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Why Kraft Heinz’s US Segment Remained Sluggish in 1Q17

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Dec. 4 2020, Updated 10:51 a.m. ET

Kraft Heinz continues to struggle in the United States

The majority of packaged food manufacturers continue to struggle in the domestic market owing to a fall in consumption. Kraft Heinz’s (KHC) net sales fell 3.5% in the United States (SPY) as a 0.7% rise in prices was more than offset by a -4.2% fall in volume and mix.

Calendar shifts and distribution losses at select club channels negatively impacted consumer uptake in the Cheese, Meats, Foodservice, and Nuts segment. However, the uptick in Lunchables and innovation-driven frozen meals and macaroni and cheese partially offset the volume decline.

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In comparison, The Kellogg Company’s (K) sales in North America also fell in 1Q17, reflecting a fall in its US Morning Foods and Snacks segment. Meanwhile, Mondelēz International’s organic sales fell 1.9% in North America in 1Q17 due to a fall in its US Biscuit and Gum category, reflecting a fall in consumption. General Mills’ (GIS) North America Retail segment fell 7% during its fiscal 3Q17.

Canada remained a drag

Kraft’s net sales in Canada fell 12.2% despite its benefiting from favorable currency movements of 2.7%. KHC’s organic sales plunged 14.9% in the country on account of price falls of 1% and a 13.9% fall in volume and mix.

Lower in-store activity, increased promotions, and the withdrawal of low-margin, low-velocity products negatively impacted the region’s top line performance. Going forward, KHC’s management expects sequential improvements in the region’s sales, as most of the challenges cited above are likely to subside.

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FX impacted European business

Kraft Heinz’s net sales in Europe fell 6.8% YoY (year-over-year) as adverse currency movements of -6.6% and lower pricing of -0.6% more than offset the 0.4% rise in its volume and mix. Its organic sales fell 0.2% in the reported quarter.

Growth in sauces and condiments sales in the United Kingdom were offset by falls in consumption in the Netherlands and Italy. Moreover, increased promotional spending in the United Kingdom and Italy negatively impacted pricing in the region.

Rest of World

The company’s net sales in its Rest of World segment rose 7.5% during the quarter as its pricing rose 5.1% and its 3% rise in volume and mix more than offset currency headwinds.

The segment’s organic sales rose 8.1%, driven by the strong performance of condiments and sauces in Latin America, improvements in China, and increased shipments in Indonesia.

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