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Kraft Heinz (KHC) Gains on Higher Demand; Outlines Cost Woes

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Zacks Equity Research
·4 min read
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The Kraft Heinz Company KHC is in good shape courtesy of its focus on growth-oriented operating model, which was laid out in September 2020. Moreover, the company is gaining from burgeoning demand amid the pandemic-led higher at-home consumption. That said, Kraft Heinz is battling higher costs and volatile foreign currency movements.

Let’s delve deeper.

Factors Working in Favor of Kraft Heinz

Kraft Heinz’s latest operating model incorporates five key elements —People with Purpose, Consumer Platforms, Ops Center, Partner Program and Fuel Our Growth. Notably, 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. Ops Center element will enable Kraft Heinz to establish an efficient, fast and integrated supply chain network. In fact, management expects to achieve nearly $2 billion of gross productivity efficiencies through 2024.

Further, Partner Program element is designed to create solid customer partnerships and develop new strategic partnerships. Lastly, the Fuel Our Growth strategy is aimed at investing in growth opportunities, solidifying long-term market position and consistently boosting shareholders’ returns. Also, this strategy will help the company manage its portfolio and accelerate its strategic plan, augment geographic presence, increase focus on growth areas as well as undertake sustainable pricing actions. During September 2020, Kraft Heinz announced an agreement to offload its Natural, Grated, Cultured and Specialty cheese businesses to a U.S. affiliate of Groupe Lactalis.


Apart from these, Kraft Heinz is witnessing rising demand for its products thanks to the coronavirus-led higher at-home consumption. In fact, burgeoning demand amid the pandemic bolstered the company’s third-quarter 2020 results, with the top and the bottom line advancing year over year and beating the Zacks Consensus Estimate. On its last earnings call, Kraft Heinz projected organic net sales growth in mid-single-digit range for the fourth quarter. Further, the company anticipates high-single-digit constant currency adjusted EBITDA growth during the quarter. For 2020, management projected organic net sales growth in mid-single-digits. Constant currency adjusted EBITDA growth for 2020 is envisioned in high-single digit range.

Wrapping Up

Kraft Heinz has been witnessing an increase in selling, general and administrative expenses for a while now. In the third quarter of 2020, SG&A expenses increased from $767 million reported in the year-ago quarter to $1,197 million. Apart from these, the company’s international presence exposes it to unfavorable currency movements. During the third quarter, currency movements had an adverse impact of 0.3 percentage points on the top line.

Nonetheless, we believe that this Zacks Rank #3 (Hold) company’s aforementioned upsides are likely to keep driving growth. Kraft Heinz’s shares have increased 4.4% in the past three months compared with the industry’s growth of 3.6%.

Better-Ranked Food Stocks

Darling Ingredients DAR, a Zacks Rank #2 (Buy) stock, has a trailing four-quarter earnings surprise of 26.3%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Hain Celestial HAIN, currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 24.6%, on average.

B&G Foods, Inc. BGS currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 9.3%, on average.

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