Kraft Heinz sales may be negatively affected by backlash against its Lunchables and Capri Sun products due to concerns over ingredients. Piper Sandler has lowered its 2024 outlook and price target for the company. The Lunchable backlash, driven by a Consumer Reports study, has had the most impact on sales. The reformulation of Capri Sun juice pouches has also contributed to the sales decline. Rebuilding customer traction will take time. The company's initiatives in the Foodservice category are expected to have incremental potential in the future. However, the positive impact on revenue won't be seen until 2025.
Kraft Heinz Company (NASDAQ:KHC) could be hit with a double-whammy to sales as its Lunchables and Capri Sun products deal with the consumer backlash over its ingredients. The repercussions led Piper Sandler to lower its 2024 outlook for the consumer products company and trim its price target by $1.
Piper analyst Michael Lavery views the Lunchable backlash as potentially the most harmful to overall sales, especially given the exposure from social media. The fallout drove sales down 13%.
The reaction was fueled by a Consumer Reports study published in April that found while lead and sodium levels were high in lunch kits from Armour (SFD), Target (TGT), and Oscar Mayer (KHC), they were much higher in Kraft Heinz Lunchables, raising the question as to whether these products should be offered to school-age children (the study found the school lunch versions contained even higher levels of heavy metals and phthalate levels than the store-bought versions).
The impact on sales was compounded by a reformulation of its popular Capri Sun juice pouches, dramatically cutting the sugar content and replacing it with monkfruit. The company reversed course and put most of the sugar back in, but Lavery warns that rebuilding customer traction will take time.
Although Lavery is still bullish on the incremental potential of the company’s initiatives to its Foodservice category (upgraded to Overweight from Neutral last month on the Foodservice outlook), the upside to revenue won’t be seen until 2025 and are not yet included in the firm’s estimates. As such, Lavery lowers his FY24 EPS estimate to $2.95 from $3.01, and for FY25 to $3.14 from $3.20. Both are below the Street’s consensus estimates of $3.03 and $3.20, respectively.