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Kraft Heinz's Transformation Strategies & Pricing Bode Well

Zacks Equity Research

Kraft Heinz KHC looks well-placed on the back of itsenterprise transformation strategies and robust product-development efforts. Moreover, the company’s efficient pricing strategies bode well.

Apart from these, Kraft Heinz has been witnessing higher consumer demand for its products. This can be attributed to panic-induced stockpiling amid the coronavirus outbreak. Impressively, this was seen in the company’s first-quarter 2020 results wherein, net sales increased 3.3% year over year and organic sales rose 6.2%. In fact, for the second quarter, the company anticipates a low- to mid-single-digit organic net sales growth year over year. The outlook reflects increased demand from retail customers, owing to greater at-home consumption amid the coronavirus outbreak, especially in developed markets.


Factors Working Well for Kraft Heinz

The company has been on track with certain enterprise transformation strategies. In this context, ithas been focused on building efficiency across its supply chain, with particular emphasis on procurement, manufacturing and distribution. During third-quarter 2019, management 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.

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. Kraft Heinz is on track with examining its SKU’s to remove complexities and boost mix.

Apart from this, Kraft Heinz remains focused on improving the performance of the three key brands and product categories. Although the company has been adjusting various product innovations amid the coronavirus outbreak, innovation has been an integral part of its growth strategies. Moreover, it is undertaking efforts to boost the e-commerce channel. Such well-chalked efforts have been aiding growth across several business categories.

Solid pricing initiatives have also been aiding the company for a while now. Markedly, in the first quarter of 2020, overall pricing was up 1.6%, driven by price improvements in the United States and International markets. We believe that the company’s robust pricing actions are likely to help it to mitigate the adverse impacts of cost inflation and unfavorable currency-related headwinds.

We expect the upsides to aid this Zacks Rank #2 (Buy) company. Kraft Heinz’s shares have dipped 1% in the past three months compared with the industry’s decline of 11.7%.

Other Solid Food Stocks

General Mills GIS has a long-term earnings growth rate of 7.5% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Campbell Soup Company CPB has a long-term earnings growth rate of 7.2% and a Zacks Rank #2.

Conagra Brands CAG has a long-term earnings growth rate of 7% and a Zacks Rank #2.

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