Kraft Heinz pricing is predicated on retail relationships 2021-04-30

PITTSBURGH – Kraft Heinz Co. net income rose 49% for the first quarter ended March 27. For the remainder of the fiscal year, however, the company expects input costs to rise, which could lead to Kraft Heinz increasing the price of its products. The retail relationships strengthened during COVID-19 last year could prove valuable in price promotions.

Kraft Heinz posted net income of $ 563 million, or ¢ per share, on common stock for the quarter, compared to $ 378 million, or ¢, ¢ per share for the first quarter last year. Net sales of $ 6.39 billion for the quarter rose 3.9% from $ 6.16 billion. Organic sales growth was 2.5%.

“In February I announced that we would start with a dynamic for our brands and our business in 2021,” said Miguel Patricio, CEO, in prepared remarks by management on April 29th. “As it turns out, we are showing an even stronger dynamic than expected. Our team achieved solid growth in both the top and bottom areas in the first quarter, on top of the exceptional growth we saw in the first quarter of last year. “

Kraft Heinz’s share price on Nasdaq closed at $ 41.69 per share on April 29, an increase of 3.9% from a closing price of $ 40.12 per share on April 28.

Over the past year, COVID-19 has increased the demand for food to be eaten at home. Companies reducing the number of their storage units (SKUs) became a popular strategy for keeping store shelves full. By working with retailers, Kraft Heinz was able to reduce the number of SKUs by about 20% compared to 2019, said Carlos A. Abrams-Rivera, President of the US Zone.

“When it comes to our customers, I can tell you that we are now in a very different place than we were a year ago,” he said on a conference call on April 29th. “We have now been able to build trust with our key retailers. We work in a (partnership) that includes a level of transparency that we have not seen in the past. “

This year, commodity inflation is in the mid-single-digit percentage range, said Paulo Luiz Araujo Basilio, global chief financial officer. Kraft Heinz will have a low price of cheese in the second quarter of 2020 and a high price of pork bellies this year, he added.

“We see many levers for us to control inflation through revenue management and savings,” said Basilio.

Gross efficiency gains, which are on track for $ 400 million this year, will also help Kraft Heinz fight input inflation, Patricio said.

Internationally, consumer acceptance of price increases is better in emerging markets, said Rafael de Oliveira, President of Kraft Heinz International Business.

“In developed countries, I can tell you that we have already successfully completed negotiations with all of our major retail partners, especially in key countries like France and Germany, and managed to achieve the pricing and premiumization behind the brands that we needed”, he said.

Online sales remain a bright spot for Kraft Heinz. The company’s e-commerce household penetration increased approximately 15% as of February 28 compared to pre-COVID-19, which is roughly the average of 14 other leading packaged food companies.

“Kraft Heinz’s continued high-quality financial performance in the first quarter of 2021 was due to its focus on e-commerce,” said Ramsey Baghdadi, consumer analyst at Global Data, a London-based data and analytics company. “The company’s achievement of outperforming sales in pre-COVID-19 conditions was triggered by taking the risk of focusing on expanding its presence in the digital market through in-store price promotions. This reflects the company’s appreciation for the digital shopper who emerged from the home lifestyle during the pandemic, as well as the trust in e-commerce and the resulting long-term financial opportunities it brings for the packaged food sector can result. “

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