Kraft Heinz Profit Beats Expectations Helped by Cost Cutting

Kraft Heinz Co. the Velveeta Cheese, Oscar Mayer meats and Heinz Ketchup maker, posted a profit that was bigger than had been expected on Thursday as it continued to slash costs amidst weak demand across North America.

Shares of the third largest food and beverage business in North America were up slightly during Thursday afterhours trading.

Kraft, which has set a target of $1.7 billion in cost cutting by the start of 2018, announced Thursday that its selling, general and administrative costs were 15% lower to end the quarter at $760 million.

That marked the fourth consecutive quarter of declines in the double digits for those expenses.

However, Kraft Heinz, which is backed by Warren Buffett the billionaire investor and 3G the private equity company, said revenue dropped by 1.7% to end the quarter at $6.68 billion, marking the third consecutive quarter that revenue dropped. Analysts were expecting revenue of $6.73 billion.

Sales in the U.S. were down 1.2% during the quarter. The region represents over two-thirds of the total revenue for the company.

Nevertheless, analysts were not too concerned with the drop. One Wall Street analyst said that the revenue line is not as bad as some had feared, especially considering the recent food trends in the U.S.

He added that Kraft’s drop of 0.9% in its organic sales was better than the numbers other peers in the industry had posted.

Mondelez posted a drop of 2.7% in its organic sales for the most recent quarter, while rival ConAgra said total sales were down 9.3% for its fourth quarter.

Makers of processed packaged foods, including Kraft, have been pressured by a growing preference for alternatives that are healthier by consumers in the U.S.

Kraft has responded through launching new products such as Heinz Beanz that contains no salt and no sugar and a new premium pasta sauce line under its Classico Riserva brand that has no added sugar or artificial ingredients.

Kraft also relaunched its Kool-Aid Jammers with fewer calories as well as no preservatives.

Net income at Kraft soared 50.5% to end the quarter at $1.16 billion equal to 94 cents a share. Excluding some items, Kraft Heinz posted 98 cents in earnings per share, which was 3 cents higher than Wall Street expectations.

The company benefited as well from the refinancing of its Series A preferred stock in 2016.

Kraft increased its dividend for the quarter from 60 cents to 63 cents.

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