PITTSBURGH – A $2.9 billion impairment charge pushed the Kraft Heinz Co. into the red during the second quarter of fiscal 2020. The charge overshadowed organic sales growth of 7.4% when compared to the same period of the previous year and was fueled by increased demand at retail due to the coronavirus (COVID-19) pandemic.

Kraft Heinz took two charges — a $1.8 billion non-cash impairment charge and a $1.1 billion intangible asset impairment charge. Businesses affected by the $1.8 billion write down included Canada Retail, US Foodservice and Canada Foodservice.

Under the intangible asset charge the company recorded a charge of $626 million related to the Oscar Mayer brand, $140 million against the Maxwell House coffee brand and $290 million that was associated with seven other brands.

As a result, the Kraft Heinz Co. recorded a loss of $1.7 billion during the quarter ended June 27. The company earned $449 million, equal to 37¢ per share on the common stock, during the same period of the previous year.

Quarterly sales ticked up to $6.7 billion during the quarter from $6.4 billion the year before.

“It's (a) tremendous and abrupt shift in consumer behavior that we are witnessing,” said Miguel Patricio, chief executive officer, during a July 30 conference call to discuss the results. “These are sales of food and beverage products, not microchips, so to describe the magnitude of this channel shift as unprecedented feels like an understatement.”

In Kraft Heinz’s United States business unit sales rose 8.5% to $4.9 billion. Fueling the increase were volume/mix growth of 6.2% and pricing, which contributed 2.3%.

“Household penetration is one of the inherent strengths of our portfolio relative to the industry, and you would think that there was not much more room to go, but our household penetration has strengthened further in the latest 15 weeks,” said Carlos A. Abrams-Rivera, US zone president. “In fact, 75% of our brands are growing household penetration, and the majority of our brands growing household penetration are up double-digit percentage points versus the same period last year.”

But some brands were challenged during the quarter due to supply chain issues.

“In areas like our Oscar Mayer Meats and Kraft Singles businesses, our share has been negatively impacted by sustained elevated consumption versus supply chain constraints, while more vertically integrated players have been able to shift capacity from their foodservice businesses to retail,” Abrams-Rivera said. “So, while we’re growing strongly in those businesses, we are seeing some share loss. Elsewhere in the portfolio, Heinz, Jell-O, Ore-Ida are gaining share even with this accelerated consumption.”

International unit sales fell less than 1% to $1.3 billion. A negative 6.2% impact from currency offset organic net sales growth of 5.5%. In the Canada unit sales fell 24% to $426 million due to the divestiture of the Canadian natural cheese business and an unfavorable impact from currency.

Management did not offer guidance, but Paulo Luiz Araujo Basilio, global chief financial officer, expressed optimism about the company’s performance during the second half of the year.

“We have had stronger-than-expected results through the first half of the year,” he said. “Solid execution across the company keeps us cautiously optimistic for the balance of the year.”

For his part, Patricio iterated that the company remains in the midst of a transformation.

“We remain at the beginning stages of our turnaround and are still not where we want to be on several fronts,” he said. “We have done a lot to adapt to the pandemic, but we are also implementing a new operating model to improve our performance on a sustainable basis. We are making significant changes to how we work, how we are organizing our business, how we are developing our capabilities and how we are reinvesting in the business.”

In the near term, he said the company’s focus will be on keeping new consumers who have tried Kraft Heinz products during the past three months.

“This is a blast that we have new consumers trying, experimenting, repeating the trial and has to be our obsession to keep them with us so we can, in 2021, progress,” he said. “If the pandemic continues in 2021, and we'll continue with that, then that will play in our favor. If not, we have a base of consumers that is higher than we had before. And they tried and they continue trying, they continue consuming, and we want them with us.”