Kraft Heinz focuses on margin improvement

Kraft Heinz focuses on margin improvement

Kraft Heinz reported an increase in pro-forma operating profit for 2015 as the enlarged group, created by the merger of Kraft and Heinz, focused on improving margins. 

The company revealed pro-forma operating profit, designed to reflect the merger, edged up to US$4.5bn from $4.3bn in 2014. Kraft said the result reflected "strong gains in profitability" from "improved operations and the ongoing integration of Kraft and Heinz".  

However, higher financial expenses meant that net profit at the Oscar Mayer maker was down, dropping to $1.8bn from $2.3bn last year. 

Pro-forma sales were also lower in the period, dropping from $29.12bn to $27.44bn, despite an extra selling week in the 2015 fiscal. Kraft Heinz attributed the decline to the negative impact of currency exchange and divestitures. 

Kraft Heinz CEO Bernardo Hees stressed that the company is focused on improving margins while also investing behind its brands. "The important integration work and financial results we delivered in 2015 set a solid base on which we can drive sustainable growth across our global business. We are working to implement proven management methodologies, remove inefficient spending and streamline our organisation, while investing in our brands and innovation to drive long-term profitable growth. We believe that all of this positions Kraft Heinz for a strong performance in 2016 and beyond." 

According to Raphael Moreau, a food analyst at Euromonitor International, Kraft Heinz "prioritises cost reduction over growth". Kraft Heinz generates around 65% of global food sales in North American markets, meaning it is less exposed to higher growth emerging markets than some of its peers. Nevertheless, Moreau suggested, Kraft Heinz's strategy "also needs to include initiatives to foster growth". 

"While strengthening health and convenience attributes in mature categories, it could seek to enter adjacent categories to be less reliant on low-growth mature environments. Herbs and spices recorded high growth among sauces, dressings and condiments categories and could complement Heinz's existing product assortment," Moreau commented.