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Bear of the Day: Kraft Heinz (KHC)

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Pittsburgh-based The Kraft Heinz Company KHC is one of the largest consumer packaged food and beverage companies in North America. It manufactures and markets products like condiments and sauces, cheese as well as dairy, meats, refreshment beverages, coffee, and other grocery items. Popular brands include Heinz, Kraft, Oscar Mayer, Planters, Philadelphia, Velveeta, Lunchables, Maxwell House, Capri Sun, and Ore-Ida.

Q4 Earnings Weak

Shares of KHC slid as much as 7% after the packaged food giant released disappointing fourth quarter results.

Organic sales (which takes out the impact of divestitures, acquisitions, and foreign currency) fell 2.2%; sales volume and mix also dropped 4.2%, demonstrating that its brands are losing some market share.

In the U.S., Canada, and Rest of World regions, organic sales decreased, but Europe, Middle East, and Africa saw a small jump of 0.3%.

Total revenue declined 5.1% to $6.54 billion while adjusted earnings, despite beating our consensus estimate, declined 14.3%.

Management did not provide any guidance, but said that at its investor conference in May, it would outline a turnaround strategy.

 

The Kraft Heinz Company Price and Consensus

 

KHC is now a Zacks Rank #5 (Strong Sell).

Shares of the consumer staples stock are down over 15% year-to-date, and have lost more than 43% in the last one year. The S&P 500 is up 3.2% and 19.7% in comparison.

Looking Ahead

"While our 2019 results were disappointing, we closed the year with performance consistent with our expectations, and driven by factors we anticipated…Our turnaround will take time, but we expect to make significant progress in 2020, laying a strong foundation for future growth,” said new CEO Miguel Patricio. Patricio took the helm about eight months ago.

Changing consumer tastes is also negatively affecting Kraft Heinz, as more and more shoppers choose organic and natural items over its core packaged food brands. There’s also the matter of debt. KHC currently has $30 billion in debt on its balance sheet.

Kraft Heinz has many challenges ahead of it, but management is looking towards cutting costs, optimizing marketing spending, and focusing on products with the best returns to help the company in the near-term.

Investors who are interested in adding a consumer staples peer should look at foodservice distributor US Foods (USFD - Free Report) . This Zacks Rank #1 (Strong Buy) stock is looking at 13.8% earnings growth for fiscal 2020.

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