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Kraft (KHC) Up 7.2% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Kraft Heinz (KHC - Free Report) . Shares have added about 7.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Kraft due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Kraft Heinz Q4 Earnings Surpass Estimates, Sales Up
Kraft Heinz reported robust fourth-quarter 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Moreover, sales and earnings increased year over year. Results benefited from solid performance in the United States and the International business segments. Further, the company entered into a definitive agreement to sell its nuts business.
Q4 in Detail
Adjusted earnings per share of 80 cents surpassed the consensus mark of 74 cents. Moreover, the bottom line increased 11.1% year over year mainly on the back of adjusted EBITDA growth.
Net sales increased 6.2% year over year to $6,939 million. Also, the figure surpassed the Zacks Consensus Estimate of $6,882 million. Net sales growth included a 0.2 percentage point favorable impact from currency translations. Organic net sales rose 6% on the back of sustained growth momentum in retail business, which was somewhat offset by softness in foodservice. Also, a negative impact to the tune of 1.4 percentage point stemming from exiting the McCafe licensing agreement was a drag on the metric.
Pricing was up 4.8 percentage points, driven by favorable trade cost timing and reduced sales on promotion though the holiday event periods mainly in the United States compared with year-ago quarter’s levels. Also, lower promotional activity in capacity-constrained areas was a reason. Further, volume/mix improved 1.2 percentage points thanks to continued at-home consumption growth partly stemming from the pandemic. However, declines in foodservice business, adverse impacts from exiting the McCafe licensing agreement and unfavorable changes in retail inventory levels put pressure on the metric.
Gross profit of $2,523 million increased 19.7% year over year in the reported quarter. Adjusted EBITDA was up 14.3% to $1,788 million, including a positive 0.2 percentage point impact from currency. On excluding the impact of currency, adjusted EBITDA growth was caused by gains from pricing, productivity efficiencies, favorable mix as well as growth in volume. However, these were somewhat negated by increased supply chain costs, including pandemic-induced expenses, higher incentive compensation as well as significant investments in marketing and sales.
Segment Discussion
United States: Net sales of $5,082 million increased 8% year over year. During the quarter, pricing moved up 5.2 percentage points, while volume/mix increased 2.8 percentage points. The segment’s adjusted EBITDA increased 18.4% to $1,507 million.
Canada: Net sales of $447 million declined 2% year over year. During the quarter, pricing moved up 7.9 percentage points but volume/mix declined 11 percentage points. Segment adjusted EBITDA increased 3.5% to $121 million.
International: Net sales of $1,410 million were up 2.4% year over year. During the quarter, pricing moved up 2 percentage points, while volume/mix dropped 0.1 percentage points. Adjusted EBITDA increased 9.7% to $261 million.
Other Updates
Kraft Heinz ended the quarter with cash and cash equivalents of $3,417 million, long-term debt of $28,070 million as well as total shareholders’ equity of $50,103 million. Further, the company generated $4,929 million as cash from operating activities for the year ended Dec 26, 2020.
In a separate press release, the company announced a quarterly dividend of 40 cents per share, which is payable on Mar 26, 2021 to shareholders of record as of Mar 12.
Additionally, the company also unveiled that it signed a definitive agreement to sell its nuts business to Hormel Foods Corporation. This cash transaction, worth $3.35 billion, is expected to be concluded in the first half of 2021. Notably, the deal includes most items sold under the Planters brand like single variety and mixed nuts, trail mix, Nut-rition products and Cheez Balls among others. Further, the transaction includes worldwide intellectual property rights to the Planters brand.
Outlook
Based on the to-date performance, Kraft Heinz expects organic net sales of flat-to-positive growth during first-quarter 2021. Further, the company anticipates low-single-digit constant currency adjusted EBITDA growth during the quarter. The company further stated that this view takes into account comparison with a robust first-quarter 2020, which benefited from solid consumer demand due to the pandemic. Moreover, the company continues to anticipate 2021 financial performance to be ahead of its strategic plan.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, Kraft has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Kraft has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Kraft (KHC) Up 7.2% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Kraft Heinz (KHC - Free Report) . Shares have added about 7.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Kraft due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Kraft Heinz Q4 Earnings Surpass Estimates, Sales Up
Kraft Heinz reported robust fourth-quarter 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Moreover, sales and earnings increased year over year. Results benefited from solid performance in the United States and the International business segments. Further, the company entered into a definitive agreement to sell its nuts business.
