Analyst Note| Erin Lash, CFA |
Heading into no-moat Kraft Heinz’s first-quarter report, the chief question was how volumes fared against the backdrop of pronounced price hikes. In our view, a mere 2% retraction in volumes against a 9% price increase suggests the strategic playbook CEO Miguel Patricio cooked up nearly three years ago (centered on upping the ante on brand spending and bolstering its category management and e-commerce capabilities) is proving an enticing recipe. Profits didn’t hold up quite as well, though, and inflation seems unlikely to abate; management now expects a midteens hit from higher input costs in fiscal 2022, up from low-teens prior. In this context, the adjusted gross margin slipped 250 basis points to 31.9% in the quarter, and the adjusted operating margin contracted 260 basis points to 18.6%.