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Kraft Heinz Draws Customers Back to Familiar Brands -- Update

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10/29/2020 | 12:58pm EDT

By Annie Gasparro

Kraft Heinz Co. said higher grocery demand during the coronavirus pandemic is setting the food maker up to exceed sales expectations for next year.

Chief Executive Miguel Patricio said Thursday that despite volatile demand and some production capacity constraints, Kraft Heinz adapted to meet higher demand and invested in advertising to make it stick.

"We are holding on to new households and consumers at a greater rate than before," he said on a call with investors.

Kraft Heinz's comparable sales rose 6.3% in its latest quarter, excluding the effects of currency fluctuations and divestitures. Its earnings topped analyst expectations, sending shares up 2%.

Kraft Heinz said that grocery sales accelerated in the second half of September as cases of Covid-19 rose in many parts of the country.

The company's U.S. President Carlos Abrams-Rivera said Kraft Heinz is meeting with dozens of retailers to help them prepare for the unprecedented pandemic holiday season as they rebuild inventory depleted in the first couple months of the pandemic.

Kraft Heinz said it has added factory capacity and adjusted some manufacturing lines to increase production of high-demand items by about 20%. The company also shifted marketing to focus on products that it has plenty of, Mr. Abrams-Rivera said. For instance, the company is promoting its boxed Kraft macaroni and cheese versus the single-serve microwavable cups that are in short supply.

Fellow food maker Kellogg Co., meanwhile, said Thursday that it has seen demand for its products at grocery stores decelerate in recent months from the levels of growth over the summer.

"The continuation of the deceleration is what we see, but you have to be agile just in case that changes," said Kellogg Chief Executive Steve Cahillane.

He said in an interview that other companies with more lunch-and-dinner-oriented foods relative to Kellogg's cereal and snacks saw sales surge a couple of weeks earlier than Kellogg at the beginning of the pandemic.

Kellogg's sales and profit were also higher than analysts expected and it raised its outlook for the year. Shares rose 0.7%.

Since the coronavirus pandemic began, big food brands have benefited from people staying at home more. Kraft Heinz said it has attracted younger consumers and drawn shoppers of all ages to its familiar food brands. However, some of its brands such as Oscar Mayer and Maxwell House lost market share despite strong sales growth.

Kraft Heinz said Thursday several of those big brands are regaining ground. Oscar Mayer cold cuts gained market share in the third quarter for the first time in a year and a half, the company said.

Mr. Patricio last month outlined for investors a plan to further cut costs and spend the savings largely on innovation and marketing for its most promising brands.

Kraft Heinz's namesake cheese wasn't among them. The company has agreed to sell a major chunk of its cheese business to French company Lactalis Group for $3.2 billion in a deal expected to close next year.

Like other big food companies, Kraft Heinz has increased its advertising spending to capitalize on the sales momentum generated by the pandemic.

Kellogg, which also makes Pringles chips, MorningStar Farms plant-based meats and more, is spending more on marketing after delaying some advertisements earlier in the year because of the pandemic.

"That will allow us to enter 2021 with lots of good momentum," Mr. Cahillane said.

Kellogg's net income rose to $348 million from $247 million the prior year. Its adjusted profit of 91 cents a share was ahead of expectations from analysts by 5 cents. Sales rose to $3.43 billion for the quarter from $3.37 billion for the third-quarter last year and were ahead of the $3.4 billion consensus estimate for the latest period.

Kraft Heinz's third-quarter profit fell to $597 million from $899 million a year earlier, primarily due to divestitures. Excluding certain one-time charges, its adjusted profit rose 1.4% to 70 cents a share. Its revenue rose 6% from the prior year to $6.44 billion. The results topped analysts' projections of $6.32 billion in sales and 62 cents a share in adjusted earnings.

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

(END) Dow Jones Newswires

10-29-20 1257ET


Stocks mentioned in the article
ChangeLast1st jan.
CHEESE FUTURES (CSC) - CMG (ELECTRONIC)/C1 0.00% 2.289 End-of-day quote.11.82%
KELLOGG COMPANY -0.65% 63.08 Delayed Quote.-8.79%
MORNINGSTAR, INC. 9.50% 195.75 Delayed Quote.29.37%
THE KRAFT HEINZ COMPANY 2.81% 30.04 Delayed Quote.-6.50%
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