What happened
Shares of Kraft Heinz Co (KHC 0.85%) were taking a spill today after the packaged-food giant posted disappointing results in its third-quarter report. Following a trend with other legacy food companies, the Jell-O maker is struggling to deliver growth without ramping up spending on advertising, new products, and other expenses. As a result, the stock was down 8.8% as of 12:04 p.m. EDT.
So what
Organic sales, which strip out the effect of acquisitions and divestitures, increased 2.6% in the quarter, a bright spot for the company, and overall revenue jumped 1.6% to $6.38 billion, topping estimates at $6.31 billion.
Image source: Getty Images.
However, that growth came at a cost as gross margin fell from 35% to 33%, a reflection of higher input costs and increased discounting through promotional activity. Adjusted EBITDA was down 16.2% in the U.S., its biggest market, to $1.2 billion due to higher inflation, overhead costs, freight, and investments.
Adjusted earnings per share slipped from $0.83 to $0.78, which missed estimates at $0.81.
CEO Bernardo Hees defended the company's strategy, saying, "While a number of one-off factors-as well as our desire to insure customer service-held back profit in the quarter, we remain confident that we are well-positioned to deliver sustainable, profitable growth going forward."
Now what
Looking ahead, Kraft Heinz did not offer specific guidance, but said it expected organic top-line growth for the full year and for it to continue into 2019. CFO David Knopf also said bottom line growth would recover, adding, "We also expect a much better balance of top and bottom line growth going forward," and blamed the latest challenges and transitory issues.
Kraft Heinz shares are now down 35% over the last year. Though Knopf's projection should offer some encouragement to investors, there's no question that packaged-food companies are facing challenges from changing consumer tastes. A recovery in profit growth may come but it won't be easy.
