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Factors Likely to Impact Kraft Heinz's (KHC) 1H19 Earnings

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The Kraft Heinz Company (KHC - Free Report) is slated to release results for the first half of 2019 on Aug 8, before market open. This renowned packaged food and beverage company reported a negative earnings surprise of 9.7% in the fourth quarter of 2018. Let’s see how the company is placed ahead of the upcoming results.

Growth Initiatives Bode Well

Innovation has played a key role in augmenting Kraft Heinz’s business and providing revenue opportunities. In this context, the company has undertaken efforts to boost offerings in the condiments and sauces, cheese, meals, nuts as well as baby food categories. It has also been undertaking innovation in the foodservice space. We expect gains from such product development initiatives to support first-half 2019 results.

Moreover, Kraft Heinz is on track with modernization and capability building programs within the manufacturing footprint. It is making significant investments in marketing and go-to-market capabilities. It is also working for whitespace expansion in the food services and geographic channels.

Markedly, organic sales growth in 2019 is expected to be fueled by innovation, augmenting whitespace and distribution capacity as well as pricing activities. Organic sales during the year are expected to benefit from consumption gains stemming from improved volume/mix in the United States. This boosts expectations for the upcoming announcement.  Apart from these, Kraft Heinz is on track with savings and productivity improvement initiatives that drive efficiency across operational channels.

The Kraft Heinz Company Price, Consensus and EPS Surprise



Rising Costs are a Worry

On the flip side, we note that Kraft Heinz is under pressure, thanks to persistent rise in costs. In the United states, the company grapples with increased manufacturing and logistics expenses. Other food companies such as General Mills (GIS - Free Report) , United Natural Foods (UNFI - Free Report) and Conagra Brands (CAG - Free Report) are being affected by high transportation and other manufacturing costs.

Coming back to Kraft Heinz, cost inflation and planned commercial expenditures are expected to continue weighing on the company’s performance in the first half of 2019. Moreover, management expects that earnings in 2019 are likely to be affected by soft EBITDA as well as higher depreciation and interest costs among other factors. This mars expectations for the first half as well. Moreover, the impact of any adverse currency fluctuation on the to-be-reported results cannot be ignored. That said, let see if the company’s pricing and efficiency building initiatives can help cushion these hurdles.  

Kraft Heinz currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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