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Kraft Heinz flags margin pressure from inflation, shares fall

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·2 min read
FILE PHOTO: A Heinz Ketchup bottle sits between a box of Kraft macaroni and cheese and a bottle of Kraft Original Barbecue Sauce on a grocery store shelf in New York
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By Praveen Paramasivam and Mehr Bedi

(Reuters) -Kraft Heinz Co on Wednesday warned of margin pressure from higher prices of ingredients, sending its shares down 4%, even as the packaged food maker forecast annual core earnings to top pre-pandemic levels.

Companies across sectors have been plagued by a double whammy of higher raw material costs, and increased spending on shipments aimed at easing the strain on their supply chains due to the COVID-19 pandemic.

To add to packaged food makers' woes, analysts have said they would be forced to offer higher discounts and spend more on marketing to sustain high sales levels.

Kraft, however, has announced price increases across its portfolio to counter the impact of higher expenses, while noting that inflation was "manageable."

The company forecast annual inflation to be above the midpoint of a mid-single-digit range compared with the prior estimate of it being at the lower end of the range.

Kraft also cautioned it was too early to gauge how demand would stabilize between at-home and away-from-home channels amid the pandemic-related uncertainty that has forced companies across sectors to flag supply chain and demand-related concerns.

The Jell-O maker projects annual adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), including the impact of divestitures of cheese and nuts businesses, to be above the $6.1 billion it recorded in 2019.

J.P. Morgan's Ken Goldman wrote "it still potentially stands below consensus."

Kraft, known for brands such as Philadelphia cream cheese and Heinz ketchup, beat estimates for the reported quarter after demand for snacks and packaged meals remained strong even as people started venturing out following the easing of coronavirus restrictions.

Net sales were $6.62 billion in the second quarter, topping estimates of $6.55 billion. Adjusted earnings of 78 cents per share was also above Refinitiv IBES estimates of 72 cents.

(Reporting by Mehr Bedi and Praveen Paramasivam in Bengaluru; editing by Vinay Dwivedi)