Kraft Heinz (KHC) Gains From Pricing Actions & Growth Pillars
Effective pricing strategies are working well for The Kraft Heinz Company KHC. The consumer products company is benefiting from strength in its three key pillars — Foodservice, Emerging Markets and U.S. Retail Grow platforms. However, the company is not immune to the rising cost environment.
Let’s delve deeper.
Pricing Actions
Kraft Heinz has been undertaking strategic pricing initiatives to improve its performance. Robust pricing strategies have been protecting the company’s margin performance amid inflation. The trend continued in the fourth quarter of 2023, wherein pricing rose 3.7 percentage points on higher list prices to counter escalated input costs. Pricing is likely to make a positive impact on organic net sales throughout 2024. The company’s quarterly adjusted gross margin expanded 260 basis points (bps) to 34.8% in the fourth quarter. Management expects a modest adjusted gross margin expansion in the 25-75 basis point band in 2024.
Growth Pillars Solid
Kraft Heinz is benefiting from strength in its three key pillars — Foodservice, Emerging Markets and U.S. Retail Grow platforms. In the Foodservice business, management is prioritizing higher margin spaces and undertaking customer-friendly innovations to drive growth. Kraft Heinz’s data-driven and repeatable go-to-market model has been yielding well across Emerging Markets. In the fourth quarter, the company’s Foodservice organic net sales grew nearly 7%. The company expects to keep seeing continued momentum in organic sales across Foodservice platform in 2024. Emerging Markets increased 12% during the quarter. Management envisions witnessing double-digit growth across Emerging markets in 2024. Talking about the U.S. Retail GROW platforms, Taste Elevation’s organic net sales went up low-single digits.
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Cost Woes Stay
Kraft Heinz continues to battle an inflationary environment, although the inflation has been moderating. The company saw nearly 3% inflation in the fourth quarter, mainly in tomatoes and sweeteners. Concurrently, the quarterly adjusted EBITDA declined 5.3% to $1,650 million. The downside was caused by elevated supply-chain costs reflecting inflationary pressure in manufacturing and procurement costs. SG&A investments associated with marketing, technology and research & development, an adverse volume/mix, higher commodity costs and currency headwinds also led to the downside. Also, KHC is battling greater-than-anticipated challenges as higher interest rates continue to put pressure on consumer spending.
Wrapping Up
Kraft Heinz is focused on enhancing productivity throughout its value chain and channeling operational efficiencies back into crucial areas. These investments remain pivotal to KHC’s strategic framework. Strength in transformations coupled with gains from the company’s three key pillars bodes well. Management expects organic net sales growth to come in the range of flat to up 2% in 2024. The adjusted earnings per share for 2024 is envisioned in the band of $3.01-$3.07, reflecting year-over-year growth.
The Zacks Rank #3 (Hold) company’s shares have increased 7.8% in the past six months compared with the industry’s 8.1% growth.
Solid Staple Bets
The Chef’s Warehouse CHEF, which engages in the distribution of specialty food products, currently carries a Zacks Rank #2 (Buy). CHEF has a trailing four-quarter earnings surprise of 3.2%, on average. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings suggests growth of 8.7% and 4.7%, respectively, from the year-ago reported numbers.
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The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings suggests growth of 18.6% and 35.6%, respectively, from the year-ago reported numbers.
Utz Brands Inc. UTZ, carrying a Zacks Rank #2, manufactures a diverse portfolio of salty snacks. UTZ has a trailing four-quarter earnings surprise of 2.6% on average.
The Zacks Consensus Estimate for Utz Brands’ current financial-year earnings suggests growth of 15.8% from the year-ago reported numbers.
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The Chefs' Warehouse, Inc. (CHEF) : Free Stock Analysis Report
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