Kraft Heinz Co (KHC.O) on Wednesday reported a bigger-than-expected fall in quarterly gross profit margins, pressured by surging transportation and raw material costs despite multiple price hikes.
Shares of the U.S. food giant fell about 8% in early morning trading, as the company signaled a slight slowdown in demand in response to several rounds of price increases.
The pandemic, the Ukraine-Russia war and other supply snags have pushed up prices of tomatoes and pork and harder-to-hedge categories including dairy and poultry, squeezing margins at packaged food makers.
Kraft’s second-quarter gross margin fell to 30.3% from 34.6% a year earlier. Analysts, on average, had expected margins of 32.6%, according to IBES data from Refinitiv.
“What was discouraging… is cost inflation continues to accelerate, which will require more pricing and cost savings to offset,” said Arun Sundaram of CFRA Research, adding that further price hikes will be difficult for retailers to stomach in the current economic environment.
Last month, Kraft stopped supplying some products, such as tomato ketchup and baked beans, to Britain’s biggest supermarket group Tesco (TSCO.L) as the retailer resisted charging customers higher prices. The two companies have since struck a deal to bring back Kraft’s products to store shelves.
Kraft said a key measure for its sales volumes fell 2.3 percentage points in the reported quarter, hurt by a slowdown in demand due to price increases and supply constraints. Still, that was up against a 12.4 percentage points rise in average selling prices.
Chief Executive Officer Miguel Patricio said about 99% of the intended price increases for the year have been announced, with a majority of these implemented, adding that any further pricing the company takes will be ‘surgical’.
The Philadelphia Cream Cheese maker forecast 2022 organic revenue to increase by a high single-digit percentage, higher than its prior outlook for a mid single-digit percentage increase.