Kraft Heinz (NASDAQ:KHC), the iconic packaged foods giant, reported its first quarter 2024 financial results, showcasing resilience in the face of a dynamic macroeconomic landscape. The company's net sales for the quarter reached $6.41 billion, down 1.2% year-over-year, while its annual net income stood at $2.86 billion and annual revenue at $26.64 billion. Kraft Heinz's annual operating cash flow was $3.98 billion, and its annual free cash flow reached $2.96 billion.

Financials

In the first quarter of 2024, Kraft Heinz's net sales declined 1.2% to $6.41 billion, with Organic Net Sales decreasing 0.5% to $6.41 billion. This performance was driven by unfavorable volume/mix (3.2 percentage points), which more than offset higher pricing (2.7 percentage points). The company's North America segment saw a 1.2% decline in net sales, while International Developed Markets decreased 0.6% and Emerging Markets fell 2.1%.

Despite the top-line challenges, Kraft Heinz's operating income increased 4.7% to $1.30 billion in the first quarter, primarily due to higher pricing and the impact of realized and unrealized gains and losses on commodity hedges. However, these favorable factors were partially offset by unfavorable volume/mix, increased SG&A expenses, and higher employee compensation-related costs. The company's net income for the quarter was $804 million, down 3.9% year-over-year, due to unfavorable changes in other expense/income and higher tax expense.

Kraft Heinz's Segment Adjusted Operating Income, a key metric used by management to evaluate performance, increased 1.7% to $1.26 billion in the first quarter. This growth was driven by higher pricing, which more than offset unfavorable volume/mix, increased SG&A expenses, and the unfavorable impact of foreign currency.

The company's North America segment reported a 0.4% increase in Segment Adjusted Operating Income, primarily due to higher pricing that offset unfavorable volume/mix and increased fixed costs. International Developed Markets saw a 27.7% jump in Segment Adjusted Operating Income, driven by higher pricing, the lapping of prior-year business disruption, and favorable foreign currency impact. Emerging Markets, however, experienced an 18.4% decline in Segment Adjusted Operating Income, primarily due to higher SG&A expenses and the unfavorable impact of foreign currency.

Business Overview

Kraft Heinz's management team, led by CEO Carlos Abrams-Rivera, highlighted the ongoing bifurcation in consumer sentiment, with lower-income households facing challenges from high interest rates, elevated gas prices, and dwindling savings. This led to a pullback in restaurant and convenience store spending by these consumers, who instead sought more value-oriented options for meals at home.

In contrast, the company saw a meaningful growth in travel and hospitality sales, driven by the bounce-back among higher-earning consumers. Kraft Heinz positioned itself to serve the evolving needs of all consumers, whether they were looking for value-driven solutions for home-cooked meals or seeking culinary experiences during their travels.

To address the changing consumer landscape, Kraft Heinz focused on three key priorities: 1) bringing innovative food solutions to market faster than ever before, 2) renovating its core brands for today and tomorrow, and 3) leveraging its best-in-class team to execute on these initiatives. The company recently announced that it was named one of the world's Top 50 Most Innovative Companies by Fast Company, underscoring its commitment to innovation.

Within its product portfolio, Kraft Heinz's ACCELERATE platforms, which include brands like Kraft Mac & Cheese and its condiments business, continued to outperform, with flat dollar share and growing volume share. The company's PROTECT platforms, which include categories impacted by the decline in Supplemental Nutrition Assistance Program (SNAP) benefits, saw share losses, but Kraft Heinz worked to renovate these brands to better cater to evolving consumer preferences.

Kraft Heinz's Away From Home business faced some challenges, with the company reporting a slowdown in U.S. restaurant traffic. However, the company focused on expanding its presence in higher-margin channels, such as leisure, hospitality, and travel, where it saw better performance due to the recovery in higher-income consumer spending.

Outlook

Looking ahead, Kraft Heinz expected inflation to moderate through the remainder of 2024, though the company remained committed to providing affordable options for its consumers. The company's guidance for the full year 2024 called for mid-single-digit organic revenue growth and adjusted earnings per share in the range of $3.04 at the midpoint, beating analysts' estimates.

Conclusion

Kraft Heinz's strong brand portfolio, focus on innovation and renovation, and strategic initiatives to address the evolving consumer landscape positioned the company well to navigate the current macroeconomic environment. While the company faced some near-term headwinds, its long-term growth prospects remained promising as it continued to adapt to the changing needs of its diverse consumer base.