The Kraft Heinz Company (KHC Quick QuoteKHC - Free Report) has a successful track record of acquisition-led growth. Though cost inflation threatens performance, the company’s justified pricing actions have been offering relief.

Let’s discuss this in detail.

Acquisitions Fuel Growth

Kraft Heinz undertakes strategic acquisitions to increase its presence. In April 2022, Kraft Heinz acquired a majority stake in a Brazil-based condiments and sauces company — Companhia Hemmer Industria e Comercio ("Hemmer"). The buyout has widened Kraft Heinz's International Taste Elevation platform and enhanced its presence across emerging markets. In January 2022, KHC acquired an 85% stake in Germany-based Just Spices GmbH (“Just Spices”). The buyout enhanced its direct-to-consumer operations and go-to-market expansion. Certainly, Kraft Heinz is on track with managing its portfolio and accelerating its strategic plan, augmenting geographic presence and increasing focus on growth areas.

Several other companies in the food space, like The Hershey Company (HSY Quick QuoteHSY - Free Report) , Hormel Foods Corporation (HRL Quick QuoteHRL - Free Report) and McCormick & Company, Incorporated (MKC Quick QuoteMKC - Free Report) , are benefiting from acquisitions.

Hershey has been actively pursuing acquisitions to bolster its product portfolio and increase its revenues. This strategic approach was highlighted in April 2023 when HSY revealed its purchase of two manufacturing facilities from Weaver Popcorn Manufacturing. In December 2021, Hershey acquired Dot’s Pretzels LLC — the owner of Dot’s Homestyle Pretzels. The company also purchased Pretzels Inc. from an affiliate of Peak Rock Capital.

Hormel Foods is strengthening its business through strategic acquisitions. In the fourth quarter of fiscal 2022, HRL announced its acquisition of a minority stake in Indonesia-based food and beverage company PT Garudafood Putra Putri Jaya Tbk. The move will likely help Hormel Foods expand its presence in Indonesia and Southeast Asia. In June 2021, HRL acquired the Planters snacking portfolio from Kraft Heinz.

McCormick has strategically increased its presence through acquisitions and strengthened its portfolio. In December 2020, MKC bought a 100% stake in FONA International, LLC and some affiliates. FONA’s diverse portfolio helps McCormick bolster its value-added offerings and expand the flavor solutions segment into attractive categories. In November 2020, McCormick acquired the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand.

Cost Woes: A Concern

Kraft Heinz has been grappling with the inflationary environment, although the inflation continues to moderate. In its last earnings call, management highlighted that it expects mid to high-single-digit inflation in 2023, including low to mid-single-digit inflation in the year's second half.

Pricing Offers Respite to Kraft Heinz

Kraft Heinz has been on track to navigate cost challenges through its pricing initiatives. In second-quarter 2023, the company’s pricing rose 11 percentage points, reflecting higher list prices. In the North America and International segments, pricing increased 9.4 and 16.5 percentage points, respectively. Robust pricing efforts boosted the company’s quarterly net sales, which rose 2.6%. Management expects an adjusted gross margin expansion, driven by pricing and gross efficiencies, in 2023.

The continuation of strategic pricing actions and other upsides are expected to benefit Kraft Heinz.