Kraft Heinz forecasts slower annual sales growth on tepid demand

By Savyata Mishra and Anuja Bharat Mistry

(Reuters) -Kraft Heinz forecast its annual core sales to grow at a slower pace, after posting a steeper-than-expected drop in quarterly sales, a sign that demand for its sauces and meat cold cuts would remain muted as customers digest past price hikes.

Shares of the company, known for its Kool-Aid drink mix, were down 5% on Wednesday, with several analysts calling the earnings report "underwhelming".

Kraft Heinz has witnessed weakening sales over the past year, hit by a volume decline in its North America meat business, as well as a shift in preference to cheaper private-label brands by cash-strapped customers.

"The industry was more challenging than we had originally anticipated," CEO Carlos Abrams-Rivera said.

Packaged food peers Mondelez, McCormick, Hershey and PepsiCo have all flagged softer volume growth in their latest quarterly results.

The Jell-O maker saw quarterly volumes dip 4.4 percentage points in the fourth quarter, stemming from a struggling meat business, while prices were up 3.7 percentage points.

"The decline in volumes is a sign that a significant share of consumers are no longer willing to pay for name brands when there are high-quality, lower-priced options available," said Insider Intelligence analyst Zak Stambor.

Yet, Kraft Heinz CFO Andre Maciel said volumes would turn positive in the second half of the year.

The company forecast organic net sales between flat to 2% growth in fiscal 2024. It posted organic net sales growth of 3.4% in 2023.

It expects adjusted gross profit margin to expand in the range of 25 to 75 basis points in fiscal 2024, owing to a ramp up in marketing and promotions, compared with a 240-basis-point increase reported in 2023.

Kraft Heinz's net sales were $6.86 billion in the three months ended Dec. 30, compared with analysts' average estimate of $6.99 billion, according to LSEG data.

(Reporting by Savyata Mishra and Anuja Bharat Mistry in Bengaluru; Editing by Shilpi Majumdar)

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