The Kraft Heinz Company (KHC - Free Report) appears to be in a bad shape, more so after the company released fourth-quarter 2018 results on Feb 21. Well, the company’s shares have plunged as much as 31.4% since the quarterly release. Moreover, this packaged food and beverage provider has crashed 41.2% in the past six months, significantly wider than the industry’s decline of 6.1%.
So let’s take a look at the factors pulling Kraft Heinz down.
What’s Making Things Sour for Kraft Heinz?
Kraft Heinz’s bottom line decreased 6.7% year over year in the fourth quarter of 2018, owing to lower adjusted EBITDA, elevated interest costs, and greater depreciation and amortization expenses. Notably, adjusted EBITDA was down 13.9% to $1,699 million due to currency woes, and weakness in the United States, stemming from lower-than-expected savings, and high manufacturing and logistic expenses. Further, management expects the company’s adjusted EBITDA to decline at a high-teens rate in the first quarter of 2019, owing to cost inflation and planned commercial expenditure.
Apart from Kraft Heinz, many food companies like Conagra Brands (CAG - Free Report) , TreeHouse Foods (THS - Free Report) and Pilgrim’s Pride (PPC - Free Report) are bearing the brunt of cost-related hurdles. Although Kraft Heinz is undertaking solid pricing initiatives, these are not likely to yield until the end of the first quarter. Moreover, in 2019, earnings are likely to remain pressurized by soft EBITDA, increased depreciation costs and elevated interest costs, among other factors.
Apart from this, the company is plagued by currency headwinds. Despite the strong top-line performance, net sales and adjusted EBITDA for the fourth quarter included significant impacts from unfavorable currency rates. Unfortunately, currency headwinds and divestitures are expected to hurt net sales by 3-4% in 2019.
We believe that these aspects have hurt analysts’ confidence in Kraft Heinz, as it has been witnessing a downtrend in the Zacks Consensus Estimate. Notably, the consensus marks for the first quarter and 2019 have gone down from 90 cents to 67 cents and from $3.73 to $2.94 per share, respectively, in the past sixty days.
Clearly, these factors and management’s dividend cut announcement have dented investors’ sentiments regarding this Zacks Rank #5 (Strong Sell) stock. Although the company is on track with cost saving and productivity initiatives, among other growth efforts, it is yet to completely offset the aforementioned hurdles.
You can see the complete list of today’s Zacks #1 Rank(Strong Buy)stocks here.
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