Kraft Heinz Top Line Hit by Declining U.S. Sales -- Update

By Annie Gasparro Features Dow Jones Newswires

Kraft Heinz Co. added to the bleak outlook facing packaged-food makers, as sales of its longstanding brands fell more than expected in the first quarter.

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The maker of Oscar Mayer deli meat and Jell-O desserts on Wednesday said first-quarter sales fell 2.7% on a comparable basis. Sales in the U.S., where Kraft Heinz makes 70% its global revenue, slipped 3.5% to $4.55 billion.

"There is no doubt that U.S. consumption was softer than expected," Kraft Heinz Chief Executive Bernardo Hees said. The company said trends improved in March and April.

Like Mondelez International Inc., General Mills Inc. and others, Kraft Heinz has struggled with a shift toward fresh food, new brands and ready-made meals. The yearslong slump has accelerated as retailers press foodmakers to cut prices amid a steep fall in staple food prices.

Kraft Heinz was formed two years ago from a merger by two former rivals looking to fight the sales decline by cutting expenses. In February, Kraft Heinz made an unsolicited $143 billion officer to find more cost savings by acquiring Unilever PLC. The Anglo-Dutch conglomerate rebuffed the offer and Kraft Heinz walked away. Investors have speculated about what firms Kraft Heinz might target instead as it seeks to scale up.

Mr. Hees said Kraft Heinz didn't need to acquire a competitor to generate value for shareholders. Its stock has risen 13% over the past year, though it declined in after-hours trading Wednesday.

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Overall, Kraft Heinz's adjusted profit rose 15% to 84 cents a share, and revenue fell 3% to $6.4 billion. Both key metrics fell short of analyst expectations. But Kraft Heinz' operating profit margin rose to 24.4% from 23% a year earlier, topping most of its competitors.

Kraft Heinz is run by executives from Brazilian firm 3G Capital Partners LP, known for their cost-cutting acumen.

Mr. Hees said people have the wrong perception that cost-cutting comes at the expense of sales growth. "We are much more about getting efficiency to fuel and invest behind profitable growth," he said.

Mr. Hees said he expects comparable sales to return to growth this year as Kraft Heinz continues to remove excess ingredients such as artificial colors from its food, introduces new brands and expands globally.

The company recently introduced Philadelphia cream cheese snack-packs with bagel chips in the U.S.; sales of Planters nuts are rising in China. Outside of North America and Europe, Kraft Heinz's sales rose 8.1% on a comparable basis in the recent quarter.

Ezequiel Minaya contributed to this article.

Write to Annie Gasparro at annie.gasparro@wsj.com

(END) Dow Jones Newswires

May 03, 2017 18:25 ET (22:25 GMT)