Big Food makers Kraft Heinz and Kellogg both said delayed tax returns partly hurt U.S. sales in the first quarter of 2017.
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Delayed tax returns pressured consumer spending.

By John Kell
May 4, 2017

Kraft Heinz and Kellogg are the latest Big Food manufacturers to blame soft sales in the United States on an industrywide slowdown in demand for packaged foods.

Both companies said this week that the declining demand was particularly noticeable in January, before moderating a bit in February and then showing some signs of recovery in March and April. The demand woes are essentially tied to three main factors: Across the industry, retailers still had to unload food shipments from the fourth quarter, resulting in some delayed ordering at the start of 2017; executives also blamed a delay in tax refunds for hurting consumer demand during the quarter; and then there was a shift in the timing for Easter—the holiday landed in March for 2016 but April this year.

Sales for the first quarter of the year were also soft at Coca-Cola ko and PepsiCo pep .

“Like virtually every packaged food company, we experienced a suddenly lower consumption trend across all categories in the U.S.,” said Kellogg k CEO John Bryant in a presentation with Wall Street analysts on Thursday. “In our business, we saw the worst of it in January, moderating but still soft in February, and then in March and April showing signs of returning to the run rates we saw in [the] fourth quarter and full year 2016.”

Kellogg reported first-quarter sales declines in its North American market, posting a 4.2% drop in reported sales to $2.29 billion. Revenue was especially weak for the company’s morning foods and snacks categories. Because of the slow start to 2017, Kellogg now sees a full-year sales decline of about 3%, worse than its prior estimate of a 2% drop.

The company did express some hope that innovations planned for its Special K and Mini-Wheats cereals for the second quarter would resonate with consumers. Kellogg said it also gained market share in the cracker aisle, led by Kellogg’s “Big 3” brands in that space (Cheez-It, Club and Town House).

On Wednesday evening, Kraft Heinz khc reported a 3.5% drop in U.S. sales to $4.6 billion, a decline that was worse than the company’s total global drop of 3.1%. Kraft Heinz said the declines were mostly tied to sales weakness in cheese, meats, and nuts, though its Lunchables brand continued to grow.

The soft first-quarter results are the latest challenge that Big Food must confront: Larger food and beverage manufacturers have faced tough growth prospects for many of their legacy brands as consumers tilt toward healthier fare and show more support for startup brands. Amid that backdrop, a number of industry watchers have called on dealmaking as a solution, Kraft Heinz is at the center of this speculation after its $143 billion merger bid for Unilever ul , the European maker of Lipton teas and Hellmann’s mayo, was rebuffed.

In a conference call with analysts on Wednesday, Bernstein’s Alexia Howard asked Kraft Heinz about the potential appetite for dealmaking amid concerns that a target might not want to be acquired because of the company’s reputation for aggressive cost cutting. “I guess the fear is that the board’s a potential target. Companies wouldn’t want their legacy to be signed to a company that could then somehow damage what they’ve been building up over the decades,” Howard said.

“We need to separate what’s perception and what are facts,” Kraft Heinz CEO Bernardo Hees said in response to Howard’s question. He went on to say that Kraft Heinz’s culture is consistent, listing five core principles including high performance and opaquely, “dreaming big.” He said that the company’s culture wouldn’t make it more difficult to do another deal down the road.

Some Wall Street analysts, weighing in on the results from Kraft Heinz, honed in on comments from management that the company has expanded the scope of its M&A strategy to “consumer goods,” rather than just focusing on food and beverage. That partly explains the rationale for the failed bid for Unilever which sells Axe body spray, Dove soap, and many other brands outside of food/beverage.

Pablo Zuanic, a senior equity analyst at SIG, in a research note published after Wednesday’s results speculated that Kraft Heinz’s future targets could include Colgate-Palmolive cl and Clorox clx .

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