On Wednesday, Kraft Heinz (NASDAQ: KHC) tempered its annual forecasts for organic sales and profit as repeated price hikes hurt demand for the packaged food giant’s branded products including Lunchables meal kits.
Shares of the Jell-O maker fell more than 3% in early trading, as it also posted a bigger-than-expected drop in revenue for the third quarter.
“Steep declines in a few brands are holding back overall results. Lunchables, in particular, has been the largest drag on sales, and Kraft Heinz may need to accelerate investments to turn this business around,” said CFRA Research analyst Arun Sundaram.
Company executives said the negative publicity surrounding Lunchables appears to be lingering longer. Earlier in April, a consumer watchdog group warned that the kid’s meal kit brand contained too much lead and sodium.
Earlier this month, Reuters reported Brazilian meatpacker JBS and Mexico’s Sigma Alimentos were among the bidders competing to acquire Oscar Mayer, which includes Lunchables.
Kraft Heinz (NASDAQ: KHC) expects a slower recovery for the brand due to an upstream supplier issue that led to a 15% quarterly decline in sell-outs, or sales to consumers at retailers.
Following price hikes over the last few years, Kraft Heinz has turned to promotions as value-seeking consumers cut back spending on packaged food items such as Capri Sun and Mac & Cheese.
Overall volumes at the company declined 3.4 percentage points, with prices rising by 1.2 percentage points in the quarter.
Customers have pivoted to cheaper, private-label alternatives, prompting packaged food makers like Kraft Heinz to reduce prices in the U.S. on some items such as sauces and mayonnaise.
The company forecast annual organic net sales to be at the low end of its earlier range of flat to down 2% from last year, while adjusted profit per share is now expected to be at the low end of its prior range of $3.01 to $3.07.
It earned 75 cents per share on an adjusted basis in the third quarter, beating analysts’ estimates of 74 cents, according to data compiled by LSEG.
Net sales fell 2.8% to $6.38 billion, compared with estimates of $6.42 billion.
(Source: Reuters)
