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Kraft Heinz Portfolio to Gain From Primal Kitchen's Addition

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The Kraft Heinz Company (KHC - Free Report) announced that it has completed the deal to acquire Primal Nutrition, LLC, a well-known company engaged in the manufacturing of Primal Kitchen branded products. Kraft Heinz had entered into a definitive agreement to buy Primal Nutrition on Nov 29, 2018, for $200 million. Let’s take a closer look at how this inclusion will benefit the company.

Focus on Augmenting Healthy Food Offerings

Per terms of the deal, Primal Nutrition will continue to operate as an independent entity. While Primal Nutrition is expected to gain from Kraft Heinz’s solid infrastructure and assets, the buyout will enable Kraft Heinz to bolster portfolio strength and expand revenue generation capabilities.

Incidentally, Primal Kitchen’s addition will complement Kraft Heinz’s key categories, including condiments and sauces. Primal Kitchen is essentially a health-focused brand that develops products such as sauces, condiments and a variety of dressings like mayonnaise, avocado oil and salad dressings. The brand also flaunts a line-up of healthy snacks. Primal Kitchen will be a part of Kraft Heinz’s Springboard platform which is aimed at developing, scaling as well as accelerating growth of nascent and disruptive brands in the U.S. food and beverage arena.

Well, this is not the first time that the company has undertaken initiatives to expand healthy food offerings. Prior to this, it acquired Ethical Bean Coffee in September 2018. Such moves reflect Kraft Heinz’s focus on keeping up with consumers’ rising preference for better-for-you food options. Moreover, we note that the company is focusing on increasing the nutritional value of products through sustainable sourcing of raw materials.  Kraft Heinz is also emphasizing on the importance of using pure ingredients and minimal processing in packaged food products. Progressing along such lines, Kraft Heinz plans to switch to 100% cage-free eggs for North American operations by 2025.

Apart from acquisitions, Kraft Heinz also focuses on innovation to strengthen portfolio. Further, the company is engaged in effective marketing, boosting e-commerce channel, modernization and capability building within the manufacturing footprint as well as building a performance-driven culture in the company.



Will Efforts Revive the Stock?

We note that Kraft Heinz is grappling with escalated overhead and input costs. In fact, such high costs more than offset growth in organic sales while also impacting overall profits in the third quarter of 2018. Other food companies like Campbell Soup (CPB - Free Report) , General Mills (GIS - Free Report) and Conagra Brands (CAG - Free Report) are also struggling with cost-related hurdles. Coming back to Kraft Heinz, weaknesses in the company’s Canadian unit is also a concern. Sales in this region have declined year over year for three straight quarters. Such headwinds have lowered investors’ optimism in the stock, evident from its 21.1% decline in the past three months compared with the industry’s fall of 12.2%.

Nevertheless, we cannot ignore Kraft Heinz’s efforts to enhance performance. We expect the company’s solid portfolio as well as well-chalked marketing and growth endeavors to improve performance in Canada. The latest inclusion of Primal Kitchen brand is also expected to boost the company’s performance in the forthcoming periods. Further, the company’s robust savings initiatives are expected to provide cushion to rising costs. All said, let’s wait and see if such efforts can help revive this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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