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Kraft Heinz (KHC) Down 6.5% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Kraft Heinz (KHC - Free Report) . Shares have lost about 6.5% 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 Heinz 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 drivers.

Kraft Heinz Q1 Earnings Beat Estimates, EBITDA View Up

The Kraft Heinz Company posted first-quarter 2023 adjusted earnings of 68 cents a share, beating the Zacks Consensus Estimate of 60 cents and our estimate of 58 cents. Quarterly earnings jumped 13.3% year over year, mainly due to increased adjusted EBITDA and reduced interest expenses. These were partly negated by adverse changes in other expenses/(income) and elevated taxes on adjusted earnings.

The company generated net sales of $6,489 million, up 7.3% year over year. Net sales included an unfavorable currency impact of 2.1 percentage points. Net sales beat the Zacks Consensus Estimate of $6,386 million and our estimate of $6,294.7 million.

Organic net sales increased 9.4% year over year. Pricing rose 14.7 percentage points year over year, reflecting growth in both segments. The upside can be attributed to higher list prices. The volume/mix fell 5.3 percentage points due to the elasticity effect of pricing actions.

The gross profit of $2,113 million jumped by 9.4% from the figure reported in the year-ago quarter. Adjusted EBITDA advanced 10.3% to $1,480 million due to elevated pricing and efficiency gains. These were somewhat negated by elevated supply-chain costs, increased commodity costs, an adverse volume/mix, escalated general corporate expenses, currency headwinds and the adverse effect of Cyclone Gabrielle in New Zealand.

Escalated commodity costs included high costs across soybean and vegetable oils, energy and sweeteners. Supply-chain costs included inflation across procurement and manufacturing costs.

Segment Discussion

North America: Net sales of $4,885 million increased 6.2% year over year. During the quarter, pricing moved up 13.2 percentage points, but the volume/mix fell 6.5 percentage points.

International: Net sales of $1,604 million were up 11.1% year over year. Pricing moved up 19.3 percentage points, but the volume/mix slipped 1.2 percentage points.

Other Financial Aspects

Kraft Heinz ended the quarter with cash and cash equivalents of $826 million, long-term debt of $19,263 million and total shareholders’ equity of $49,313 million. Net cash provided by operating activities was $486 million for the first quarter of 2023. The company generated free cash flow of $220 million year to date. In a separate press release, Kraft Heinz declared a quarterly dividend of 40 cents per share, payable on Jun 30, 2023, to shareholders of record as of Jun 6.

Guidance

For the full-year 2023, management continues to expect organic net sales growth of 4-6%.

Adjusted EBITDA is now expected to increase 4-6% in 2023 on a constant currency or cc basis. Excluding the impact of the 53rd week in 2022, it is likely to rise 6-8%. Earlier, adjusted EBITDA was expected to increase 2-4% at cc. Excluding the impact of the 53rd week, it was anticipated to rise 4-6%.

Management expects an adjusted gross margin recovery due to pricing and gross efficiencies. However, it expects high-single-digit inflation in 2023, including low-double-digit inflation in the first half and mid-single-digit inflation in the second half of the year. The adjusted gross profit margin is likely to increase 125-175 basis points in 2023.

The adjusted EPS for the year is now envisioned in the band of $2.83-$2.91, which includes a nearly 4-cent expected impact of adverse changes in non-cash pension and post-retirement benefits and a roughly 2-cent impact of currency woes. The adjusted EPS was earlier expected in the range of $2.67-$2.75.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

The consensus estimate has shifted 6.71% due to these changes.

VGM Scores

At this time, Kraft Heinz has a subpar Growth Score of D, a grade with the same score on the momentum front. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Kraft Heinz has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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