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Introduction & Market Context
Kraft Heinz Co (NASDAQ:KHC) presented its Q1 2024 Business Update on May 1, 2024, highlighting sequential volume improvement and strategic reinvestments despite facing a challenging consumer environment. The food giant reported results largely in line with expectations while maintaining its full-year guidance, as it continues to navigate inflationary pressures and changing consumer behaviors.
CEO Carlos Abrams-Rivera emphasized the company’s progress across its three strategic growth pillars, noting that Q1 consolidated results met expectations while demonstrating continued sequential volume recovery. The presentation revealed Kraft Heinz’s focus on unlocking efficiencies to expand margins and fuel reinvestments in innovation, brand superiority, and productivity.
Quarterly Performance Highlights
Kraft Heinz reported Q1 2024 organic net sales of $6,410 million, representing a slight decline of 0.5% compared to the prior year, which was marginally better than the 0.7% decline in Q4 2023. The company achieved an adjusted gross profit margin of 34.5%, expanding 170 basis points year-over-year, while adjusted operating income grew 1.7% to $1,265 million. Adjusted earnings per share increased 1.5% to $0.69.
As shown in the following financial results chart, the company’s performance was in line with expectations, particularly regarding sequential volume improvement and margin expansion:
A key positive indicator was the continued sequential improvement in volume/mix performance, which has been steadily recovering over the past five quarters. Volume/mix was -3.2 percentage points in Q1 2024, showing a 120 basis point improvement from -4.4 percentage points in Q4 2023. This recovery trend is attributed to supply improvements, increased marketing, joint business plan execution, and innovation ramp-up.
As illustrated in this volume trend chart:
Strategic Initiatives
Kraft Heinz’s strategy revolves around three strategic pillars that showed varying degrees of growth in Q1 2024. North American Retail ACCELERATE Platforms grew 0.5%, Global Away From Home increased 0.1%, and Emerging Markets demonstrated robust growth of 5.5%. The company is focusing its resources on these pillars to drive sustainable growth.
The following chart breaks down the performance across these strategic pillars:
The company has implemented a clear portfolio strategy, categorizing its brands into three roles: ACCELERATE (growth drivers), PROTECT (stable businesses), and BALANCE (cash generators). This approach allows for targeted investment and resource allocation based on each category’s strategic importance and growth potential.
As shown in this portfolio strategy visualization:
Kraft Heinz is making significant progress in its innovation agenda, targeting $2 billion in net sales from innovation. The company is developing technology-driven platforms like 360CRISP and HEINZ REMIX, evolving core offerings with products like Heinz Tomatoes and limited-edition Heinz flavors, and expanding strategic partnerships with companies like NotCo and Taco Bell.
The innovation strategy is illustrated in the following image:
Financial Analysis
A standout aspect of Kraft Heinz’s Q1 performance was its efficiency generation, which enabled significant margin expansion and reinvestment in growth initiatives. The adjusted gross profit margin increased from 32.8% in Q1 2023 to 34.5% in Q1 2024, representing a 170 basis point improvement.
These efficiency gains allowed the company to increase spending across key areas, with SG&A up $71 million (+8%), CapEx up $28 million (+10%), marketing up 13%, R&D up 25%, and technology up 20% compared to the prior year.
The following chart demonstrates how efficiency generation is enabling reinvestment:
Kraft Heinz is also showing improvement in market share performance across all segments. In North America Retail, the company reduced its share loss from -0.4 percentage points in 2023 to -0.3 percentage points in Q1 2024. U.S. Away from Home maintained its 0.4 percentage point share gain, while International Developed Retail improved from -1.2 percentage points to -0.7 percentage points. Emerging Markets Retail showed the strongest performance, increasing from a 0.3 percentage point share gain in 2023 to a 0.9 percentage point gain in Q1 2024.
This market share improvement is visualized in the following chart:
Forward-Looking Statements
Kraft Heinz reaffirmed its full-year 2024 outlook, projecting organic net sales growth of 0-2%, adjusted operating income growth of 2-4%, and adjusted EPS growth of 1-3%. The company expects continued improvement in North America Retail and Emerging Markets in Q2 2024, with a slight decline in Global Away From Home.
For the second half of 2024, North America Retail is expected to benefit from fully lapping SNAP reduction and ramping up innovation and renovation initiatives, while Emerging Markets are projected to perform in line with the company’s long-term algorithm.
As shown in the following guidance chart:
The company acknowledged several short-term challenges, including a pressured global consumer, moderating but persistent inflation, volume headwinds from SNAP reduction, industry softness in Away From Home, and increased pressure on supply chains. Despite these challenges, management believes Kraft Heinz is well-positioned with its leading iconic brands, agile organization, disruptive innovation engine, superior marketing, and enhanced organizational structure.
Looking ahead, Kraft Heinz will continue its disciplined approach to pricing and promotions, with the majority of price increases already implemented in North America and Developed Markets, while additional pricing is still needed in Emerging Markets to offset inflation. The company is leveraging digital tools to generate high ROI on promotions and sees opportunities to improve lift and profitability in this area.
Full presentation:
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