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Home / Business / UPDATE 3-Power Heinz investors cheer on profit beat, plan to increase marketing

UPDATE 3-Power Heinz investors cheer on profit beat, plan to increase marketing



(Adds CEO comments, details, background; updates shares)

By Richa Naidu and Aishwarya Venugopal

31. October (Reuters) – Kraft Heinz Co said on Thursday it spent more on key brand marketing next year, after reporting better-than-expected third-quarter profits that sent shares up around 11%.

After posting billions of dollars in write-downs this year on the value of some of the best-known brands – including Oscar Mayer – Kraft Heinz has been criticized for cutting advertising spending under executives installed by Brazilian private equity firm 3G Capital.

The company, which counts billionaire Warren Buffett and 3G Capital as the two largest investors, has reported 13 straight quarters of deficient sales changing consumer tastes and intense competition from private brands owned by Walmart, Costco and Kroger.

Newly appointed CEO Miguel Patricio, who will outline a detailed plan following a strategic review of the business in 2020, said that Kraft Heinz would now disproportionately direct several ad dollars in favor of its flagship brands. The company, whose main brands include Heinz ketchup and Velveeta cheese, also said it plans to reduce the number of project launches by 2020 by half.

"While we have worked hard to end the year in a much better place than we started, we have also invested a lot of energy in the future," Patricio said in a post-earnings call.

Shares in Chicago-based Kraft Heinz increased by 10.7% to $ 31.58 in early trading. Revenue excluding items fell 9.2% to 69 kroner per share, but beat the 54 kroner as expected by analysts, according to IBES data from Refinitive.

"While the quality of this quarter was somewhat questionable, in our reading, we understand why these generally disliked stocks indicate that," said JP Morgan analyst Ken Goldman.

Net sales fell nearly 5% to $ 6.08 billion, analysts' estimates of $ 6.13 billion are missing. The company said it expects fourth-quarter sales and EBITDA to be "generally the same" as in the third quarter. Revenues for the fourth quarter are expected to hit up to SEK 0.10.

Expenses fell by nearly 25% to $ 767 million in the quarter ended September 28. The company increased its product prices by 1% while sales volume fell by 2.1 percentage points.

The rhythm comes after a rough year for Kraft Heinz, who cut dividends and scrapped the full-year forecast after taking two major write-downs – one in February of $ 15.4 billion and another in August of $ 1.22 billion. The company's procurement practices are also under investigation by the US Securities and Exchange Commission.

Kraft Heinz shares have fallen by about 40% since the company released the probe and the first write-down. (Reporting by Aishwarya Venugopal in Bengaluru and Richa Naidu in Chicago; Editing by Jason Neely and Steve Orlofsky)


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