The Kraft Heinz Company (KHC - Free Report) is benefiting from its robust enterprise transformation plans and product development efforts. Moreover, the company’s effective pricing strategies are yielding. Apart from these, Kraft Heinz is witnessing higher consumer demand, stemming from escalated at-home consumption and more cook-at-home amid the coronavirus pandemic. Notably, the company’s shares have increased 35.5% in the past six months compared with the industry’s growth of 9.1%.
What’s Driving Kraft Heinz’s Growth?
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. In third-quarter 2019, management implemented nine transformational projects to strengthen some of the core areas of the business. Among them, five projects were directed toward bolstering the top line, two for enhancing operational efficiencies and the remaining for increasing effectiveness.
In terms of cost savings, the company is 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, Kraft Heinz is on track to examine its SKU’s to remove complexities and boost mix.
Moving on, Kraft Heinz is focused on improving the performance of its key brands like Heinz, Kraft and Planters. Management earlier outlined that the company will make significant investments in marketing, go-to-market capabilities and product development. It is on track with identifying areas that hold significant growth opportunities and is undertaking product-development efforts. Moreover, the company is undertaking steps to boost the e-commerce channel. Such well-chalked-out actions are driving growth across several business categories.
Apart from these, Kraft Heinz’s pricing initiatives are yielding results. In the second quarter of 2020, overall pricing was up 2.2 percentage points, driven by reduced promotional activities. During the quarter, pricing in the United States moved up 2.3 percentage points. In Canada, pricing rose 1.3 percentage points due to a higher list price in several categories as well as reduced promotional activities. Within International markets pricing increased 2.6 percentage points.
Will Hurdles be Countered?
Kraft Heinz is witnessing higher selling, general and administrative expenses. Excluding impairment losses, SG&A expensesas a percentage of sales expanded 210 basis points to 13.8%. Apart from this, the company is incurring higher expenses related to the coronavirus pandemic. Also, unfavorable foreign currency rates are a concern.
Nevertheless, the above mentioned upsides are likely to keeping driving this Zacks Rank #3 (Hold) company’s performance.
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