Kraft plans $2 billion in cost cuts in return to core strategy
Kraft Heinz Co. is returning to its tried-and-true cost-cutting strategy as the packaged-food giant looks to beef up its long-term financial position.
The company will target $2 billion in savings over the next five years by focusing on procurement, manufacturing and logistics, according to a presentation released ahead of its investor day Tuesday.
As part of what it’s calling a “strategic transformation plan,” Kraft is now targeting growth of 1 percent to 2 percent for organic net sales, which excludes items like acquisitions and currency effects. The ketchup-maker is also expecting long-term adjusted EPS expansion of 4 percent to 6 percent.
“We are committed to returning Kraft Heinz to consistent growth on both the top and bottom lines,” Chief Financial Officer Paulo Basilio said in a statement.
The company also updated its third quarter outlook, with organic net sales growth expected in the mid-single digits due to stronger-than-expected business momentum. Kraft aims to reduce net leverage by the end of 2020.
Last quarter, Kraft’s net sales beat the highest analyst estimates as the company held onto customers who flocked to packaged-food staples during Covid-19 lockdowns. Three-quarters of new customers made repeat purchases.
Return to normal
A renewed focus on cost-cutting reads like a return to normal operating procedure for Kraft Heinz, which was created in a 2015 merger orchestrated by Warren Buffett and 3G Capital. Traditionally, 3G’s managers were known more for reducing expenses than nurturing brands, and after merging H.J. Heinz and Kraft Foods, the then-CEO slashed nearly $2 billion in costs at the combined company.
When the cutting slowed, the spotlight turned to the company’s struggle to grow sales with a portfolio of food brands that was largely considered out-of-step with modern tastes. However, the pandemic reignited consumer interest in comfort staples like Oscar Mayer lunch meats and Kraft macaroni and cheese, giving it a boost during lockdowns.
Kraft shares rose 2.4 percent to $32.63 at 9:46 a.m. in New York.