Kraft’s solid quarter is overshadowed by the impairment charge.
Pittsburgh During the second quarter of fiscal 2020, Kraft Heinz Co. experienced a loss due to an impairment charge of $2.9 billion. The charge, which was driven by higher retail demand as a result of the coronavirus (COVID-19) pandemic, eclipsed organic sales growth of 7.4% when compared to the same period last year.
A $1.8 billion non-cash impairment charge and a $1.1 billion intangible asset impairment charge were incurred by Kraft Heinz. The $1.8 billion write-down had an impact on US Foodservice, Canada Foodservice, and Canada Retail.
The corporation reported charges of $626 million for the Oscar Mayer brand, $140 million for the Maxwell House coffee brand, and $290 million for seven additional brands under the intangible asset charge.
Consequently, Kraft Heinz Co. reported a $1.7 billion loss for the quarter that concluded on June 27. In the same period last year, the corporation made $449 million, or 37¢ per share on the ordinary stock.
Sales for the quarter increased somewhat from $6.4 billion to $6.7 billion over the previous quarter.
During a conference call on 30 July to discuss the results, CEO Miguel Patricio stated, “It’s (a) tremendous and abrupt shift in consumer behaviour that we are witnessing.” “These are It seems like an understatement to say that the scale of this channel shift is unprecedented given that the products being sold are food and beverage items rather than microchips.
Sales at Kraft Heinz’s US business unit increased by 8.5% to $4.9 billion. Pricing, which contributed 2.3%, and volume/mix growth, which was 6.2%, drove the gain.
The US zone president, Carlos A. Abrams-Rivera, stated, “Household penetration is one of the inherent strengths of our portfolio relative to the industry, and you would think that there was not much more room to go, but our household penetration has strengthened further in the latest 15 weeks.” As a matter of fact, 75% of our brands are expanding their home penetration, and most of these brands are doing so at a double-digit percentage point increase over the same period last year.
On the other hand, problems with the supply chain plagued a few brands during the quarter.
“Sustained elevated consumption versus supply chain constraints has negatively impacted our share in areas like our Oscar Mayer Meats and Kraft Singles businesses, while more vertically integrated players have been able to shift capacity from their foodservice businesses to retail,” Mr. Abrams-Rivera stated. Therefore, even if such businesses are experiencing rapid growth, there is some share erosion. Even with this increased consumption, Heinz, Jell-O, and Ore-Ida are increasing in share elsewhere in the portfolio.
At $1.3 billion, international unit sales decreased by less than 1%. A 6.2% currency impact negated a 5.5% increase in organic net sales. Due to a negative impact from currency fluctuations and the sale of the Canadian natural cheese business, unit sales in Canada decreased by 24% to $426 million.
The management team did Paulo Luiz Araujo Basilio, global chief financial officer, expressed optimism about the company’s performance in the second half of the year, although he did not provide guidance.
“Through the first half of the year, we have had stronger-than-expected results,” he stated. For the remainder of the year, we are cautiously bullish due to the company’s strong performance.
Mr. Patricio reiterated that the business is still going through a transition.
He declared, “We are still not where we want to be on several fronts and are only at the beginning stages of our turnaround.” “We are introducing a new operating model to enhance our performance in a sustainable manner, in addition to the extensive work we have done to adapt to the epidemic. We are implementing substantial adjustments to our work processes, organisational structures, capability development, and business reinvestment strategies.
In He stated that the company’s immediate goal is to retain new customers who have sampled Kraft Heinz goods during the last three months.
“We have new customers trying, experimenting, and repeating the trial, which is fantastic. It must be our obsession to keep them with us so we can advance in 2021,” he remarked. If the epidemic persists in 2021 and we carry on with it, it will work to our advantage. If not, our consumer base has grown compared to our previous one. And we want them to be with us because they tried and keep trying and consuming.