The Kraft Heinz Company (KHC) moves into the red Wednesday as the household food brand reports its fourth-quarter net sales to have fallen by 7.1% year-over-year.
Yahoo Finance Reporter Madison Mills examines Kraft Heinz's pricing pressures, an issue many other consumer staples companies face.
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Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
RACHELLE AKUFFO: Time for today's stock to watch. We're watching Kraft Heinz sales falling over 7% from a year ago, as volume fail to outweigh price increases. Yahoo Finance's Madison Mills is on the floor of the New York Stock Exchange with those details. Hey, Maddie.
MADISON MILLS: Hey, Rachelle. So this is a stock to watch today because we are looking at the pricing power dynamic when it comes to Kraft Heinz. And it looks like they don't have it anymore. And this is a repeated story that we've heard from some of the other consumer staples and consumer-facing snack and food names in that space.
I think about a Mondelez, a PepsiCo saying that their volumes were not going up at the rate that they thought they would and that they anticipated would match up with those price hikes as well. So just to run through some of the numbers for Kraft Heinz here. The sales down 7%. Prices up 3.7 percentage points and volume down over 4 percentage points.
So, again, that disconnect between the volume and the price increases, that is going to weigh on margins. Now having said that, I was really interested in these Kraft earnings because you tend to think of this as a name that does well when consumers are trading down, right? You've got your soups, your sauces, some of the more affordable items for consumers.
But they were dinged on two fronts. One, SNAP benefits had a change. That's why we've seen three quarters of misses for Kraft Heinz. They're going to have to figure that out moving forward, and that is going to continue to weigh on the stock.
That's our second point this morning. Because if they have to increase promotions, if they have to decrease prices on some of these goods, that's going to continue to weigh on margins moving forward. And we know that the Street loves to look at forward guidance for these names.
The forward guidance for Kraft not painting a good picture for them. Now having said that, I was interested to compare this to the earnings that we saw from Procter & Gamble earlier on this earnings cycle. This is the name where you can think about your Charmin toilet paper, some of your other staple goods.
P&G is saying that they were able to hold up on their pricing power and that consumers were buckling to the price hikes that P&G put forward, that consumers were able to keep up with those prices rather. So that indicates to me that consumers might be saying, OK, we've got to spend on staples, but we're going to continue to trade down when it comes to food.
And that makes sense given the CPI print that we saw yesterday where food prices continuing to go up and up and up. That might be an indication that consumers are going to some of those store brand names that are the cheapest and most affordable option for them.
