Stock market experts would know that the processed food industry is going through a challenging period mainly due to the renewed health awareness among consumers.
However, Kraft Heinz Co. (KHC) did report a profit this Q2 largely because of improved sales. It reported $770 million second-quarter profit which translates to $0.63 per share. Last year the company suffered a $344 million loss or $0.91 per share. There was an increase in adjusted earnings from last year's $0.61 per share to $0.85 per share. Sales in Q2 improved from $2.62 billion last year to $6.79 billion.
The company's CEO Bernardo Hees attributes the Q2 results to improved marketplace performance and its integration program. However, he acknowledges the increasing challenges faced in sustaining the momentum because of changing preferences of the health-conscious consumer. Profitable growth should be the essential focus, and the US market is now proving a tough nut to crack. Increasing health awareness is infusing a bit of repulsion towards processed foods in the minds of Americans. The company acknowledges the need for innovation in the products offered to meet changing consumer needs, and improvement in operational efficiency.
Challenges Faced by Kraft Heinz
Kraft Heinz is North America's third-largest food and beverage manufacturer but has been encountering sluggish sales in the region, and though it has been profitable and experienced improved sales globally, it has had to lower costs to improve profitability in North America.
- In the company's biggest market, the United States, sales decreased by 1.9% to $4.69 billion.
- One of the reasons quoted for the reduced sales has been the greater preference of consumers towards fresh, organic foods instead of packaged foods.
- As a result, KHC is looking to concentrate on getting more of its condiments sold while simultaneously taking steps to get its costs down.
- It plans to cut its annual expenses by $1.5 billion by 2017-end.
At the close of trading at the NYSE on Thursday, August 4, KHC stock was up 0.75% or $0.64 at $85.54, gaining a further 4.16% or $3.56 in after-hours trade.
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