Back to top

Image: Bigstock

Why Is Kraft (KHC) Down 0.1% Since Last Earnings Report?

Read MoreHide Full Article

A month has gone by since the last earnings report for Kraft Heinz (KHC - Free Report) . Shares have lost about 0.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Kraft due for a breakout? 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 Top Estimates: Pricing a Driver

Kraft Heinz posted robust fourth-quarter 2021 results as the top and bottom lines cruised past the Zacks Consensus Estimate. Net sales and earnings fell year over year. The company is benefiting from its efficiency gains, which along with pricing, is helping it battle inflation. Management remains confident of building on its momentum in 2022.

Quarter in Detail

Kraft Heinz posted adjusted earnings of 79 cents a share, which easily beat the Zacks Consensus Estimate of 62 cents. Quarterly earnings declined 1.3% year over year mainly due to reduced adjusted EBITDA somewhat compensated by favorable changes in other expenses/(income), reduced interest expenses and lower taxes.

The company generated net sales of $6,709 million that dropped 3.3% year over year. Net sales included an adverse impact of 7.3 percentage points from buyouts and divestitures and a positive currency impact of 0.1 percentage points. Net sales beat the Zacks Consensus Estimate of $6,621 million. Net sales increased 2.6% from fourth-quarter 2019 levels.

Organic net sales increased 1.3% year over year. The metric rose 9.4% from fourth-quarter 2019 numbers. KHC stated that pricing rose 3.8% year over year with growth in all reporting segments, reflecting inflation-justified price increases across foodservice and retail channels. The volume/mix remained flat year over year as the continued rebound in the foodservice channel was countered by temporary supply-chain hurdles and comparisons with significant pandemic-led retail demand in 2020.

Gross profit of $2,162 million declined 14.3% from $2,523 million reported in the year-ago quarter. Adjusted EBITDA fell 10.2% to $1,606 million. Excluding a positive 0.2 percentage point impact from currency, the metric benefited from efficiency gains and increased organic net sales. These were more than offset by escalated commodity costs, including core commodity and packaging costs, along with procurement, logistics and manufacturing cost inflation.

Segment Discussion

United States: Net sales of $4,737 million declined 6.8% year over year. During the quarter, pricing moved up 3.6 percentage points but the volume/mix fell 0.6 percentage points.

International: Net sales of $1,501 million were up 6.5% year over year. Pricing moved up 4 percentage points and the volume/mix rose 2.8 percentage points.

Canada: Net sales of $471 million rose 5.2% year over year. Pricing moved up 5.2 percentage points but the volume/mix declined 1.8 percentage points.

Other Financial Aspects

Kraft Heinz ended the quarter with cash and cash equivalents of $3,445 million, long-term debt of $21,061 million and total shareholders’ equity of $49,448 million. Net cash provided by operating activities was $5,364 million for the 12 months ended Dec 25, 2021. The company generated free cash flow of $4.5 billion during this time.

In a separate press release, Kraft Heinz declared a quarterly dividend of 40 cents per share payable on Mar 25, 2022, to shareholders of record as of Mar 11.

Guidance

Kraft Heinz expects to deliver robust financial results in 2022. It presently anticipates organic net sales to rise in the low-single digits due to the continued strength in consumption compared with pre-pandemic levels.  Adjusted EBITDA is likely to be in the $5.8-$6 billion range, including the impact of an extra week in 2022. This view also reflects the impact of solid organic sales, divestitures and efforts to counter inflation.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -9.92% due to these changes.

VGM Scores

Currently, Kraft has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Kraft has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Kraft Heinz Company (KHC) - free report >>

Published in