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The Kraft Heinz Comeback Continues

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The Kraft Heinz Co. (NASDAQ:KHC) topped analyst estimates for the first quarter of 2022 and upped both its full-year projection for organic net sales and product pricing in order to combat inflation.

The food and beverage product manufacturer on Wednesday reported financial results for three months ended March 26 that reflected strong price realization, resilient retail demand and foodservice growth. Its board of directors also declared a regular quarterly dividend of 40 cents per share, payable on June 24 to stockholders of record as of May 27.


Diluted earnings were 63 cents per share, up 37% versus the prior-year quarter. Adjusted earnings per share were 60 cents, down 16.7% versus the same period, primarily driven by lower adjusted Ebitda.

The results, as good as they are, are driven in large part by higher prices and only partially offset YOY declines attributable to tough comps and divestitures, Entrepreneur.com noted. The takeaway for us, however, is that the Kraft Heinz turnaround story remains intact. Not only that, the turnaround is gaining momentum and that is in line with the overall investment thesis. The stock bottomed after a series of negative events and now there is a reversal in play that we still see driving triple-digit gains for investors.

Kraft Heinz stock has risen 19% over the past year. At noon on Wednesday, shares were trading at $43.10, up 1.86% or 78 cents per share.

The Kraft Heinz Comeback Continues
The Kraft Heinz Comeback Continues

Regardless, the GF Score of 71 out of 100 indicates the stock is likely to have average performance going forward, receiving high marks for momentum and profitability, a middling grade for financial strength and low ranks for growth and GF Value.

The Kraft Heinz Comeback Continues
The Kraft Heinz Comeback Continues

"Our first quarter was a strong start to the year and yet another period where our team rose to mitigate new and different macro environment challenges," Kraft Heinz CEO Miguel Patricio said in a release. "We continue to build critical capabilities, greater corporate agility, and additional financial flexibility to address short-term turmoil while building our long-term advantage. We still have work to do, more opportunity ahead, and we remain confident in our ability to deliver our plan for the year as well as our long-term growth strategy."

During the years initial quarter, net sales decreased 5.5% versus the year-ago period to $6 billion, including a -11.2 percentage point impact from divestitures net of acquisitions and a -1.1 percentage point impact from currency, the company said. Organic net sales increased 6.8% versus the prior years period.

Pricing was up 9 percentage points versus the year-ago period with growth across each reporting segment that was primarily driven by increases to mitigate rising input costs in retail and foodservice channels. Volume/mix declined 2.2 percentage points versus the prior-year period, reflecting supply constraints that were partially offset by strong demand for products in retail and a continued recovery in foodservice channels.

Net income increased 37.5% versus the year-ago period to $781 million, primarily driven by lower non-cash impairment losses in the current year, lower interest expense primarily due to debt extinguishment costs in the prior-year period and favorable changes in other expenses.

Management said the company continues to expect strong financial performance in 2022. It has raised expectations for 2022 organic net sales to a mid-single-digit percentage increase versus the prior-year period, reflecting strong performance to date, ongoing business momentum and additional pricing actions to mitigate ongoing inflation. Executives continue to expect adjusted Ebitda to be in the range of $5.8 billion to $6 billion with a 48% to 52% first-half to second-half split.

This article first appeared on GuruFocus.