The year 2019 has not been a smooth one for The Kraft Heinz Company KHC. The stock, which was once traded around $48 in 2018, is now hovering between $31 and $32. The figureis not very far from its 52-week low of $24.86. Year to date, shares of this consumer-packaged food and beverages companyhave lost 26.5%against the industry’s growthof 20.2%.
Let’s see why investors have ignoredthe stock and find whether it holds any promise going into 2020.
A Close Introspection
Kraft Heinz, which slashed its dividend and wrote down two of its key brands —Kraft and Oscar Mayer— earlier this year, has kept investors on tenterhooks. The company has been grappling with rising costs triggered by increased input and supply chain expenses. Moreover,persistentadverse impacts from fluctuating currency rates are acting asdeterrent for the company’s topline.
This apart, Kraft Heinz has been witnessing market share and distribution losses in natural cheese, cold cuts and coffee business in the United States. Further, promotional ventures in Canada have failed to deliver desired growth. Also, infant nutrition products have been declining in EMEA and China.
These headwinds continued to hurt the company’s performance in third-quarter 2019, withthe top line declining 4.8% year over year and organic sales dropping1.1%. Moreover, adjusted earnings of 69 cents pershare decline on a year-over-year basis to 9.2%. Management highlighted that the company’s performance was affected by uneven growth across categories and geographies. Additionally, currency movements had a negative impact of 1.7% on the top line. Management stated unfavorable currency rates may continue to hinder performance in the near term.
In addition to these, the company’s performance was affected by actions undertaken by retail partners in the United States toreduce the amount of inventory carried. This marred organic sales in the said quarter. Duringthe quarter, the company witnessed inflationary trends in supply chain costs in theRest of the World segment. Further, higher input costs were a drag on performance in Canada. Management anticipatessuch cost-related pressures, especially for commodities, to persist in the forthcoming periods.
It looks like these factors have made analysts less optimisticabout Kraft Heinz’s currentperformance. Evidently, the Zacks Consensus Estimate for 2020 earnings has moveddown by 2.3% to $2.57 per share inthe past 60 days. Further, the consensus mark for the top and the bottom line for the next financial year suggest decline of 1.3% and 8.7%, respectively, from the year-ago period’s reported figures.
The Kraft Heinz Company Price and EPS Surprise
The Kraft Heinz Company price-eps-surprise | The Kraft Heinz Company Quote
Can the Stock Stage a Comeback in 2020?
Kraft Heinz is on track with its enterprise transformation strategies.To this end, the company is undertaking cost-curtailmentefforts in its supply chain, with particular emphasis on procurement, manufacturing and distribution.Also, the company has implemented nine transformational projects to strengthen some of the core areas of the business. Among them, five projects are directed toward bolstering the top line, two for enhancing operational efficiencies and the remaining for increasing effectiveness.
This apart, Kraft Heinz is on track with investments in marketing, go-to-market capabilities and product development. Also, the company has been keen on undertaking prudent divestitures to concentrate on areas with higher growth potential.To top it, the Zacks Rank #3 (Hold) company has been undertaking pricing initiatives to cushion the pressure from high costs.
Clearly, Kraft Heinz is making all ends meet to lift its performance. However, it is yetto be seen how far these strategic effortsenable the company to counter the prevailing challenges.
3 Hot Picks
Procter & Gamble Company PG, which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
General Mills, Inc GIS which carries a Zacks Rank #2, has a long-term earnings growth rate of 7%.
e.l.f. Beauty Inc ELF, which carries a Zacks Rank #2, has a long-term earnings growth rate of 3.8%.
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