Kraft Heinz Co. posted quarterly profit that beat Wall Street expectations as the maker of Tater Tots benefits from changes in the U.S. tax law and raised its prices to counter an increase in costs, sending its shares on Wednesday up by almost 4% after the closing bell.
Food companies such as General Mills and Conagra Brands have cited rising prices of commodities and higher costs of transportation in the last few months. Those companies have also come under heavy pressure to increase sales while the retailers selling their products are trying to keep inventory and prices down.
Kraft Heinz net income was up 11.1% to end the quarter at $993 million equal to 81 cents a share, which reflected the benefits of the largest overhaul of the tax code in the U.S. in more than 30 years, which cut the corporate tax rate from 35% to 21%.
Net sales were down 0.3% to end the quarter at $6.30 billion as declining demand across the U.S. for processed foods was able to easily offset growth the company saw in Canada, the Middle East and Africa, as well as Europe. Wall Street was expecting sales to reach $6.33 billion.
Kraft Heinz has for a number of consecutive quarters posted muted sales as retailers in the U.S. make room for fresh food as well upstart, higher-margin brands like Portlandia Foods and Sir Kensington’s.
Kraft Heinz shares have lost over 42% of their value since it failed in its takeover big last year for Unilever. 3G, its private equity backer, is known for using acquisitions to drive sales.
One analyst on Wall Street said that there is not another deal imminent involving Kraft Heinz and the company is under heavy pressure to deliver on sales. The analysts noted the impatience and frustration amongst shareholders about the empty acquisition and mergers pipeline.
The company, in an attempt to prove to its investors it is able to grow through innovation, has been making investments in food and beverage and e-commerce startups, joining an increasingly bigger list of food companies in the U.S. looking at different ways to spark growth.
The CFO at Kraft Heinz David Knopf said the increase in pricing for the first quarter helped to make up for more expenses from the aggressive plans for commercial investment.
