Packaged foods company Kraft Heinz (NASDAQ:KHC) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 6.4% year on year to $6 billion. Its non-GAAP profit of $0.62 per share was 3% above analysts’ consensus estimates.
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Kraft Heinz (KHC) Q1 CY2025 Highlights:
- Revenue: $6 billion vs analyst estimates of $6.02 billion (6.4% year-on-year decline, in line)
- Adjusted EPS: $0.62 vs analyst estimates of $0.60 (3% beat)
- Adjusted EBITDA: $1.43 billion vs analyst estimates of $1.42 billion (23.8% margin, 0.8% beat)
- Management lowered its full-year Adjusted EPS guidance to $2.59 at the midpoint, a 3.5% decrease
- Operating Margin: 19.9%, in line with the same quarter last year
- Free Cash Flow Margin: 8%, similar to the same quarter last year
- Organic Revenue fell 4.7% year on year (-0.5% in the same quarter last year)
- Sales Volumes fell 5.6% year on year (-3.2% in the same quarter last year)
- Market Capitalization: $33.32 billion
StockStory’s Take
Kraft Heinz’s first quarter results reflected pressure on sales volumes and ongoing challenges in the packaged foods sector, with management pointing to disciplined investments in marketing, research and development, and technology as the company's core response. CEO Carlos Abrams-Rivera explained that Kraft Heinz is “playing offense with discipline,” emphasizing continued spending on brand renovation and digital tools despite macroeconomic headwinds and declining volumes.
Looking ahead, management’s revised guidance for the year incorporates both heightened cost pressures—such as commodity inflation and tariffs—and a broader range of potential outcomes stemming from policy changes. CFO Andre Maciel stated that the company is increasing its marketing investment to reach closer to 5% of sales and is allowing for more flexibility in spending to address shifting market dynamics, but expects this will weigh on margins in the near term.
Key Insights from Management’s Remarks
Management attributed the quarter’s performance to disciplined investment amid a challenging consumer environment, with strategic focus on brand renovation and operational efficiency as key responses to volume and cost headwinds.
- Elevated marketing and R&D investment: Kraft Heinz is increasing spending on consumer-facing marketing, product innovation, and technology, aiming to improve brand value and operational efficiency. Management highlighted the scaling of its brand growth system, which now targets 40% of its portfolio by year-end, up from 10% the previous year.
- Brand growth system rollout: The brand growth system—a framework for identifying renovation opportunities in products and packaging—has been credited for recent progress in key brands like Philadelphia cream cheese and in international markets. Management cited its expansion as a differentiator for future competitiveness.
- Promotional activity and pricing discipline: The company is planning a step up in promotional activity during key seasonal periods such as Memorial Day and back-to-school, but emphasized a disciplined approach to avoid short-term volume boosts that are not sustainable. Price investments remain targeted and are not expected to materially increase beyond levels previously contemplated.
- Commodity and tariff pressures: Management identified increased input cost inflation, notably in coffee and meat, and the anticipated impact of new tariffs as key factors driving higher cost of goods sold (COGS) for the remainder of the year. Some mitigation is expected through alternative sourcing and productivity initiatives.
- Emerging market momentum: While developed market volumes remain pressured, management noted ongoing acceleration in emerging markets and specific product categories, such as Mexican foods and cream cheese, which are delivering double-digit growth.
Drivers of Future Performance
Management expects the remainder of the year to be shaped by higher input costs, ongoing investment in marketing and product renovation, and continued softness in core developed markets, while seeking growth in select international categories.
- Commodity and tariff headwinds: Rising costs in commodities like coffee and meat, as well as uncertainties around tariffs, are expected to pressure gross margins. Management is deploying productivity initiatives and selective pricing but does not foresee major price increases.
- Marketing and innovation spend: The accelerated rollout of the brand growth system and stepped-up marketing investment are aimed at supporting renovated products and long-term brand health, but will compress margins in the near term.
- Volume recovery uncertain: While some product categories and emerging markets are growing, management does not expect a broad-based positive inflection in volumes for the year, and is not relying on volume recovery in North America to meet its guidance.
Top Analyst Questions
- Andrew Lazar (Barclays): Asked if the latest guidance cut represents a more comprehensive approach to investment; management responded that increased marketing and brand system expansion distinguish this from past actions.
- Yasmeen Wandi (Bank of America): Inquired about the drivers of organic sales guidance and whether North American volumes must recover; management stated that positive volume inflection is not required to achieve guidance.
- Tom Palmer (Citi): Sought clarity on cost inflation breakdown and timing of tariff impact; management indicated most COGS increases will occur in the second half and that mitigation efforts are underway.
- David Palmer (Evercore ISI): Asked about promotional strategy and pricing discipline; management emphasized targeted promotions aligned with renovated product launches and a focus on long-term profitability.
- Chris Carey (Wells Fargo): Questioned gross margin pressures and market share; management attributed margin compression primarily to increased promotions, commodity costs, and product renovations, with some brands showing improving share.
Catalysts in Upcoming Quarters
In upcoming quarters, the StockStory team will be watching (1) the effectiveness of increased marketing and brand renovation efforts in stabilizing or growing sales volumes, (2) the company’s ability to mitigate input cost and tariff pressures through productivity and sourcing initiatives, and (3) continued momentum in emerging markets and growth categories like Mexican foods. The timing and impact of new product launches and promotional strategies will be key markers of execution.
Kraft Heinz currently trades at a forward P/E ratio of 10.5×. At this valuation, is it a buy or sell post earnings? See for yourself in our free research report.
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