Kraft Heinz Earnings: Its Surgical Pursuit of Cost Savings to Fuel Brand Investments Buoys Results

Even though the sun is setting on CEO Miguel Patricio’s time at the helm of no-moat Kraft Heinz, we surmise the imprint he is leaving on the business will persist. Before he came on board, Kraft Heinz was plagued by its outsize desire to root out costs blindly in favor of juicing near-term sales and cash flows, without any regard for investing to support the long-term health of the business. In stark contrast, Kraft Heinz’s third-quarter results (1.7% organic sales growth, nearly 400 basis points of expansion in the adjusted gross margin to 34%, and a 280-basis-point jolt in the adjusted operating margin to 17.7%) came in spite of a 25% increase in marketing expense, an 8% bump in research and development expense, and a 24% increase in technology spending. And we think management is keen to unearth further cost savings to boost spending behind its brands and capabilities, with incoming CEO Carlos Abrams-Rivera (one of the architects of this playbook) set to take the reins.