Q4 in Detail
Adjusted earnings per share of 80 cents surpassed the consensus mark of 74 cents. Moreover, the bottom line increased 11.1% year over year mainly on the back of adjusted EBITDA growth.
Net sales increased 6.2% year over year to $6,939 million. Also, the figure surpassed the Zacks Consensus Estimate of $6,882 million. Net sales growth included a 0.2 percentage point favorable impact from currency translations. Organic net sales rose 6% on the back of sustained growth momentum in retail business, which was somewhat offset by softness in foodservice. Also, a negative impact to the tune of 1.4 percentage point stemming from exiting the McCafe licensing agreement was a drag on the metric.
Pricing was up 4.8 percentage points, driven by favorable trade cost timing and reduced sales on promotion though the holiday event periods mainly in the United States compared with year-ago quarter’s levels. Also, lower promotional activity in capacity-constrained areas was a reason. Further, volume/mix improved 1.2 percentage points thanks to continued at-home consumption growth partly stemming from the pandemic. However, declines in foodservice business, adverse impacts from exiting the McCafe licensing agreement and unfavorable changes in retail inventory levels put pressure on the metric.
Gross profit of $2,523 million increased 19.7% year over year in the reported quarter. Adjusted EBITDA was up 14.3% to $1,788 million, including a positive 0.2 percentage point impact from currency. On excluding the impact of currency, adjusted EBITDA growth was caused by gains from pricing, productivity efficiencies, favorable mix as well as growth in volume. However, these were somewhat negated by increased supply chain costs, including pandemic-induced expenses, higher incentive compensation as well as significant investments in marketing and sales.
Segment Discussion
United States: Net sales of $5,082 million increased 8% year over year. During the quarter, pricing moved up 5.2 percentage points, while volume/mix increased 2.8 percentage points. The segment’s adjusted EBITDA increased 18.4% to $1,507 million.
Canada: Net sales of $447 million declined 2% year over year. During the quarter, pricing moved up 7.9 percentage points but volume/mix declined 11 percentage points. Segment adjusted EBITDA increased 3.5% to $121 million.
International: Net sales of $1,410 million were up 2.4% year over year. During the quarter, pricing moved up 2 percentage points, while volume/mix dropped 0.1 percentage points. Adjusted EBITDA increased 9.7% to $261 million.
Other Updates
Kraft Heinz ended the quarter with cash and cash equivalents of $3,417 million, long-term debt of $28,070 million as well as total shareholders’ equity of $50,103 million. Further, the company generated $4,929 million as cash from operating activities for the year ended Dec 26, 2020.
In a separate press release, the company announced a quarterly dividend of 40 cents per share, which is payable on Mar 26, 2021 to shareholders of record as of Mar 12.
Additionally, the company also unveiled that it signed a definitive agreement to sell its nuts business to Hormel Foods Corporation. This cash transaction, worth $3.35 billion, is expected to be concluded in the first half of 2021. Notably, the deal includes most items sold under the Planters brand like single variety and mixed nuts, trail mix, Nut-rition products and Cheez Balls among others. Further, the transaction includes worldwide intellectual property rights to the Planters brand.
Outlook
Based on the to-date performance, Kraft Heinz expects organic net sales of flat-to-positive growth during first-quarter 2021. Further, the company anticipates low-single-digit constant currency adjusted EBITDA growth during the quarter. The company further stated that this view takes into account comparison with a robust first-quarter 2020, which benefited from solid consumer demand due to the pandemic. Moreover, the company continues to anticipate 2021 financial performance to be ahead of its strategic plan.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, Kraft has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Kraft has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.