After dropping a planned brand divorce, Kraft Heinz says it is getting 'smarter'

Kraft Heinz didn't expect cheese to be a product with great promise. But that's just one of the things that CEO Steve Cahillane and his executive team learned over the past two months, as they shifted from pursuing a corporate split to fixing the company from the inside.

Other underappreciated products include Capri-Sun, a drink that can grow with its customers, transitioning from a children's juice beverage to adult hydration, now with electrolytes.

But frozen food, once thought to be a big potential winner, has been downgraded to "hold."

"We reserve the right to continue to get smarter. And that's what we've done," Cahillane told investors during the company's earnings call on Wednesday.

Cahillane's recipe for Kraft Heinz, as articulated in a strategic U-turn in February, was to add more marketing dollars and hold the market share of the packaged goods firm.

Co-headquartered in Pittsburgh and Chicago, the company announced earlier this year that it was cancelling a planned split that would have concentrated brands like Kraft Singles, Oneida and Maxwell House into a North American business and premium labels like Heinz, Philadelphia and Kraft Mac & Cheese into a globally focused entity.

Instead, Cahillane said Kraft Heinz would invest $600 million into better marketing, lower prices, smaller packages, more research and development and ramp up hiring.

The vast majority of that sum still remains to be spent.

"Pausing the split freed up lots of resources as we said it would, and we turned our attention and the attention of this entire organization to get off to a strong start," he said during the call.

Kraft Heinz has prioritized hiring in sales and marketing, which is expected to continue. It also said it is simplifying its organizational structure but did not provide specifics.

On Wednesday, as the company reported its first quarter results, it said that early indications validate its approach.

Income was $799 million, or 67 cents per share, compared with $714 million, or 59 cents per share a year ago. Sales were down slightly, but not as much as expected. That's because an earlier Easter holiday and people stocking up for January's winter storm padded revenue for the quarter.

But what ailed the retail environment three months ago continues to bruise it today, company leaders said.

Inflation may have peaked, but is expected to be between 3% and 5% this year, Kraft Heinz projects. Federal cuts to food assistance programs are already showing up in lower sales, and that is expected to continue, company leaders said. The war in the Middle East and low consumer sentiment make long-term predictions difficult.

Kraft Heinz has sorted its brands into three baskets: "hold," "win" and "win big."

For low-growth products, the company will spend only what is necessary to retain their market share, not to grow it. This includes brands like Oscar Mayer and Maxwell House.

For more promising products, like Lunchables and Jell-O, "we will invest selectively," Cahillane said.

Most of the money will go towards the "win big" crowd, brands like Heinz and Philadelphia.

So if you liked the newly launched Heinz Zero Ketchup - with no added sugar, half the calories and 25% less sodium, which "uses a higher proportion of tomatoes and sells for the same price as the original version" - you might want to check back later this year. Philadelphia will be releasing a lactose-free cream cheese, targeting the 50 million Americans whose lactose intolerance puts a damper on their breakfast spread options.

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