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“‘[W]hile we did lose share in the quarter, as price gaps have stayed wider for longer than we would have liked, we are managing the business for the long term and still generated mid-single-digit top-line growth within the range of what we expected.’”
Consumer food and beverage giant Kraft Heinz Co. has lost customers because it raised prices by more than its competitors, but it’s not planning to cut prices to try to get those customers back anytime soon.
On Wednesday, Kraft Heinz
KHC,
reported second-quarter sales that rose 2.6% from a year ago to $6.72 billion, which was below Wall Street expectations of $6.8 billion. It also reported adjusted profit that rose 12.9% to beat forecasts.
Sales rose, even though volume and mix fell by 7 percentage points as prices increased by 11 percentage points. And profit beat expectations as gross margins, or gross profit as a percentage of sales, improved to 33.6% from 30.3%.
The stock closed Wednesday up 1.2% at $36.32 to reverse an early intraday loss of as much as 1.5%. It outperformed its peers and the broader stock market, as the Consumer Staples Select Sector SPDR exchange-traded fund
XLP
gained 0.4% and the Dow Jones Industrial Average
DJIA
dropped 348 points, or 1%.
The company, with iconic brands such as Kraft Mac and Cheese, Heinz Ketchup, Jell-O and Lunchables, indicated on the post-earnings conference call with analysts that rather than increasing discounting, or just cutting prices, it will remain focused on protecting margins, which has been allowing it to accelerate investment in the business, particularly in marketing, research and development and technology.
Besides, as Chief Financial Officer Andre Maciel said, the gaps between Kraft’s prices and those of competitors are not getting worse. “If anything, they are slightly getting better,” Maciel said, according to an AlphaSense transcript.
Considering the market-share losses and with inflation coming down, “do you think you took too much price, given you said you took price ahead of competitors, and they have not followed?” UBS analyst Cody Ross asked on the conference call.
CEO Miguel Patricio’s answer was simple: “No.”
“I mean, we had very high inflation. And we are leaders in the vast majority of categories where we play. And it’s our role as leader to try to compensate … this inflation with price increases,” Patricio said. “So I would do everything again. I mean we can always go back on price if we think we have to or when we have to. But we had to lead price increases.”
