Kraft Heinz's prices rose at the lowest rate in five years

By Tomi Kilgore

Stock jumped after profit beat expectations, while sales fell just shy as volume continued to decline

Shares of Kraft Heinz Co. charged higher Wednesday, after the food and beverage brands company beat profit expectations again, even as sales missed due to a continued "cautious" consumer.

Sales declined as volume and mix continued to fall, while prices rose by the lowest rate in five years. And Chief Financial Officer Andre Maciel said on the post-earnings call with analysts, according to an AlphaSense transcript, that about 30% to 40% of the company's products could see price promotions to close pricing gaps with competitors.

The stock (KHC) ran up 4.4% in morning trading, and was headed for the biggest one-day price gain since it rallied 5% on Feb. 22, 2022.

The stock has climbed 7.7% amid a six-day win streak, and has hiked up 10.9% since closing at an eight-month low of $31.86 on July 1.

Net income dropped to $102 million, or 8 cents a share, from $1 billion, or 81 cents a share, in the same period a year ago.

Excluding nonrecurring items, such as one-time impairment losses, adjusted earnings per share of 78 cents topped the FactSet consensus of 73 cents.

Sales declined 3.6% to $6.48 billion, below the FactSet consensus of $6.55 billion.

"Our second quarter net sales growth came in lower than originally anticipated, as consumer sentiment remains cautious," said Chief Executive Carlos Abrams-Rivera.

Volume and mix was down 3.4%, as weakness in North America and international developed markets offset strength in emerging markets. That marked the 10th straight quarter of volume/mix declines.

Abrams-Rivera said volumes continue to improve in the second half of the year. "We exited June in a much better way than we had for the whole quarter," he said.

Pricing increased 1%, the lowest growth rate since it rose 1% in the third-quarter of 2019. Prices rose in North America and emerging market, while international developed markets saw prices decline.

The increase compares with government data that showed the 12-month rate of inflation in consumer goods and services in June was 3%, the lowest levels in three years.

"I think in places where we are seeing that consumers are making choices as they are trying to manage the cash flow of the family, we also have to be aware that we have to provide consumers options at different price points so they can be part of their own basket size of the cash flow that they have available to them," Abrams-Rivera said.

For the full year, the company kept its guidance for adjusted EPS at $3.01 to $3.07 but lowered it outlook for organic sales growth, which excludes acquisitions, divestitures and foreign currency impacts, to negative 2% to flat from flat to up 2%.

The stock has lost 5.5% year to date, while Consumer Staples Select Sector SPDR ETF XLP has tacked on 8.2% and the S&P 500 has gained 15.9%.

-Tomi Kilgore

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07-31-24 1125ET

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