Earnings

Kraft Heinz targets $2 billion in cost cuts over 5 years, sees long-term organic net sales growth of 1% to 2%

Characters at the Berkshire Hathaway company Kraft Heinz booth pose with a reporter at the shareholder shopping day as part of the Berkshire Hathaway annual meeting weekend in Omaha, Nebraska, May 5, 2017.

Rick Wilking | Reuters

Kraft Heinz is looking to capitalize on consumers’ rediscovered interest in store-bought mac and cheese and Ore-Ida french fries as it unveiled a turnaround plan Tuesday that will shave $2 billion in costs through 2024 and invest some of that in marketing its products.

The company is also expecting long-term organic sales growth of 1% to 2% and adjusted earnings per share growth of 4% to 6%. The company, whose brands include Oscar Mayer, said the financial targets reflect its confidence in its ongoing recovery. In 2019, its organic net sales shrank by 1.7%.

Shares of Kraft Heinz rose 2% in early trading Tuesday. The stock, which has a market value of $40.1 billion, has risen 2% this year.

The billions of dollars in savings are expected to come from integrated business planning for more efficiency between its manufacturing, procurement and logistics operations. Its procurement division alone is supposed to see $1.2 billion in savings over five years, in part due to closer collaboration with its suppliers.

CEO Miguel Patricio, who joined the company more than a year ago, said during investor presentations that the cost savings will fuel its investment back into Kraft Heinz. For example, the company will raise its marketing and advertising spending by 30%. This is the first long-term turnaround plan under Patricio.

“We are committed to returning Kraft Heinz to consistent growth on both the top and bottom lines,” CFO Paulo Basilio said in a statement.

In recent years, Kraft Heinz has struggled as consumers shopped more around the perimeter of the grocery store in search of fresh foods. The sales downturn led the food giant to report billions of dollars in write-downs on some of its brands, including Cool Whip, Oscar Mayer, Kraft and Maxwell House, and to reshuffle its leadership.

However, the coronavirus pandemic has lifted sales for the company, helping it during its comeback. Kraft Heinz updated its third-quarter outlook on Tuesday, saying it now expects organic sales growth in the mid-single digits. The company will announce its quarterly results in October.

The company said it has stopped thinking of its portfolio in terms of its range of products, an approach that executives said slowed down its innovation. Instead, Kraft Heinz is going view its products by how they fulfill consumer needs. One new category, for example, groups together Ore-Ida, Kraft Mac and Cheese and Bagel Bites because all can be a part of an easy meal.

This is a breaking news story. Please check back for updates. 

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