Kraft Heinz (NASDAQ: KHC) saw its shares tick up modestly in premarket trading on Wednesday after the company delivered a second-quarter revenue beat and raised its full-year organic sales outlook, though profit guidance trailed the more upbeat sales forecast.
The packaged food giant now expects organic net sales for 2026 to decline between 2.0% and rise 0.5%, compared with the previous range of a 3.5% decline to a 1.5% increase. The midpoint of that range moved up by 125 basis points, signaling improving top-line momentum. However, the adjusted earnings per share forecast was only nudged higher by two cents to a midpoint of $2.06, a roughly 1% increase, reflecting ongoing margin pressures.
For the second quarter, Kraft Heinz reported net sales of $6.262 billion, down 1.4% year-over-year but topping LSEG consensus estimates by $142 million. Adjusted EPS came in at $0.56, beating the $0.53 consensus by $0.03. Despite the revenue beat, adjusted operating income fell 18.4% to $1.041 billion, and the adjusted operating margin contracted by 346 basis points to 16.6%.
The profit decline was attributed to increased advertising spending, soft volume/mix, logistics inflation, and higher variable compensation. These headwinds outweighed the benefits of cost-saving initiatives and pricing improvements. On a GAAP basis, the company recorded a massive $6.4 billion operating loss, driven largely by a $7.4 billion non-cash impairment charge.
North America remained the primary source of weakness, with organic sales declining 2.7% and volume/mix down 3.8 percentage points. Price contributed 1.1 points, but that was not enough to offset the volume decline. International Developed Markets saw organic sales fall 0.7%, while Emerging Markets posted a robust 8.5% organic sales increase, helped by both higher pricing and strong volumes.
CEO Steve Cahillane said the company is investing more behind its brands, with an additional $100 million in 2026 investment bringing the total to nearly $700 million. “We have seen that our brands respond well when we invest behind them,” he said in a statement. The increased investment is a key factor behind the profit guidance lag, as the company prioritizes market share gains over short-term profitability.
The company also updated its constant-currency adjusted operating income outlook, now expecting a decline of 18% to 16% at the midpoint, one percentage point worse than prior guidance. Adjusted gross margin guidance was improved slightly, with a decrease of 50 to 10 basis points versus the prior 75 to 25 basis point decline. Free cash flow conversion is now expected at roughly 110%, up from about 100%.
In premarket trading, Kraft Heinz shares rose 0.23% to $26.70, trailing gains at General Mills (GIS) and Mondelēz International (MDLZ) but outperforming The Campbell's Company (CPB). FactSet data showed a consensus Hold rating, with 15 of 22 analysts recommending hold. The average price target stands at $23.13, while the high target is $26, implying shares are trading above analyst expectations.
Cash flow provided some balance, with first-half free cash flow up 10.3% to approximately $1.66 billion and conversion at 123%. The company distributed $949 million in dividends. However, risks remain, including continued volume declines in North America, upcoming expiration of certain resin and metal hedges that will increase spot exposure, and a projected 100-basis-point headwind from SNAP benefit changes.
The updated guidance still does not reflect a clear translation of sales gains into operating profit, which will be a key test for the company in the second half of the year.
