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Kraft Heinz (KHC) Looks Buoyant on Solid Demand, Growth Efforts

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The Kraft Heinz Company (KHC - Free Report) is benefiting from its robust strategic growth efforts like newly-unveiled operating model. Moreover, the company is witnessing higher consumer demand, stemming from escalated at-home consumption amid the coronavirus pandemic.

Let’s delve deeper.

Coronavirus-Led Demand & Impressive Outlook

Burgeoning demand amid coronavirus pandemic bolstered the company’s third-quarter 2020 results, with the top and the bottom line advancing year over year and beating the Zacks Consensus Estimate. Notably, net sales increased 6%, while organic sales rose 6.3%. Further, volume/mix improved 2.6 percentage points on the back of higher demand in the retail and e-commerce businesses as well as club channels stemming from increased at-home consumption amid the pandemic.

Based on the year-to-date performance, Kraft Heinz expects organic net sales to grow by mid-single-digit during the fourth quarter. Further, the company anticipates high-single-digit constant currency adjusted EBITDA growth during the quarter. For 2020, management projects organic net sales growth in mid-single-digits. Constant currency adjusted EBITDA growth is envisioned in high-single digit range in 2020.

 

Other Factors Driving Kraft Heinz’s Growth

In September 2020, Kraft Heinz laid out a new operating model that incorporates five key elements —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. 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.

Further, 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, solidifying long-term market position and consistently boosting shareholders’ 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 recently announced an agreement to offload its Natural, Grated, Cultured and Specialty cheese businesses to a U.S. affiliate of Groupe Lactalis.

Hurdles on the way

Rising costs have been a worry for the company for a while. In the third quarter of 2020, SG&A expenses increased from $767 million reported in the year-ago quarter to $1,197 million. Further, Kraft Heinz is incurring adverse key commodity costs (particularly dairy), greater marketing investment in the United States and higher COVID-19-related costs globally. Another factor ailing the company is unfavorable currency movements. During the third quarter, currency movements had an adverse impact of 0.3 percentage points on the top line.

We believe that this Zacks Rank #3 (Hold) company’s aforementioned upsides are likely keep driving growth. Kraft Heinz’s shares have increased 11.8% in the past three months compared with the industry’s growth of 6.2%.

Better-Ranked Food Stocks

B&G Foods, Inc. (BGS - Free Report) — sporting a Zacks Rank #1 (Strong Buy) at present — has a trailing four-quarter earnings surprise of 9.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Hain Celestial (HAIN - Free Report) , currently holding a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 24.6%, on average.

Sysco Corporation (SYY - Free Report) , also a Zacks Ranked #2 stock, has a long-term earnings growth rate of 11%.

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