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Kraft Heinz (KHC) Brings Agility to Scale, Operating Model Solid

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The Kraft Heinz Company KHC has been reaping benefits from bringing agility to its scale. The company’s focus on its operating model is yielding, despite the pandemic and inflation. It is enhancing its iconic brands to better support greater at-home consumption. Moreover, management is focusing on Taste Elevation platform worldwide.

Kraft Heinz has been boosting the U.S. business with a consumer-centric focus. The company is working on its platform-based approach via increasing investments in marketing and sales capabilities. Kraft Heinz’s U.S. business is gaining from restoration of key retail activations like back-to-school events.

Based on its performance to date, Kraft Heinz still expects to post adjusted EBITDA of more than $6.1 billion in 2021. The company has been undertaking pricing actions to counter cost inflation that include the impacts that are likely to persist in the next year. Management highlighted that it has raised price for almost two thirds of the U.S. portfolio. It is committed toward undertaking incremental pricing actions if input costs continue to increase. Talking about 2022, Kraft Heinz noted that it expects to sustain consumption levels, which are faring better than pre-pandemic levels. It also expects to maintain its impressive margins across the industry and manage cost headwinds effectively.

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Operating Model & Pricing Strategies

Solid pricing initiatives have been helping Kraft Heinz for a while now. In second-quarter 2021, pricing moved up1.5 percentage points year over year with growth in all the reporting segments. The upside can be attributed to favorable trade expenses timing in the United States along with higher inflation-justified pricing in the foodservice as well as retail channels. During the quarter, pricing in the United States moved up 1.3 percentage points. In Canada and International markets, pricing rose 1.9 percentage points each.

In September 2020, Kraft Heinz laid out a new operating model that incorporates five key elements — People with Purpose, Consumer Platforms, Ops Center, Partner Program and Fuel Our Growth. The Consumer Platforms represents a portfolio of six consumer-driven platforms like Taste Elevation, Easy Meals Made Better as well as Real Food Snacking among others. It is focused on accelerating its international growth strategy based around the Taste Elevation and foodservice platform.

The Ops Center element will enable Kraft Heinz to establish an efficient, fast and integrated supply chain network. Management is on track to achieve $2-billion gross productivity efficiencies through 2024. It expects to deliver $400-million gross efficiencies in 2021. The Partner Program element is designed to create solid customer partnerships as well as develop new strategic partnerships.

The Zacks Rank #3 (Hold) company’s shares have increased 6.9% so far this year against the industry’s 0.2% decline.

Some Better-Ranked Food Picks

Darling Ingredients Inc. DAR, currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 39.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Medifast, Inc. MED, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 16%, on average.

Sysco Corporation SYY, currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 13.3%, on average.

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