Kraft Heinz (KHC) benefits as pandemic-inspired food consumption patterns stick

Shares of Kraft Heinz Co. (NASDAQ: KHC) were down 5% on Wednesday despite the company beating expectations on revenue and earnings for the second quarter of 2021. Both net sales and adjusted EPS declined versus the previous year but managed to exceed projections. The company’s cost pressures increased from last quarter but it believes it can manage the inflation level going forward.

Quarterly performance

Net sales dipped 0.5% to $6.6 billion in Q2 compared to the year-ago quarter, impacted mainly by the divestiture of the nuts business. Organic sales fell 2.1% compared to the prior-year quarter. Reported net sales increased 3.2% compared to Q2 2019. Adjusted EPS dropped 2.5% to $0.78 versus Q2 2020, mainly due to lower adjusted EBITDA.

Trends

Kraft Heinz is seeing several food consumption patterns that developed during the pandemic continue despite the easing of restrictions. The company’s retail channel continued to see momentum as people cooked and ate more meals at home and several of its brands continued to attract new buyers and drive repeat rates.

The company’s share in the retail business increased to 58% during Q2 from 41% in Q1. Its household penetration rate increased by around 2 million during the quarter compared to the same period in 2019 and repeat rates were up 8 percentage points. Spending per buyer and per trip increased by around 10% and 3% respectively.

Kraft Heinz is focusing on platform-based, omnichannel programs that bring together several of its brands to serve the various food consumption needs of consumers. For eg. the company brought together its sauces, burger buns, patties, cheese and fresh produce into single sets to help consumers make their own artisanal burgers. It also brought together six of its brands to create an omnichannel breakfast experience for its customers. Kraft activated this with 30 retailers and across ecommerce and in a month, the program yielded $8 million of incremental net sales.

Kraft’s organic net sales in the US increased 5.4% in Q2 compared to the same period in 2019 while in Canada, it was down 1.7%. In international markets, organic net sales rose 6.1% versus 2019 driven by high consumer demand.

Outlook

For the third quarter of 2021, Kraft Heinz expects a mid-single digit percentage increase in organic net sales and a low-single digit percentage decline in constant currency adjusted EBITDA versus the third quarter of 2019. The company anticipates a low-single digit percentage decline in organic net sales and a low-teens percentage decline in constant currency adjusted EBITDA versus Q3 2020. For the full year of 2021, Kraft Heinz expects adjusted EBITDA to exceed the $6.1 billion reported in 2019.

Click here to read the full transcript of Kraft Heinz’s Q2 2021 earnings conference call