Kraft Heinz, Kellogg Latest Food Makers to See Sales Drop

By Annie Gasparro Features Dow Jones Newswires

Kraft Heinz Co and Kellogg Co. joined the litany of food makers plagued by lackluster U.S. sales in the second quarter.

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Kraft Heinz, which makes Jell-O pudding and Velveeta cheese, said Thursday that its second-quarter revenue fell 1.7% to $6.68 billion globally. U.S. sales fell 1.2%. Kellogg, maker of Frosted Flakes and Pringles, said its quarterly sales fell 2.5% to $3.19 billion, including a 2% drop in North America.

Other food titans, such as Mondelez International Inc. and Pinnacle Foods Inc., also reported domestic revenue declines recently, extending a rough start to the year for food makers.

"Clearly not everything went our way in the first half," said Kraft Heinz's Chief Executive Bernardo Hees. He pointed out that the sales decline wasn't as deep as the first quarter and said he expected that trend to continue.

Like their rivals, Kraft Heinz and Kellogg have struggled with a shift toward fresher, more natural food. Kraft Heinz was formed two years ago in a merger of its two namesake companies looking to cut costs in light of lower packaged food sales, particularly for some many legacy brands that have fallen out of favor.

The trend has sparked more consolidation -- Kraft Heinz sought to buy Unilever PLC earlier this year, and Mondelez made a bid to acquire Hershey Co. last year -- and executive shake ups. General Mills, Hershey and Mondelez have named new chiefs in the past nine months.

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Kraft Heinz has led the cost-cutting drive. It is run by executives from Brazilian firm 3G Capital Partners LP, known for their ability to strip costs out of slow-growth businesses.

Kraft Heinz said its merger had saved $1.45 billion from the prior companies' annual budgets as of the end of the quarter. Its operating profit margin rose to 29% of sales, from 24% the prior year.

Mr. Hees said he is working to boost sales by removing artificial ingredients from old-line brands like macaroni-and-cheese, improving the quality of Oscar Mayer hot dogs, and creating a new food brand with Oprah Winfrey. The majority of Kraft Heinz's challenges are in the performance of its cheeses, cold-cuts and salad dressing brand, he said.

Kellogg is also renovating its brands to promote simpler, more natural ingredients. Its comparable sales fell 3.8% in the quarter, but Kellogg noted growth in some foods, like frozen Eggo waffles, which no longer contain artificial colors.

"U.S. consumption remained soft. This was industry-wide," Chief Executive John Bryant said. Staying "on or ahead of changing consumer trends is critical."

Kellogg's comparable operating profit rose 6%, thanks to its cost-cutting efforts, and shares rose 4% Thursday.

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

(END) Dow Jones Newswires

August 03, 2017 18:33 ET (22:33 GMT)