Kraft Heinz Company's (KHC) annual profit forecast is below Wall Street estimates due to cost inflation that is expected to eat into margins. Despite packaged food makers having increased product prices over the past two years to protect their margins, they are still battling with elevated costs of commodities like dairy and eggs, along with higher supply chain and labor expenses.
Kraft Heinz said that average selling prices rose 15.2 percentage points in Q4 2022, driving sales 10% higher to $7.38 billion, above analysts' average estimate of $7.27 billion in Refinitiv IBES data. Excluding one-off items, Kraft earned 85 cents per share, beating analysts' estimate of 78 cents per share. However, the company forecasts annual adjusted earnings of between $2.67 and $2.75 per share, below the market estimate of $2.77 per share.
Why it matters
Packaged food companies have raised their prices due to increased commodity costs and supply chain difficulties, resulting in a decrease in sales volume. Kraft Heinz's sales of packaged meals and condiments decreased by 4.8% in the fourth quarter, indicating a cooling in demand. Meanwhile, retailers like Walmart have been promoting their private-label products to consumers instead of more expensive branded products.