Food giant Kraft guides to higher sales but profit growth lags

Food giant Kraft guides to higher sales but profit growth lags

  • Food giant Kraft guided Monday to "very strong" consumer demand.
  • Despite a better than expected revenue outlook, not all of the benefits will flow to the bottom line.
  • Management postponed its early May Investor Day presentation due to the coronavirus

The food industry and every worker involved deserve tremendous credit for ensuring the world is fed during this difficult time. So it should go without saying that food sales are up in the grocery channel, but a recent update from The Kraft Heinz Company (NYSE: KHC) shows higher sales won’t by default flow to the profit line.

‘Very strong consumer demand’

Kraft said in a Monday afternoon press release it is seeing “very strong” consumer demand for its food products in the grocery channel. This more than offsets the loss of sales across the Foodservice-related sector.

The global food giant said net sales for the first quarter are expected to grow around 3 percent while organic net sales are expected to be higher by around 6 percent. The difference is due to currency impacts and divestitures of business lines last year.

By comparison, management previously guided to a low single-digit rate of decline in organic net sales.

Despite a better than previously expected performance, management cautioned it doesn’t expect the full benefit to flow through to net income from continuing operations, Adjusted EBITDA, or EPS.

Long-term strategy details on hold

In conjunction with Kraft’s update, the company said its in-person Investor Day presentation scheduled for early May will be postponed due to the coronavirus. The company was expected to detail at the event a new long-term vision, top priorities, and a go-to-market structure.

2019 was a rough year for the food company as

Management is already putting its plan into place but investors will have to wait until social-distancing initiatives are eased and business travel will become accepted.

Kraft CEO Miguel Patricio commented in the press release it has shared some details with investors and external stakeholders.

“We have been developing a powerful new strategy, transforming our capabilities and making needed investments in the business for months,” the CEO said.

Kraft previously said in its fourth quarter and full-year 2019 results that 2020 will prove to be year one of a three-year turnaround period. The company noted at the time 2020 won’t be a “year of offense,” rather a “year of stabilization.”

Some of the more notable low-points for the company in 2019 was a delay of first quarter results due to an SEC investigation, a $15 billion write-off of its Kraft and Oscar Mayer brands, and a 3 percent dividend reduction.

But for the time being, management maintains a “single-minded focus” on making sure its products are able to reach stores in a timeline manner so it can make its way to consumers’ tables.

The company is scheduled to report first quarter results on April 30 before the market open. A

By Jayson Derrick
Jayson Derrick has been writing professionally about stocks since 2011. He is particularly interested in alternative investments, hedge funds, and activist investing. He is a big fan of NHL hockey and lives in Montreal, Canada with his wife and four year old daughter.

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