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Dump Kraft Heinz: 4 Food Stocks to Satisfy Investors' Hunger

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As prevention is better than cure, it is prudent to dump losing stocks at the right time than regret later. Incidentally, The Kraft Heinz Company (KHC - Free Report) appears to be one such stock. This Zacks Rank #4 (Sell) company has seen its shares slump more than 30% in the past year, significantly wider than the industry’s 2.4% dip. This leading consumer packaged food company has been bearing the brunt of shift in consumer preference toward natural and organic ingredients over packaged and processed food, which has been denting its sales for long.

What’s Affecting Kraft Heinz?

The company has been seeing top-line weakness over the past several quarters. The food industry has been struggling in the face of numerous issues. Major U.S. food companies are striving to retain market share with packaged food items losing ground. A shift in consumer preference toward healthier options and a higher level of price consciousness are hurting the industry, making sales growth difficult to come by.

Consumption trends in a number of its key categories like ready-to-drink beverages, frozen meals and salad dressings are on the decline.

In 2017, net sales of $26.2 billion declined 1.1% year over year primarily due to soft consumer demand in the United States and Canada. Two of the four reporting segments registered year-over-year decline during this period, with the biggest decline in Canada (down 5.2%). The United States registered a decline of 1.5% in sales. Organically, sales declined 1.5% in the United States and 7% in Canada.

Its flagship United States segment, accounting for more than 70% of net sales, needs sustained improvement for the company to return to healthy growth.

These factors have made analysts hesitant about Kraft Heinz, as evident from the downtrend in estimates. Notably, the Zacks Consensus Estimate for the first quarter and 2018 went down from 94 cents to 84 cents and from $3.94 to $3.85, respectively, over the past 60 days. Though the company is undertaking cost savings and productivity improvements and innovating in line with consumer preference, the efforts are yet to reap significant benefits. This makes the road ahead bumpy for Kraft Heinz.

Not All is Lost for the Food Industry

In order to combat weak sales, food majors are aggressively trying to improve their products through innovation as well as by pursuing strategic acquisitions and divestitures. They are channelling funds toward product and packaging innovation as well as reformulating a number of existing products to meet rapidly changing consumer view on health and wellness. Apart from this, companies have adopted multi-year restructuring initiatives with focus on improving operational efficiency to generate cost savings.

Again, some companies are also going for co-branding to boost sales. Cereal Partners Worldwide deserves special mention. General Mills (GIS - Free Report) formed a joint venture with Nestle called Cereal Partners Worldwide, which serves customers in more than 130 global markets. Mondelez International, Inc. (MDLZ - Free Report) teamed up yet again with the third-largest cereal company in the United States, Post Consumer Brands, to create two cookie-inspired breakfast cereals.

Moreover, the overall economy appears to be in good shape, driven by an improved labor market, higher consumer spending, rising consumer confidence and increased business investments.

4 Food Stocks That Are Better Placed

Ranked among the top 40% of all Zacks industries, the Zacks Food-miscellaneous Industry space has some bright spots for investors to put their funds in. Despite the headwinds looming over the industry, several firms have managed to stay afloat, gaining from strategic endeavors to keep pace with the evolving retail trends and the improved economic scenario.
Using the Zacks Stock Screener, we have zeroed in on four food stocks that have been performing well. These stocks have outpaced the industry in the past year and are well poised for the long term. Additionally, these stocks carry a favorable Zacks Rank.

US Foods Holding Corp. (USFD - Free Report) has rallied 29.8%. The Zacks Consensus Estimate for 2018 climbed 15.2% over the past 60 days. Earnings for this Zacks Rank #1 (Strong Buy) stock are expected to grow 48.6% in 2018. You can see the complete list of today’s Zacks #1 Rank stocks here.

Investors can also count on Medifast, Inc. (MED - Free Report) , sporting a Zacks Rank #1. Estimates for 2018 improved from $2.60 to $3.25 in the past 60 days. Earnings are expected to grow 41.9% in 2018. Encouragingly, the stock has gained 112.1%, cruising ahead of the industry.

We also suggest investing in Darling Ingredients Inc. (DAR - Free Report) . The Zacks Consensus Estimate for 2018 rose 58.7% over the past 60 days. Shares have jumped 26.2% in the past year. Also, Darling Ingredients has impressive earnings per share growth rate of over 100% in 2018. The company has a Zacks Rank #2 (Buy).

Finally, we suggest investing in United Natural Foods, Inc. (UNFI - Free Report) , sporting a Zacks Rank #1. The company has delivered positive earnings surprise in all the past four quarters. Estimates for fiscal 2018 trended upward from $2.82 to $3.06 over the past 60 days.  Earnings for fiscal 2018 are expected to grow 19.1%. Notably, the company has seen its shares rise almost 1% in the past year, faring way better than the industry.

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