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© Reuters. 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 March 25, 2015. REUTERS/Brendan McDermid/File Photo
By Aatrayee Chatterjee
(Reuters) -Kraft Heinz Co raised its full-year profit forecast on Wednesday on the back of higher prices and sustained demand for its packaged food items as raw material costs, which have plagued the industry, also ease.
Shares of the Philadelphia Cream Cheese maker were up 3.9% in early trading after it also reported better-than-expected quarterly results.
The packaged food maker, like other U.S. peers such as Kellogg (NYSE:K), Coca-Cola (NYSE:KO) Co and General Mills (NYSE:GIS), has been steadily increasing product prices to protect profits from high costs of some raw materials like vegetable oils, wheat and dairy.
However, Chief Financial Officer Andre Maciel said commodity costs were coming down slightly faster than expected, with gross margin in the first quarter improving by about 130 basis points.
The company has in recent months also said it would abandon further price hikes for its quick-fix meals and condiments as consumers turn more price sensitive, though it still expects 2023 growth to be driven by price.
Even with inflation squeezing household budgets, consumers have mostly refrained from trading down to cheaper alternatives and are still willing to pay more for their favorite snack brands despite multiple rounds of price hikes.
The Lunchables maker expects adjusted earnings between $2.83 and $2.91 per share for 2023, above the prior target of $2.67 to $2.75 per share.
JP Morgan analyst Ken Goldman said the increase in profit guidance so early in the year was a surprise especially because inflation is still expected to be in the high single-digit range.
The strong outlook echoes comments from peers PepsiCo (NASDAQ:PEP) Inc and Mondelez (NASDAQ:MDLZ), who have also lifted annual forecasts supported by price increases.
Excluding one-off items, Kraft Heinz (NASDAQ:KHC) earned 68 cents per share, topping analysts' estimate of 60 cents per share, according to Refinitiv IBES data.
Net sales rose by a better-than-expected 7.3% to $6.49 billion in the first quarter.
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