Kraft Heinz Reports Pressure on Margins Due to Inflation, Stocks Fall

Aug 4 (Reuters) – Kraft Heinz Co (KHC.O) on Wednesday warned of pressure on margins from rising ingredient prices, causing shares to fall 4%, even as the food maker packaged forecasted baseline annual profits at the highest pre-pandemic level.

Businesses across industries have been in the throes of a double whammy: rising raw material costs and rising shipping spending aimed at alleviating pressure on their supply chains due to the COVID pandemic -19.

To add to the woes of packaged food manufacturers, analysts said they would be forced to offer higher discounts and spend more on marketing to keep sales levels high.

Kraft, however, announced price increases across its portfolio to offset the impact of higher spending, while noting that inflation was “manageable.”

The company predicted that annual inflation would be above the midpoint of a single-digit mid-range range compared to the previous estimate that it was at the lower end of the range.

A bottle of Heinz Ketchup sits between a box of Kraft Macaroni and Cheese and a bottle of Kraft Original BBQ Sauce on a grocery shelf in New York City, March 25, 2015. REUTERS / Brendan McDermid

Kraft also warned that it was too early to assess how demand would stabilize between home and out-of-home channels amid pandemic uncertainty that has forced businesses across industries to report concerns about supply chain and on-demand.

Jell-O maker predicts annual adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), including impact of cheese and nut business disposals, to be higher than $ 6.1 billion recorded in 2019.

Ken Goldman of JP Morgan wrote “it is potentially falling short of consensus.”

Kraft, known for brands like Philadelphia Cream Cheese and Heinz Ketchup, topped estimates for the reported quarter after demand for packaged snacks and meals remained strong even as people started to venture out after the easing of restrictions on coronaviruses.

Net sales reached $ 6.62 billion in the second quarter, beating estimates of $ 6.55 billion. Adjusted earnings of 78 cents per share was also higher than Refinitiv IBES ‘estimate of 72 cents.

Reporting by Mehr Bedi and Praveen Paramasivam in Bengaluru; edited by Vinay Dwivedi

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