By Kraft Heinz, a leading packaged-food company, experienced a rare decline in net sales as consumers reduced their spending. In the fourth quarter, the company reported an adjusted profit per share of 78 cents, which was a decrease of 8.2% compared to the previous year. The result slightly exceeded analysts’ prediction of 77 cents.
Unfortunately, net sales dropped by 7.1% to $6.86 billion, falling short of the Wall Street consensus forecast of $7 billion. This decline marks the first time since the second quarter of 2022 that Kraft Heinz has experienced a decrease in net sales.
As a result of this news, the company’s stock fell by 2.7% to $35.15 in premarket trading on Wednesday.
In an earnings release, CEO Carlos Abrams-Rivera acknowledged that the industry faced challenges in the fourth quarter due to ongoing consumer pressure. However, he highlighted that some of these pressures are expected to subside as consumers move on from the impact of cuts to food stamp benefits.
Looking ahead, Kraft Heinz provided its adjusted profit prediction for 2024, estimating a range of $3.01 to $3.07 per share. This aligns with analysts’ consensus forecast of $3.04.
One factor contributing to the decline in sales has been higher prices, which have led consumers to purchase fewer items at grocery stores. In the fourth quarter, the company reported a 4.4% decrease in its “volume/mix” metric, which measures sales volumes and the product mix, compared to the previous year. Additionally, prices were raised by 3.7%.
Overall, Kraft Heinz acknowledges the challenges it faces due to consumer behavior and external factors but remains optimistic about the future.
The Sensitivity of the Staples Food Market to Price Hikes
The staples food market, which includes essential items like bread, condiments, and frozen food, is highly sensitive to price increases. Unlike other consumer goods, consumers do not have a strong preference for a particular brand in this market. Instead, they easily shift to products that offer better value. Additionally, grocery stores are introducing more private label products that are often cheaper, which further intensifies competition for branded packaged food.
Conagra Brands, a well-known company in the canned and packaged meals industry, experienced a 3% decline in sales volume during the latest quarter. Interestingly, this decline occurred despite prices remaining relatively unchanged compared to the previous year. Similarly, Campbell Soup and General Mills also saw a decrease in sales volume of 5% and 4%, respectively, compared to the same quarter last year. Strikingly, these drops in sales volume occurred even though prices for their products had only increased by 3%.
It is worth noting that these companies have been consistently raising their prices over the past year. However, consumers have been gravitating towards the cheaper items offered by these companies, resulting in a decrease in the average price of their products sold and overall sales value.
Contrastingly, companies that sell snacks and beverages have reported more positive results. Mondelez International, the maker of Oreo cookies, the chocolate company Hershey’s, and most recently, Coca-Cola, have experienced relatively strong consumer demand for their products regardless of price increases.
Coca-Cola, for example, recently posted robust sales growth in the fourth quarter. Despite passing on most of its rising costs to consumers, the company did not suffer a significant loss of business. In North America, sales volume only dropped by 1% compared to a year ago, even though prices have increased by 8%.
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