PITTSBURGH — The Kraft Heinz Co. is done raising prices after losing market share in the second quarter ended July 1. Prices were up 11% from the previous year’s second quarter, which led to a 7% drop in volume/mix.
“Yes, we lost share in the second quarter, but this was a headwind we expected as we priced above the market,” said Miguel Patricio, chief executive officer, in prepared comments issued Aug. 2. “Here’s the good news: The pricing is done, and even with elevated price gaps, we aren’t losing incremental share to private label.”
Kraft Heinz in the quarter had net income of $1 billion, equal to 81¢ per share on the common stock, which was up from $265 million, or 22¢ per share, in the previous year’s second quarter. The increase was driven primarily by lapping non-cash impairment losses in the previous year’s second quarter, higher adjusted EBITDA in this year’s second quarter and unrealized gains on commodity hedges this year compared to unrealized losses on commodity hedges in the previous year.
Net sales of $6.72 billion were up 2.6% from $6.55 billion.
Kraft Heinz lost incremental share in the quarter to brands that promoted more than Kraft Heinz did, Mr. Patricio said. Kraft Heinz lost 50 basis points in the quarter, which was concentrated in cold cuts, cream cheese and kids’ single-serve beverages, the same categories where losses happened in the first quarter, he said.
“Meanwhile, we are taking a disciplined and surgical approach to protecting our profit dollars in certain categories,” Mr. Patricio said. “With this approach, and by continuing to unlock efficiencies across our value chain, we are generating margin gains. With these margin gains, and in line with our strategy to drive further growth, we are investing more in marketing, R&D and technology.”
Mr. Patricio said Kraft Heinz expected headwinds in the second quarter after pricing actions were taken in 75% of the company’s portfolio and the government reduced Supplemental Nutrition Assistance Program (SNAP) benefits.
“Throughout the third quarter, we expect the impact of our joint business plans to take effect across many categories,” Mr. Patricio said. “Finally, in the fourth quarter, the net sales impact of innovation is expected to ramp up meaningfully.
“Looking into specific categories, we are expecting improvement in Philadelphia Cream Cheese by the end of the third quarter. For kids’ single-serve beverages and cold cuts, we are expecting improvements in the fourth quarter.”
In North America in the second quarter, net sales increased 0.8% to $5.08 billion, but volume/mix was down 8%. Product launches should spur results in US retail, said Carlos A. Abrams-Rivera, executive vice president and president of North America, in an Aug. 2 earnings call with investors.
“First, you’re going to see us continue to launch more disruptive innovation platforms, and that includes things like our Not Co. line of plant-based offerings, the new crisp from the microwave, which delivers great taste and all the convenience and the restaurant to retail platform, and you see that already with things like the IHOP coffee line,” he said. “The second part of the innovation is also how do we take our existing brands into new spaces. Already, we introduced a new frozen Mac & Cheese.
“We are expanding our Delimex and Taobao into more spaces within Mexican meals, and as we speak, we’re also launching new Oscar Mayer Scramblers as we continue to expand on the breakfast platform.”
In International net sales rose 9% to $1.64 billion. Volume/mix decreased 3.3%.
“We continue to deliver double-digit growth in emerging markets,” Mr. Patricio said in the prepared comments. “In the second quarter, organic net sales grew 11%.”
Over the six months ended July 1, Kraft Heinz had net income of $1.84 billion, or $1.50 per share on the common stock, which was up 76% from $1.04 billion, or 85¢ per share, in the same time of the previous year. Six-month net sales were $13.21 billion, up 4.9% from $12.60 billion.
Kraft Heinz for the fiscal year continues to expect organic sales growth of 4% to 6% and adjusted EPS in a range of $2.83 to $2.91.