  • Going forward inflation is expected to be in the low single-digit range.
  • 1Q24 adjusted operating income increased +1.7% y/y, primarily driven by higher pricing.

FY24 Outlook

  • Organic net sales growth of flat to +2% y/y, driven by price with 2H24 volumes inflecting positive.
  • Adjusted operating income is expected to increase +2% to +4% y/y, reflecting expectations for a +0.5% to +1% increase in its adjusted gross profit margin.

Kraft 1Q24 Financials

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