Kraft Heinz (KHC) Gains on Solid Pricing & Transformation
The Kraft Heinz Company KHC is benefiting from strategic pricing actions amid an inflationary environment. The iconic consumer packaged food and beverage company is focused on transforming its business to unleash its full potential.
KHC’s shares have increased 16.6% in the past three months compared with the industry’s 10.1% growth.
Let’s delve deeper.
Pricing Actions Fuel Growth
Solid pricing initiatives have been aiding Kraft Heinz for a while now. In third-quarter 2022, the company’s pricing rose 15.4 percentage points year over year, reflecting growth in both segments. The upside can be attributed to measures undertaken to counter increasing input costs. In the North America segment, pricing moved up 15.3 percentage points. The International segment’s pricing moved up 15.7 percentage points. Robust pricing efforts boosted quarterly net sales, increasing year over year and beating the Zacks Consensus Estimate. The company generated net sales of $6,505 million, up 2.9%, while organic net sales increased 11.6%.
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Growth Efforts on Track
The Zacks Rank #3 (Hold) company’s top-line momentum is driven by three pillars of growth, including Consumer Platforms, Foodservice opportunities and expansion in Emerging Markets. In its last earnings call, management highlighted that it remains encouraged about sales growth in its segments, driven by its three growth pillars — GROW platforms in North America, Foodservice and Emerging Markets.
In the third quarter of 2022, demand in GROW platforms across North America, including Taste Elevation, was solid. The company’s Foodservice business across North America and International Zone is growing faster than the industry. The company witnessed accelerated organic net sales growth across the emerging market.
Management has been expanding its presence in Emerging Markets via a sustainable and repeatable Go-To-Market model delivering accelerated growth. In April 2022, Kraft Heinz acquired a majority stake in a Brazil-based condiments and sauces company — Companhia Hemmer Indústria e Comércio ("Hemmer"). In January 2022, Kraft Heinz acquired an 85% stake in Germany-based Just Spices GmbH (“Just Spices”). Management acquired the sauces-focused business — Assan Foods — from privately-held Turkish conglomerate Kibar Holding in October 2021.
The company is committed to accelerating its profit and boosting long-term shareholders’ value. As part of its transformation phase, management unveiled AGILE@SCALE in February 2022. The strategy will help Kraft Heinz to enhance its agile expertise and capabilities via partnerships with technology giants and cutting-edge innovators.
Hurdles on the Way
In the third quarter of 2022, Kraft Heinz’s gross profit of $1,843 million declined by 9.1% from the $2,028 million reported in the year-ago quarter. Adjusted EBITDA fell 5.5% to $1,398 million, reflecting the adverse impact of divestitures and unfavorable currency translation. The company’s adjusted EBITDA was hurt by escalated commodity costs (particularly across dairy, soybean, packaging materials, energy and vegetable oils), supply-chain costs (including inflation across logistics, procurement and manufacturing costs) and an adverse volume/mix.
In its last earnings call, management highlighted that it expects the industry to continue facing several headwinds like elevated input costs, ongoing supply chain challenges, currency volatility and increasing interest rates. Such headwinds continue to impact below-the-line costs and consumer health and consumption trends.
Nevertheless, the upsides mentioned above are likely to keep Kraft Heinz afloat amid such hurdles.
3 Solid Staple Picks
Some other top-ranked stocks are Conagra Brands CAG, Lamb Weston LW and Mondelez International, Inc. MDLZ.
Conagra Brands, operating as a consumer-packaged goods food company, currently sports a Zacks Rank of 1 (Strong Buy). CAG has a trailing four-quarter earnings surprise of 8.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Conagra Brands’ current financial year sales and earnings suggests growth of 6.8% and 11.9%, respectively, from the corresponding year-ago reported figures.
Lamb Weston, a leading global manufacturer, marketer and distributor of value-added frozen potato products, currently sports a Zacks Rank #1. LW has a trailing four-quarter earnings surprise of 52.6%, on average.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales suggests growth of 20% and 79.3%, respectively, from the corresponding year-ago reported figures.
Mondelez International, which manufactures, markets, and sells snack food and beverage products, carries a Zacks Rank 2 (Buy). MDLZ has a trailing four-quarter earnings surprise of 6.4%, on average.
The Zacks Consensus Estimate for Mondelez’s current financial-year sales and earnings suggests growth of 8.7% and 2.4%, respectively, from the corresponding year-ago reported figures.
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Conagra Brands (CAG) : Free Stock Analysis Report
Mondelez International, Inc. (MDLZ) : Free Stock Analysis Report
The Kraft Heinz Company (KHC) : Free Stock Analysis Report
Lamb Weston (LW) : Free Stock Analysis Report
