Q3 2024 Earnings Summary
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -3% | While pricing contributed positively, volume/mix declined due to consumers shifting to lower‐priced offerings, resulting in a net 3% drop in revenue. Additionally, currency headwinds and the lapping of strong prior-year promotions put downward pressure on sales. |
Taste Elevation Segment | +29% | The 29% YoY growth was driven by new product launches, targeted marketing, and deeper distribution gains, particularly in North America. Favorable pricing and brand expansion also helped the segment outperform the relatively lower baseline from the previous year. |
SG&A | +44% | Higher marketing spend, technology investments, and inflation-led compensation increases led to a 44% surge in SG&A. By contrast, the prior year saw more cost optimization and restructuring overhead reductions. |
Operating Income | -115% swing YoY | Operating income dropped to -$101 million (down from $653 million) due to impairment charges, increased SG&A, and weaker volume/mix. The prior year benefited from fewer one-time costs, creating a higher baseline for comparison. |
Net Income | From $254M to -$29M | Net income swung to a -$29 million loss, chiefly attributable to hefty impairment charges and pressured margins on lower volume/mix. In the previous year, no such large charges and stronger operational leverage contributed to positive earnings. |
EPS (Diluted) | From $0.21 to -$0.24 | Diluted EPS declined significantly due to the net loss in the current period driven by impairment costs. The absence of these charges in the prior year provided a relatively higher earnings base. |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Net Sales | Q3 2024 | The company adjusted its net sales guidance downward but did not specify exact figures. | 6,383 | Missed |
EBIT | Q3 2024 | The company maintained its EBIT growth guidance. | -101 | Missed |
Fully Capital EPS | Q3 2024 | The company also maintained its guidance for fully capital EPS growth. | -0.24 | Missed |
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2025 Algorithm Pace and U.S. Retail Challenges
Q: Will Kraft Heinz reach its long-term algorithm pace in 2025, and what are the factors affecting U.S. retail recovery?
A: Management does not expect to reach the long-term algorithm pace at any point during 2025 due to continued pressure in the U.S. retail sector. Challenges stem from changes in industry dynamics, elevated consumer trade-down, and specific issues in four key categories that require longer recovery periods. Despite these hurdles, the company remains confident in its long-term strategy, focusing on growing base volume through innovation, renovation, and targeted promotions. -
Lunchables Brand Impairment
Q: How does the large charge related to Lunchables reflect the company's belief in the brand's potential recovery?
A: The impairment charge results from the current decline in Lunchables sales and the expectation of a gradual recovery, which affects future cash flow projections. Despite this charge, management views Lunchables as a very important brand and is committed to turning it around through flavor expansion, value reimagining, new marketing campaigns, and product renovation in the first half of 2025. -
Lunchables Ingredient Supplier Issue
Q: What is the ingredient supplier issue affecting Lunchables, and how is it impacting sales?
A: A supplier was unable to fulfill a particular ingredient for one important SKU of Lunchables, causing a short-term shortage mainly impacting the current quarter and Q4. Management expects to resolve this issue in the near future and return to normal supply levels in the first half of 2025. -
Spoonables Category Challenges
Q: What are the challenges facing the Spoonables category, and how is Kraft Heinz addressing them?
A: The Spoonables segment has experienced soft sales for several months, primarily due to unfavorable price gaps in the market. Management acknowledges execution shortcomings and is working to adjust price positions and improve performance. -
2025 Assumptions on Price Adjustments vs. Innovation
Q: How is Kraft Heinz balancing price adjustments and innovation to address continued consumer trade-down in 2025?
A: The company prioritizes growing its brands through superior products, better marketing, and offering value formats for all consumers. While acknowledging that promotions have a role, management focuses on innovation and renovation to drive brand strength over the long term rather than relying heavily on price adjustments. -
Investment in Marketing and Promotions
Q: Is Kraft Heinz planning significant investments in marketing or promotions to improve base trends?
A: Management emphasizes investing in innovation, renovation, and effective marketing to drive growth, already seeing progress in brands like Capri Sun and Mac & Cheese. While promotions are used strategically where they lead to base growth, the focus remains on building brand strength through product superiority and marketing rather than large-scale promotional spending. -
Mac & Cheese Business Performance
Q: What challenges is Kraft Heinz facing in the Mac & Cheese category, and how are they addressing them?
A: The Mac & Cheese category is showing improvements, particularly in cups format, due to renovation and new flavors targeting different consumer segments. Management is introducing new shapes, flavors, and leveraging popular properties like Super Mario Brothers to attract consumers, recognizing that innovation ramp-up requires patience. -
Underlying Business Excluding Key Headwinds
Q: How is Kraft Heinz's underlying business performing aside from the challenges with Lunchables and Capri Sun?
A: Management feels positive about the overall business, with two out of three growth pillars—global away-from-home and emerging markets—gaining momentum. They are confident in addressing issues in specific brands by leveraging their brand growth system and continuing to invest in innovation, marketing, and productivity to drive long-term growth.