Kraft Heinz's stock sinks as consumers push back more against rising prices

By Tomi Kilgore

Reduction of SNAP benefits, consumers reacting more to higher prices led to third straight quarterly sales miss

Shares of Kraft Heinz Co. took a hit Wednesday, after the food, condiment and beverage company topped fourth-quarter profit expectations but fell short on sales, as volume fell more than prices increased.

The company (KHC), with brands including Heinz ketchup, Kraft macaroni and cheese, Jell-O and Kool-Aid, said sales for the quarter to Dec. 30 declined 7.1% from a year ago to $6.86 billion, below the FactSet consensus of $6.99 billion, as North America sales fell 9.1% while international sales edged up 0.2%.

That marked the third straight quarter of sales misses, following a 13-quarter streak of beats.

Prices increased 3.7 percentage points, as list prices were raised to help mitigate the impact of inflation on input costs.

But volume and mix declined 4.4 percentage points, due to increased elasticity, or more consumer pushback to higher prices, and to the reduction in Supplemental Nutrition Assistance Program, or SNAP, benefits. (Read more about price elasticity.)

The stock sank 5.2% toward a three-month low in morning trading. That put it on track for the biggest one-day decline since it fell 6.3% on Jan. 18, 2023.

Net income declined to $757 million, or 61 cents a share, from $890 million, or 72 cents a share, last year. Excluding nonrecurring items, adjusted earnings per share of 78 cents topped the FactSet consensus of 77 cents.

The cost of goods sold fell 9.4%, or more than sales, to boost gross margin to 33.8% from 32.0%.

"In the fourth quarter, the industry faced headwinds that were driven by ongoing consumer pressure," said Chief Executive Carlos Abrams-Rivera. "Looking ahead, we expect some of these pressures to dissipate, particularly as the reduction in SNAP benefits is lapped."

Price is expected to provide a "positive contribution" to sales growth in 2024, while volume is expected to turn positive in the second half of the year.

The company expects adjusted EPS of $3.01 to $3.07, which surrounds the current FactSet consensus of $3.04.

The stock has gained 2.1% over the past three months, while the Consumer Staples Select Sector SPDR ETF XLP has tacked on 4% and the S&P 500 index has advanced 11%.

-Tomi Kilgore

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02-14-24 1037ET

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