Food & Beverage

Supply constraints to weigh on Kraft Heinz first-quarter results

Kraft and Heinz products
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Kraft Heinz's said stiff competition and a supply shortfall of one of its key frozen products will continue to hurt sales in the first quarter, following lower-than-expected sales and profit in the latest reported quarter.

The company's shares fell 7 percent to their lowest since August 2015.

More competition in developed markets and a supply shortfall of its Ore-Ida branded potato-based frozen foods are among reasons why the company is cautious about short-term revenue growth, Chief Exectuive Officer Bernardo Hees said on a call with analysts.

A surge in the number of Americans buying fresher and healthier products have put packaged food makers including Kraft Heinz in a spot. While these companies have tried to promote their healthier products, they have often failed to gain the sort of popularity their traditional products enjoyed.

"We are seeing in the short-term (specifically in the first quarter) some headwinds that will cause near-term sales to be below run rate consumption," Chief Financial Officer Paulo Basilio said.

Sales in the company's U.S. business fell 1.1 percent to $4.79 billion, declining for the seventh straight quarter. They missed analysts' average estimate of $4.81 billion, according to Thomson Reuters I/B/E/S.

Net sales inched up 0.3 percent to $6.88 billion, but missed estimates of $6.92 billion.

The company, owner of brands such as Velveeta cheese and Heinz ketchup, said a dispute with a key retailer over promotions and shipments for its soups hurt sales in the quarter.

Kraft-Heinz, the fifth-largest food and beverage company in the world, achieved its target of cutting $1.7 billion in costs by the end of 2017, it said on Thursday.

"After looking at the company's slide presentation yesterday, one might have come away with the impression that KHC is firing on all cylinders; today's print was a reminder that the company still has a long way to go before this is the case," JP Morgan analyst Ken Goldman said.

Shares of Kraft, backed by billionaire-investor Warren Buffett, fell as much as 7 percent to $67.65. They were down 4.8 percent in late-morning trading.

Net income rose to $8 billion, or $6.52 per share, in the fourth quarter ended Dec. 30, from $944 million, or 77 cents per share, a year earlier.

The quarter recorded a $7 billion benefit related to changes in the U.S. tax code.

Excluding items, the company earned 90 cents per share, missing estimates of 95 cents.