Kraft Heinz misses sales expectations as demand for bacon, cheese falls

  • Kraft Heinz misses sales expectations as demand for bacon, cheese falls

Kraft Heinz misses sales expectations as demand for bacon, cheese falls

In a note issued after Kraft Heinz posted its Q4 results, Bernstein noted that volume declines in the USA - by far the firm's largest market - were seen in cheese, coffee, cold cuts and bacon as prices increased, although condiments and sauces and foodservice saw growth.

Kraft Heinz took a $453 million charge in the fourth quarter ended December 28 due to lower goodwill in businesses in Australia, New Zealand and Latin America.

On Friday, Fitch cut Kraft Heinz's credit rating to BBB- from BB+, downgrading its bonds to non-investment grade or "junk", Bloomberg reported.

"Knowing you have problems is the first step", CEO Miguel Patricio, who was brought in a year ago to revitalize the food company, said on a conference call.

At the end of October, Patricio said that the company was not successful in innovating over the past two to three years and planned to cut the number of projects in half this year. "2020 will be the first full year of what we expect will be a three stage turnaround", Patricio said on the call.

Kraft Heinz also plans to boost working media spending by 30 percent this year.

On Thursday, the maker of Heinz ketchup and Kraft macaroni and cheese revealed a 5% drop in fourth-quarter net sales and a 14% slump in adjusted earnings per share.

Bottles of H.J. Heinz Co.

Patricio didn't refer directly to those ads during the hour-long call with analysts, but he did mention nuts, saying the company needs to resolve service issues in two businesses: US nuts and foodservice.

Kraft Heinz also lowered the value of its Maxwell House brand by approximately $213 million.

Fourth-quarter sales in the USA, its biggest market, fell 2.7 percent to almost $4.7 billion. The company said this was prompted by higher costs for key raw materials - including dairy and meat - that forced Kraft Heinz to raise US prices by 3.1 percentage points. It sold less cheese, coffee, cold cuts, and bacon to USA retailers but sold more condiments and sauces.

Organic revenue: -2.2% vs. -1.33%.

2019 was a tumultuous year for the consumer staples giant.

"Overall it seems as though the path to "best in class" financial performance may be a long one from here", Bernstein analyst Alexia Howard wrote in a research note.

"I think it's appropriate to start today's update by recognizing that 2019 was a very hard year for Kraft Heinz, for our employees, our board and our stakeholders", Patricio said during the call, noting that in 2020 the company would redirect more dollars toward flagship brands, while reducing money spent on innovation and introducing new products.