At a time when many CPG manufacturers are slashing headcounts and shuttering facilities to manage costs, Kraft Heinz is hiring across its organization as part of a $600 million investment to turn the business around before revisiting a potential split into two businesses.
And the strategy is working.
The maker of iconic Heinz ketchup, Kraft Mac & Cheese and Maxwell House coffee beat industry expectations with a net income of $799 million in its first quarter ending March 28 compared to $714 million in the same period last year – an 11.9% increase. Net sales also rose 0.8% to $6.05 billion – surpassing analyst expectations of $5.89 billion. And while organic net sales still fell 0.4%, it still outperformed the company’s original expectation of a low-single digit decline.
The gains are due in part to the one-time benefit of winter storms in January and February, but also to increased investments in the business under the leadership of Steve Cahillane, who took over as CEO at the start of the year and immediately paused a plan to divide the company into two businesses, arguing the company need to rebuild itself before a potential split.
Cahillane is putting the company’s money where his mouth is – outlining the details of a $600 million investment across product superiority, select pricing, marketing, sales and R&D, the majority of which is focused on turning around the beleaguered US business.
Kraft Heinz is ‘actively working on bringing the right talent on board’
Part of the investment is earmarked for “new leadership, refined incentives and a renewed focus on rewiring core processes,” Cahillane said in prepared remarks ahead of the company’s earnings call May 6. This includes increasing headcount company-wide, but with particular focus on marketing and sales teams, including in ecommerce, which grew about 13% in the first two months of the year.
“We know that well-resourced teams will enable us to have better retail partnerships, better in-store and online execution, sharper consumer insights and better product launches,” Cahillane said.
“In the first quarter, we have made progress on pinpointing our hiring priorities and are actively working on bringing the right talent on board to complement our existing teams,” he added.
This includes bringing in new President, North America, Nico Amaya, who like Cahillane comes from Kellanova. Amaya replaced Pedro Navio, who stepped down Feb. 22 to pursue other opportunities, according to the company.
“Having worked closely with Nico, I’ve seen firsthand his ability to build strong teams, stay relentlessly focused on consumers and customers and translate strategy into results,” Cahillane said.
He added, the company will accelerate hiring in the second quarter.
The decision to bring on staff goes against a broader industry trend in which major CPG companies, including Nestlé and Tyson are cutting jobs.
Kraft Heinz steps up marketing, R&D investments
Investing in more people is just one part of Kraft Heinz’s multi-prong strategy, which also includes increasing marketing spend to at least 5.5% of net sales and R&D spend to about 0.9% of net sales to support product and packaging.
In the first quarter, this translated to a 37% increase in marketing which included strategic pricing plays. For example, the company stepped up promotional spend, expanded opening price points on products and made some base price adjustments.
The first quarter also saw a 16% increase in R&D year over year, which included an innovation and renovation strategy focused on convenience, new occasions and nutrition.
The recent launch of Kraft Mac & Cheese PowerMac hits all three points with “added nutrition while staying true to the taste, convenience and affordability that has made Kraft Mac & Cheese a trusted household favorite,” Cahillane said.
“While it is too early to gauge sell out performance, distribution has come in very strong – selling into 35,000 stores – and ramping up in-store support and media to drive trial and velocities,” he said.
Upcoming launches include Capri Sun Hydrate and a lactose-free cream cheese under the Philadelphia brand.
Cautious optimism for the future
Despite notable progress turning around the business and better-than-expected results in the first quarter, Kraft Heinz maintained its full year outlook.
It expects organic net sales to be down 1.5% to 3.5% and adjusted EPS between $1.98 and $2.10.
This factors in incremental headwinds from changes to financial aid for low-income consumers under the Supplemental Nutrition Assistance Program and uncertainty about the impact of ongoing geopolitical tensions and inflation projected to come slightly more than 4% for the full year, according to the company.
