PITTSBURGH — Increasing inventory and improving service levels should help the Kraft Heinz Co. gain market share in various categories, said Miguel Patricio, chief executive officer.
Service levels have recovered in cream cheese where Kraft Heinz is gaining market share, he said in pre-recorded remarks released July 27 to cover second-quarter results. Production levels are improving for Lunchables, and an agreement with Simplot Food Group will boost production capacity and strengthen the Ore-Ida business.
“As a result of the great work our supply chain team has done, as well as what we are doing to more strongly connect with consumers, we expect to see market share results continue to rebound in the second half of the year,” Mr. Patricio said.
Mr. Patricio spoke more about the Ore-Ida brand and the Simplot agreement in a question-and-answer earnings call on July 27.
“In Ore-Ida, for example, we have the partnership with Simplot that is now starting, and that will unlock a lot of capacity later in the year, which will allow us to start to promote more this brand, which we haven't been able to do in a consistent manner for years,” he said.
Kraft Heinz in the quarter ended June 25 had net income attributable to common shareholders of $265 million, equal to 22¢ per share on the common stock, which compared with a loss of $27 million in the previous year’s second quarter. Kraft Heinz had lower tax expenses and lower interest expense in this year’s second quarter.
Adjusted EBITDA fell 11% to $1.5 billion. Higher pricing and efficiency gains were offset by higher commodity costs (primarily in dairy, packaging materials, soybean and vegetable oils, and meat) and supply chain costs.
Net sales slipped 0.9%to $6.55 billion from $6.62 billion. Negative impacts came from divestitures net of acquisitions at 9.3 percentage points and currency at 1.7 percentage points. Organic net sales increased 10%. A positive impact came from pricing at 12.4 percentage points. Kraft Heinz raised its fiscal-year organic net sales outlook to an increase in the high-single-digit percentages from a previous outlook in the mid-single-digit percentages.
In North America, net sales slipped 3.1% to $5.04 billion, but organic net sales increased by nearly 10% as pricing contributed about 13 percentage points. In International, net sales rose 7% to $1.52 billion while organic net sales increased 11%.
Mr. Patricio pointed to two recent international acquisitions: Companhia Hemmer Indústria e Comércio, a Brazilian company focused on condiments and sauces, and Assan Foods, a Turkish company focused on sauces.
“Hemmer has a very strong footprint in the south of Brazil while Kraft Heinz has a broader network with strong distribution in other areas of the country,” Mr. Patricio said in pre-recorded remarks. “As we bring the Hemmer brand on to the Heinz network, we expect to see significant expansion opportunities.
“And with Assan, we are already doing the same thing in a different way, leveraging Assan’s strong distribution network to grow the Heinz brand in Turkey. In fact, compared to the second quarter of last year, we have sold 59% more volume for the Heinz brand in Turkey.”
Foodservice in both North America and International is growing by over 20%, Mr. Patricio said.
“Today, this channel is approximately 13% of our overall sales, and we are continuing to invest aggressively in both sales and capacity to capture further white space,” he said in pre-recorded remarks. “As I have said before, foodservice is a strategic channel for us. First, it provides a platform for us to test innovation, quickly make adjustments and prepare for retail launch, as I described with Heinz Dip & Crunch last quarter, and second, it is a powerful vehicle to drive consumer trial for our brands, particularly in emerging markets where consumers may not be as familiar with them.”Over the first six months of the fiscal year, net income attributable to common shareholders was $1.04 billion, or 85¢ per share, up nearly double from $536 million, or 44¢ per share, in the same time of the previous year. Six-month net sales dipped 3.2% to $12.60 billion from $13.01 billion.