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MarketScreener Homepage  >  Equities  >  Nasdaq  >  The Kraft Heinz Company    KHC

THE KRAFT HEINZ COMPANY

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Kraft Heinz Plans Marketing Binge to Lift Sales -- 2nd Update

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02/13/2020 | 02:49pm EDT

By Annie Gasparro

Kraft Heinz Co. and other big food makers are ramping up advertising after years of cost cutting, recognizing a need to generate new enthusiasm for their condiments, candies and snacks.

Kraft Heinz, which reported lower fourth-quarter sales on Thursday, said additional spending was necessary to bolster its strongest products as shoppers drifted toward lower-price store brands and newer niche products.

"You need to nurture brands, take care of them, to keep them meaningful after 150 years," Chief Executive Miguel Patricio said in an interview.

Shares in Kraft Heinz fell 8% to $27.65 after the maker of Oscar Mayer meats and Jell-O desserts reported $6.54 billion in quarterly sales, short of analyst expectations and down 5.1% from a year earlier.

Other food makers are also boosting marketing after years focused on cost cuts that accelerated profits but crimped sales growth. Hershey Co., Kellogg Co., Unilever SA and Oreo-maker Mondelez International Inc. are all spending more on advertisements and in-store promotions.

"That's how we connect with consumers and keep our brands relevant," Hershey CEO Michele Buck said in an interview.

Hershey's advertising expenses in North America rose 5% in the fourth quarter. The chocolatier ran a commercial for its new Reese's Take 5 bar during this year's Super Bowl.

Kellogg also bought ads during the Super Bowl for Pringles and Pop-Tarts, snack brands the company is counting on to help make up for tepid cereal sales.

"That's the big leagues," Steve Cahillane, Kellogg's chief executive, said of paying a lofty price for the impact of a Super Bowl commercial. He said it is worth taking a temporary hit to profit if it fosters long-term sales potential. Broadcaster Fox Corp. charged as much as $5.6 million for 30 seconds of advertising time during this year's National Football League championship game.

Mondelez increased ad spending for the first time in five years in 2019, to $1.21 billion from $1.17 billion the year before, and it plans to spend more again this year.

Some companies say they are paying for new marketing with cuts elsewhere. Unilever, maker of Hellmann's mayonnaise and Breyers ice cream, increased marketing spending by roughly $75 million, last year. Chief Executive Alan Jope said the funds came from savings generated through zero-based budgeting, a method of aggressive cost-management popularized by 3G Capital, a Brazilian firm invested in Kraft Heinz and other consumer-goods companies.

At Kraft Heinz, 3G stripped out nearly $2 billion in annual spending after the 2015 merger of Kraft Foods and H.J. Heinz. But the company has fallen short of its sales goals. Now Mr. Patricio is investing again, leading to lower margins for key brands including Oscar Mayer deli meat and Philadelphia cream cheese.

Kraft Heinz on Thursday lowered the value of its Maxwell House brand by $213 million. The coffee has fared poorly amid the rise in high-end, trendy coffee and new flavors. Kraft Heinz also lost market share in cheese and cold cuts in the quarter, while condiment sales remained strong.

Mr. Patricio, who took over last June, said Kraft Heinz would continue to spend more on marketing for big brands that drive profitability. He didn't name those brands. Analysts expect Heinz condiments, Philadelphia cream cheese and Planters nuts to be among the brands drawing increased investments.

Last year, Kraft Heinz embarked on its first global ad campaign to mark Heinz's 150th anniversary. The company collaborated with singer Ed Sheeran -- who has a tattoo of the Heinz logo on his arm -- to sell a limited-edition ketchup dubbed "Edchup."

This year, Kraft Heinz is increasing spending on television ads and other consumer-oriented marketing by 30% while cutting less visible expenses like agency fees. Mr. Patricio said he aims to make the company's supply chain more efficient and reduce the complexity of its sprawling operations to fund new investments.

"We could put the savings on the bottom line, but that's not what we want to do. We want to invest in our brands," he said.

For the fourth quarter, Kraft Heinz posted a 2.2% drop in comparable sales globally, including a 2.7% decline in the U.S., its biggest market. The sales metric excludes the effect of currency fluctuations, mergers and divestitures.

Its profit for the period was $182 million, or 15 cents a share, compared with a loss of $12.57 billion the year earlier. Excluding certain items affecting comparability, its adjusted profit of 72 cents a share beat analyst estimates by four cents.

Micah Maidenberg

contributed to this article.

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

 

Stocks mentioned in the article
ChangeLast1st jan.
CHEESE FUTURES (CSC) - CMG (ELECTRONIC)/C1 0.00% 1.485 End-of-day quote.-27.45%
FEEDER CATTLE?FUTURES (GF) - CMG (ELECTRONIC)/C1 -0.23% 110.175 End-of-day quote.-25.51%
FOX CORPORATION 12.38% 25.06 Delayed Quote.-32.40%
KELLOGG COMPANY -0.11% 63.51 Delayed Quote.-8.17%
LIVE CATTLE (LE) - CMG (ELECTRONIC)/C1 0.00% 83.825 End-of-day quote.-32.78%
MAYER HOLDINGS LIMITED 3.92% 0.212 End-of-day quote.0.00%
MONDELEZ INTERNATIONAL, INC 2.44% 52.03 Delayed Quote.-5.54%
THE HERSHEY COMPANY 1.50% 141.86 Delayed Quote.-3.48%
THE KRAFT HEINZ COMPANY 2.33% 25.91 Delayed Quote.-19.36%
UNILEVER N.V. 3.30% 45.71 Delayed Quote.-10.77%
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Financials (USD)
Sales 2020 24 338 M
EBIT 2020 4 527 M
Net income 2020 2 718 M
Debt 2020 26 495 M
Yield 2020 6,38%
P/E ratio 2020 11,1x
P/E ratio 2021 10,7x
EV / Sales2020 2,33x
EV / Sales2021 2,29x
Capitalization 30 104 M
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Technical analysis trends THE KRAFT HEINZ COMPANY
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Income Statement Evolution
Consensus
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Mean consensus HOLD
Number of Analysts 21
Average target price 27,83  $
Last Close Price 24,64  $
Spread / Highest target 94,8%
Spread / Average Target 12,9%
Spread / Lowest Target -31,0%
EPS Revisions
Managers
NameTitle
Miguel Patricio Chief Executive Officer
Alexandre Behring da Costa Chairman
Flavio Torres Head-Global Operations
Paulo Basilio Global Chief Financial Officer
Gregory Edward Abel Independent Director
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MONDELEZ INTERNATIONAL, INC-5.54%71 762
DANONE-20.78%41 779
GENERAL MILLS, INC.7.73%31 986
THE HERSHEY COMPANY-3.48%27 792