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Kraft Heinz Sells Few Cheese Businesses, Offers Q3 Guidance

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Impressed with its strong business momentum, The Kraft Heinz Company (KHC - Free Report) announced an update regarding the third quarter and full year 2020 outlook. For the third quarter, the company expects organic net sales growth in mid-single-digit band compared with the year-ago quarter’s levels. Moreover, management anticipates high-single-digit year-over-year growth in its constant currency adjusted EBITDA during the third quarter. Also, the metric is likely to grow by mid-single-digit for 2020.

Apart from these, Kraft Heinz unveiled certain long-term growth targets. In this regard, it expects organic net sales growth between 1-2%. Adjusted EBITDA growth is envisioned in the range of 2-3%. Further, management expects to see a 4-6% adjusted earnings per share growth in the long term. The outlook reflects the company’s strategic review, business reorientation as well as strength in its ongoing turnaround.

Speaking on the strategic transformation, Kraft Heinz laid out a new operating model which incorporates five key elements which includes People with Purpose, Consumer Platforms, Ops Center, Partner Program and Fuel Our Growth. Notably, the Consumer Platforms represents a portfolio of six consumer-driven platforms like Taste Elevation, Easy Meals Made Better as well as Real Food Snacking among others.

Further, Ops Center element will enable Kraft Heinz to establish an efficient, fast and integrated supply chain network. In fact, management expects to achieve nearly $2 billion of gross productivity efficiencies through 2024. Moreover, Partner Program element is designed to create solid customer partnerships and develop new strategic partnerships.

Lastly, the Fuel Our Growth strategy is aimed at investing in growth opportunities, solidify its long-term market position as well as stay committed to shareholder returns. Also, this strategy will help the company manage its portfolio and accelerate its strategic plan, augment geographic presence, increase focus on growth areas as well as undertake sustainable pricing actions.



Keeping this in mind, Kraft Heinz in a separate press release announced an agreement to offload its Natural, Grated, Cultured and Specialty cheese businesses to a U.S. affiliate of Groupe Lactalis. The deal which is expected to be closed in the first half of 2021 is valued at $3.2 billion. Moreover, management is likely to use the post-tax proceeds from this transaction to lower its debt.

According to the deal, Kraft Heinz’s Natural, Grated, Cultured and Specialty cheese businesses in the United States, Grated cheese business in Canada as well as International Cheese business outside the aforementioned countries will be divested. These businesses will include brands like Polly-O, Breakstone’s, Knudsen and Athenos among others. Apart from this, Kraft Heinz will enter into a license agreement with Groupe Lactalis for Natural, Grated and International cheeses and Velveeta in Shredded and International cheeses. Also, Kraft Heinz will retain its Kraft Singles, Philadelphia Cream Cheese, Velveeta Processed Cheese and Cheez Whiz Processed Cheese businesses in the United States and Canada. Management plans to keep the Kraft, Velveeta and Cracker Barrel Mac & Cheese businesses and the Kraft Sauces business globally.

Per the deal, Kraft Heinz will sell manufacturing facilities situated in Tulare, Walton and Wausau along with a distribution center in Weyauwega to Groupe Lactalis. Also, roughly 750 workers of the company will be transferred to Groupe Lactalis. Notably, the to-be-divested cheese businesses contributed nearly $1.8 billion to Kraft Heinz’s net sales for the period of 12 months ended Jun 27, 2020.

Shares of this Zacks Rank #3 (Hold) company have increased 37.5% in the past six months compared with the industry’s growth of 23.2%.

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