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Why Kraft Heinz’s Top Line Is Expected to Decline in 2019

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Factors hurting KHC’s sales

Kraft Heinz (KHC) didn’t impress investors with its sales performance in 2018. Kraft Heinz’s top line did improve in 2018. However, the rate of growth was a meager 0.7% on a YoY basis. Meanwhile, fourth-quarter sales fell short of analysts’ estimate, which didn’t sit well with investors. Pricing pressure amid tough comparisons, promotional spending, and adverse currency rates remained a drag. However, volumes improved driven by expanded distribution and in-store activity.

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In comparison, peers reported better net sales growth in the recent past. General Mills (GIS), J.M. Smucker (SJM), Conagra Brands (CAG), Hershey (HSY), and Kellogg (K) reported healthy improvement in net sales, driven primarily by their recent acquisitions. However, the base business of these packaged food companies continues to face challenges as private label products are gaining shelf space. Moreover, the consumer shift towards fresh and healthy food further remains a drag.

Outlook

Analysts expect Kraft Heinz to post YoY declines in its top line in the coming quarters. Analysts expect Kraft Heinz’s top line to decline by 2.9%, 1.3%, 1.6%, and 1.0% in the first, second, third, and fourth quarters, respectively.

Kraft Heinz’s management expects organic sales to improve in 2019, reflecting higher pricing. However, price restructuring initiatives could adversely impact volumes, especially amid heightened competition. As for the first quarter, lower pricing, currency volatility, and a shift in sales-driving events are likely to drag down sales.

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