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Why Kraft Heinz’s Sales Missed the Estimate

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Sales missed the estimate

Kraft Heinz (KHC) reported lower-than-expected fourth-quarter sales. Kraft Heinz’s net sales of $6.89 billion increased 0.7% on a YoY (year-over-year) basis but fell short of analysts’ expectation of $6.94 billion.

Kraft Heinz’s volumes increased 4.0% due to broad-based growth across all of its business segments. However, lower pricing (-1.6%), especially in the United States and Canada, remained a drag. Currency volatility had a negative impact of 2.2% on the company’s net sales.

Other major food companies including Kellogg (K), General Mills (GIS), Hershey (HSY), Conagra Brands (CAG), and J.M. Smucker (SJM) have managed to accelerate their sales growth due to recent acquisitions. However, pricing pressure and more competitive activity limited the top-line growth rate.

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Sales by segments

Kraft Heinz’s net sales in the United States rose 1.1% to $4.81, which reflected improved volumes (+3.9%) in nuts, frozen potatoes, meat, cream cheese, and refrigerated meals. However, pricing remained low (-2.8%) due to lower prices in dairy and coffee. The company’s promotional activity also subdued the pricing.

The net sales in Canada increased 1.8% to $0.60 billion due to 7.7% volume growth. However, lower pricing (-1.7%) and negative currency rates (-4.2%) remained a drag.

The EMEA net sales decreased 1.1% to $0.69 billion, which reflected negative currency rates and the divestiture of a joint venture.

The net sales for the rest of the world decreased 0.8% to $0.79 billion, which reflected currency volatility. However, organic sales improved due to increased volumes and pricing.

Outlook

Kraft Heinz’s top line is expected to be steady in the first quarter of 2019. Currency volatility, lower pricing, and a calendar shift in sales driving events are expected to drag the sales down. However, management expects organic sales to improve in 2019 due to price restructuring and improved volumes.

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