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• Volumes maintained their downward momentum in Q4, dropping by 4.1 pts, engulfing a minor 1 pt contribution from price to result in a 3.1% decline in organic net sales yr/yr. Adjusted EPS did exceed estimates, expanding by 7.8% yr/yr to $0.84.
• A constrained end consumer remains a nagging headwind for KHC. Going into 2024, KHC was optimistic that consumer demand would hold. However, macroeconomic challenges proved more intense than initially thought. A core problem for KHC is that its brands compete in a relatively elastic price environment, given the number of substitutes. For instance, several brands compete in condiments, ice cream, juice, and frozen meals.
• KHC is also noticing consumers increase the number of locations where they buy their food, showcasing clear bargain hunting trends. KHC is also observing smaller basket sizes per trip. However, consumers are stepping up their trip frequency. As such, KHC is focused on ensuring it has the right price and the right distribution across different channels.
• Consumers may also be growing more accustomed to buying on deals, making promotions more hurtful to margins. KHC commented on this, noting that not all promotions work like they used to. There are areas where KHC is beginning to contemplate a base price change instead of a promotion since it tends to see higher buying frequency with promotions rather than steep discounts generating volume spikes.

Current consumer trends are going to remain a headwind for KHC in FY25, evidenced by its downbeat FY25 earnings guidance of $2.63-2.74 and organic net sales growth outlook of flat to down 2.5%. The company expects only minor margin expansion, somewhere around flat to up 20 bps, well below the 100 bp jump it registered in FY24. To counter the current landscape, KHC is shifting focus toward marketing in 2025, showcasing its brand advantage over its competitors. While this is a good way for name brands to extract gains, without a material change in the demand environment, KHC may struggle again this year. Inflation is starting to creep higher, which may only magnify current unfavorable consumer trends.