CHICAGO — Softness in the company’s macaroni and cheese business was emblematic of challenges faced by The Kraft Heinz Co. late in 2023, said Carlos A. Abrams-Rivera, chief executive officer.

In a Feb. 14 call with investment analysts, Abrams-Rivera explained why the macaroni and cheese business was weak and used steps Kraft Heinz is taking to reenergize the business as an example of how the company is adapting to a changing marketplace.

Net income at Kraft Heinz in the year ended Dec. 30, 2023, was $2.85 billion, equal to $2.33 per share on the common stock, up 21% from $2.36 billion, or $1.93 per share, in 2022. Net sales were $26.64 billion, up 0.6% from $26.49 billion in 2022.

Results in 2023 included $662 million in special charges, down from $913 million in 2022. Adjusted net earnings per share rose 7%, including a negative 2.1 percentage point effect from a 53rd week the year before. Adjusted for the extra week, organic net sales rose 3.4%.

Abrams-Rivera said Kraft Heinz achieved many objectives set at the start of last year.

“We laid out action plans early in 2023 to drive market share and volume improvement — and they worked,” he said. “We also executed well against our efficiency program.”

He also cited as a positive a strengthened balance sheet with a net leverage ratio of 3 times adjusted EBITDA at the end of the year, a leverage level in line with the company’s target.

Abrams-Rivera said Kraft Heinz’ share “recovered across key categories with sequential volume improvement throughout the year.”

Versus earlier guidance, 2023 results were a mixed bag. Adjusted sales growth of 3.4% compared with third-quarter guidance of 4% and 4% to 6% earlier in the year. Constant currency EBITDA growth of 5.1% was on the low side of 5% to 7% guidance a quarter ago and below 6% to 8% expected earlier in the year. The company beat its gross profit margin guidance, widening margins by 240 basis points, versus 125 to 175 points of improvement anticipated at the start of the year.

The results and guidance disappointed investors. In trading Feb. 14, Kraft Heinz shares traded on the New York Stock Exchange as low as $33.67, down $2.46, or 7%, from the Feb. 13 market close.

Fourth-quarter net income was $757 million, equal to 62¢ per share, down 15% from $890 million, or 73¢, in the final quarter of 2022. Net sales were $6.86 billion, down 7% from $7.38 billion. The impact of the 53rd week was cited as a contributing factor to the lower income and the lower sales.

While overall adjusted sales were down 3%, retail consumption decreased a more modest 1.6%, said Andre Maciel, executive vice president and global chief financial officer.

“This was primarily driven by the trade timing and (an) inventory de-load,” he said. “Furthermore, our topline was impacted by the decline in SNAP benefits that disproportionately impacted some of our categories where we over-index to SNAP consumers.”

Abrams-Rivera additionally cited a tougher consumer environment as an explanation for the difficulties facing the company overall and the macaroni and cheese business, specifically.

“Frankly, it’s a business that is driven disproportionately by our SNAP exposure,” he said. “So that affected some of the business in Q4.”

More generally, he said, “In the fourth quarter, the industry faced headwinds that were driven by ongoing consumer pressure. Looking ahead, we expect some of these pressures to dissipate, particularly as the reduction in SNAP benefits is lapped.”

Steps identified by Abrams-Rivera to bolster the macaroni and cheese business included the launch of a new marketing campaign and stepped-up innovation. New flavors and new packaging configurations are examples of innovation as is a new plant-based variety developed in partnership with TheNotCompany.

“We’re also making sure we continue to drive even better value with mac and cheese by leveraging the fact that we have in our portfolio, partnership that we can do with brands like Oscar Mayer to offer truly a complete meal solution for consumers, plus offering multipacks around 12 packs and 4 packs in different formats to different types of consumers who are looking for value.”

Finally, Abrams-Rivera said the company is focusing on maintaining or improving its relationship with retailers.

“We’re actually improving the overall assortment to optimize the traffic down the aisle,” he said.

Asked Feb. 14 by an investment analyst how Kraft Heinz management is “thinking about the consumer” going into 2024, Abrams-Rivera said consumer behavior shifts are not limited to those at the lower end of the economic ladder.

“Regardless of the income levels that consumer is looking for value and they continue to be under pressure,” he said. “What we see is low-income consumers are actually shopping more at places like dollar stores, higher income consumers, more club stores. But mostly, we are seeing them looking for overall, smaller trips to stretch their dollar further.”

Abrams-Rivera said Kraft Heinz is working to address these shifts by ensuring the company has value offerings and by broadening distribution to different channels. He said the company currently has 300 stock-keeping units in dollar stores.

“And year-over-year, we're going to be increasing about another 10% versus what we had in the past,” he said. “So we are making sure that we are in the right channels with the right assortment and continue to invest in our innovation.”

For higher income consumers, Kraft Heinz has introduced a number of brands into club stores, including Capri Sun and Lunchables. SKU count in club stores is expected by the company to increase by 20% in 2024.

Among marketing highlights in 2023, Abrams-Rivera noted the company’s first-ever global Heinz campaign, seeking to highlight “the irrational love for the brand, borne out of actual consumer stories.”  Spanning more than 16 countries, the campaign shines light on products beyond ketchup, including beans and mayonnaise.

“You can continue to expect more of this global approach as we look to generate best-in-class marketing activations,” he said.

New product highlights last year include Lunchables Grilled Cheesies in September, with more new products expected this year, Abrams-Rivera said.

For 2024, Kraft Heinz is forecasting organic net sales growth of zero to 2%. Pricing is expected to be positive all year, and volumes should turn positive in the second half, the company said.

After surging in 2023, adjusted gross profit margin is expected to widen modestly — 25 to 75 basis points — in 2024. Headwinds are anticipated for adjusted earnings per share, seen rising 1% to 3% in 2024. Expenses of $45 million including interest and other items are expected to keep a lid on growth.

For the past two years, Kraft Heinz has raised prices to offset inflation “dollar for dollar,” Maciel said. That won’t be the case in 2024, he said.

“In 2024, we are expecting to price approximately at 1% level, which is below the inflation that we’re expected at 3%,” he said.

To achieve the targeted level of gross margin improvement, enhanced efficiencies will be required, he said.