Kraft Heinz has cut its 2025 outlook across a range of metrics to factor in the potential uplift on input-cost inflation from tariffs.
Consumer goods analysts wrote today (29 April) that the downgrades to the organic growth, adjusted operating income and adjusted EPS outlooks was not unexpected but the Lunchables snacks maker still delivered across-the-board negative results in the first quarter.
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The size of the cut in constant currency adjusted operating income was also quite hefty, to minus 5-10% compared to the guidance provided in February for a decline of 1-4%.
Organic sales are now expected to be down 1.5% to 3.5% versus the prior outlook for flat to down 2.5%. Adjusted EPS is anticipated to come in at $2.51 to $2.67, from $2.63 to $2.74 previously. EPS rose 2.7% to $3.06 in the 2024 fiscal year.
CEO Carlos Abrams-Rivera said today that Kraft Heinz is “closely monitoring the implications from market tensions” such as inflation and tariffs on consumers and has adjusted the outlook accordingly.
“Our revised outlook contemplates incremental costs from inflation, including the impact of tariffs and new regulations, as well as the impact on elasticities,” the CEO said in his prepared remarks.
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By GlobalDataThe Oscar Mayer brand owner is now building in an additional 150 to 200 basis points of input-cost inflation to the equation after anticipating about 3% at the start of the year. Elevated coffee prices were another factor on top of tariffs.
“Our lower expectations contemplate increased costs of doing business, including elevated inflation and tariffs,” CFO Andre Maciel told analysts on a follow-up call with respect to the cut in the operating income outlook.
“The wider range reflects a larger degree of uncertainty given the underlying volatility and unpredictability of macro-economic dynamics, as well as a changing policy landscape. It also provides us with the necessary flexibility to dial-in on investments as deemed appropriate.”
Maciel explained the adjustment in the organic sales guidance was “primarily driven by worsening consumer sentiment and changes in volume elasticity”.
Muted quarter
The consumer environment was reflected in the first-quarter results. In the three months to 29 March, group net sales dropped 6.4% on a reported basis and 4.7% in organic terms to just shy of $7bn.
In Kraft Heinz’s largest sales division of North America, sales dropped 7% and 6.5% in reported and organic terms, respectively to $4.49bn. Volume/mix declined 7.1% with pricing a positive 0.6%.
Similarly in the international business, sales were down 4.4% and 1.7% across those metrics at $817m, with volume/mix a negative 1.5% but with price decreases of 0.2% in the quarter.
Emerging markets were the standout performer in organic growth terms, with a positive 3.9% but with reported sales down 4.7%. Volume/mix fell 0.4% with a 4.3% upward contribution from pricing.
Gross margins were also under pressure, dropping 60 basis points on a reported basis and 10 points adjusted to 34.4%.
For the full year, Maciel said the adjusted gross margin is likely to be down 25 to 75 basis points from 2024, “driven by our gross efficiencies, tariff mitigation efforts, and additional pricing that are expected to be more than offset by inflation and incremental investments in price and product”.
Media spending will be stepped up in an effort to offset future price increases with the expectation that marketing as a percentage of sales will increase by at least 15% over 2024. Product innovation, reformulation and improving productivity will also be at play going forward, Maciel said.
“We are trying to do everything we possibly can to minimise the amount of price necessary,” he added.
Kraft Heinz will also continue to employ its so-called brand growth system introduced by CEO Abrams-Rivera.
“The brand growth system is our repeatable global model for understanding how we see opportunities within our brands, and how do we make sure we drive superiority on those brands through both products and packaging and making sure that every communication has the right brand resonance value equation and on the execution,” Abrams-Rivera explained.
“It’s not just what we are spending, but how we are spending too.”
The system will be expanded in 2025 to cover 40% of Kraft Heinz’ product sales, up from the pilot scheme of 10% in 2024 and initial expectations for this year of 30%.
“We are harnessing the power of our brand growth system. This framework is helping us pinpoint areas for growth acceleration, as well as inform smart investments and prioritize future initiatives,” he added.
“We have prioritised resources to drive improvement across four brands that are experiencing more significant top-line pressure – Lunchables, Capri Sun, Kraft Mac & Cheese, and Kraft Mayonnaise.”
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