Kraft Heinz KHC is benefitting from its robust product-development efforts and enterprise transformation strategies. Moreover, the company’s efficient pricing efforts bode well. Apart from these, Kraft Heinz is witnessing higher consumer demand for its products, courtesy of coronavirus-induced stockpiling. Kraft Heinz’s shares have increased 3.6% in the past six months against the industry’s decline of 7.8%.
Efficiency Building Plans on Track
In order to ramp up overall business, Kraft Heinz laid down certain enterprise transformation strategies. In this context, the company is on track to build efficiency across its supply chain, with particular emphasis on procurement, manufacturing and distribution. During third-quarter 2019, management had implemented nine transformational projects to strengthen some of the core areas of the business. Among them, five projects are directed toward bolstering the top line, two for enhancing operational efficiencies and the remaining for increasing effectiveness. Another important focus-area of the company is its workforce. Management believes that strength in its people plays a key role in realizing the company’s strategic goals. As a result, the company has undertaken several moves to strengthen its leadership.
In terms of cost savings, the company has been increasing visibility and control of its cost components, especially in areas such as marketing and e-commerce. It is also keeping a close watch on investments made for enhancing sales and customer services. Further, the company is in the process of identifying cost-curtailment opportunities across the supply chain. It is also seeking to induce efficiency across operations.
Product Development Efforts
Kraft Heinz is focused on improving the performance of its key brands. Management earlier outlined that the company will make significant investments in marketing, go-to-market capabilities and product development. The company is on track with identifying areas that hold significant growth opportunities and is undertaking product development efforts. Kraft Heinz has been adjusting various product innovations amid the coronavirus outbreak, which is an integral part of the company’s growth strategies. Moreover, management is undertaking efforts to boost the e-commerce channel. Such well-chalked efforts have been aiding growth across several business categories.
Hurdles on the way
Rising costs have been a worry for the company for a while. In the first quarter, rise in supply-chain costs, witnessed in the United States, International and Canada segments, were a headwind. Another factor ailing the company is unfavorable currency movements. During the first quarter, currency movements had an adverse impact of 1.1% on the top line.
Nevertheless, solid pricing initiatives have been aiding Kraft Heinz for a while now. In the first quarter, overall pricing was up 1.6%, driven by price improvements in the United States and International markets. During the quarter, pricing in the United States moved up 2.4% owing to increased list prices. Within International markets, pricing increased 1.7% due to better prices in Latin America, Australia and the U.K. We believe that this Zacks Rank #3 (Neutral) company’s robust pricing actions are likely to help mitigate adverse impacts of cost inflation.
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Church Dwight CHD, with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 8.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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