Kraft Heinz Earnings: Price Increases Buoy Sales and Margins, but Market Share Languishes

Despite headwinds, sales continued to climb in no-moat Kraft Heinz’s second quarter, up 4% on an organic basis on top of 10% growth a year ago. Adjusted gross and operating margins expanded 180 and 90 basis points, respectively, to 33.3% and 20.6%. Pricing was a major driver of the performance, serving as an 11% benefit to the top line. However, we don’t think management is focused only on raising prices. Rather, we attribute recent marks to the strategic playbook that CEO Miguel Patricio crafted upon taking the helm in 2019, anchored in extracting inefficiencies from the business (with a target of unlocking $500 million per year) to juice brand investments. We view this course as sound and believe it has enabled Kraft Heinz to regain acclaim from retailers and consumers alike after years of underinvestment and executional missteps.