By Mehr Bedi and Deborah Mary Sophia
(Reuters) -Kraft Heinz forecast annual profit below Wall Street estimates on Wednesday, weighed down by cost inflation and concerns that consumers may skimp out on its quick-fix meals and condiments in the face of price hikes.
Packaged food makers have raised prices multiple times over past two years to shield their margins, but are still battling elevated production expenses and higher costs of commodities including dairy, soybean, oils and packaging materials.
While those price hikes coupled with strong demand for Kraft’s Lunchables and Mac and Cheese Cups drove fourth-quarter results above estimates, the company cautioned consumers could start pushing back against prices further in the year.
The warning comes as retailers resist food manufacturers’ price hikes, with Walmart Inc pitching its own private-label products to customers. Analysts have also noted food companies may have to ramp up promotions to keep demand afloat this year.
The Heinz ketchup maker’s sales volumes dipped 4.8 percentage points in the fourth quarter, hurt by a mix of price increases and supply constraints.
“Consumers are looking for convenient, filling, and nutritious meals, while at the same time paying more attention to the price tag,” Chief Executive Miguel Patricio said.
The downbeat profit outlook comes in contrast with rivals such as Mondelez International Inc and Hershey Co that have successfully passed on price increases to consumers with little pushback in demand.
While Wall Street analysts called Kraft’s outlook anywhere between “mixed” and “underwhelming”, Barclays analyst Andrew Lazar said its forecast of improving gross margins signaled pricing was better catching up to costs.
Shares of Kraft, also known for brands such as Philadelphia Cream Cheese and Jell-O, rose about 1% before the bell after it forecast 2023 organic sales growth slightly above estimates.
The company expects annual adjusted earnings of between $2.67 and $2.75 per share, below the market estimate of $2.77.
(Reporting by Deborah Sophia and Mehr Bedi in Bengaluru; Editing by Milla Nissi)
