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Should Kraft Heinz (KHC) be in Your Portfolio Before Q2 Earnings?
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The Kraft Heinz Company (KHC - Free Report) is likely to register top and bottom-line declines when it comes out with second-quarter 2024 earnings on Jul 31. The Zacks Consensus Estimate for revenues is pegged at $6.54 billion, which indicates a 2.8% dip from the year-ago period.
Image Source: Zacks Investment Research
The consensus mark for earnings has dropped by a penny in the past 30 days to 73 cents per share, which implies a 7.6% decline from the year-ago quarter’s figure. However, KHC has a trailing four-quarter earnings surprise of 4.7%, on average.
Our proven model doesn’t conclusively predict an earnings beat for Kraft Heinz this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Although Kraft Heinz has an Earnings ESP of +0.25%, it currently carries a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors to Note
Much like its peers Campbell Soup (CPB - Free Report) , General Mills (GIS - Free Report) and Conagra Brands (CAG - Free Report) , Kraft Heinz is grappling with a dynamic macroeconomic scenario. The company has been observing erratic consumer behaviors, especially among lower-income segments. High interest rates and decreasing savings have been posing challenges for lower-income consumers. Apart from this, a reduction in the Supplemental Nutrition Assistance Program benefits is affecting consumers’ purchasing power. KHC, which heavily relies on sales from middle and lower-income households, is particularly vulnerable to these changes.
These economic pressures have led consumers to cut back on spending at restaurants and convenience stores, opting instead to cook at home. This trend has resulted in decreased restaurant traffic in the United States, adversely affecting Kraft Heinz's Away from Home segment.
Together, these concerns are likely to have affected KHC’s sales in the quarter under review. Additionally, the company's increased spending on marketing may have driven up operating expenses in the second quarter. Our model suggests a 3.2% increase in adjusted selling, general and administrative expenses for the second quarter. As a percentage of sales, we expect the metric to expand 60 basis points to 13.8%.
On the brighter side, Kraft Heinz's efforts to refresh its core brands to stay relevant and attractive to contemporary consumers appear promising. This includes revamping product offerings and boosting brand value to cater to changing preferences. The company's push to enhance performance is further supported by its Accelerate Platform, which focuses on high-growth categories and brands. These initiatives, along with strategic pricing efforts to offset the inflationary pressures, are likely to have contributed to the company’s upcoming performance.
Price Performance & Valuation
Kraft Heinz has been navigating the pressures of a difficult consumer environment and underlying commodity cost inflation. The company’s shares have tumbled 13.4% in the past three months compared with the industry’s decline of 5.6%. KHC has also lagged the broader Zacks Consumer Staples sector and the S&P 500’s respective gains of 2.7% and 8.2% in the same time frame.
Image Source: Zacks Investment Research
Kraft Heinz appears overvalued from the price-to-sales perspective. The stock is currently trading at a forward 12-month P/S ratio of 1.52, exceeding the industry average of 1.36. This premium valuation raises concerns about the stock’s sustainability, signaling the potential for further downside.
Image Source: Zacks Investment Research
Investment Thesis
Investors are at a crossroads when it comes to Kraft Heinz's future. Even though the company is making efforts to spark growth by diversifying its product range and focusing on areas with high potential, the stock still remains under pressure. High input costs and elevated marketing costs are a threat to profitability, while economic pressures on lower-income households have been hurting sales volumes. Considering the recent stock performance and stretched valuation, investors might find it prudent to explore more promising opportunities elsewhere.
Image: Bigstock
Should Kraft Heinz (KHC) be in Your Portfolio Before Q2 Earnings?
The Kraft Heinz Company (KHC - Free Report) is likely to register top and bottom-line declines when it comes out with second-quarter 2024 earnings on Jul 31. The Zacks Consensus Estimate for revenues is pegged at $6.54 billion, which indicates a 2.8% dip from the year-ago period.
Image Source: Zacks Investment Research
The consensus mark for earnings has dropped by a penny in the past 30 days to 73 cents per share, which implies a 7.6% decline from the year-ago quarter’s figure. However, KHC has a trailing four-quarter earnings surprise of 4.7%, on average.
Kraft Heinz Company Price and EPS Surprise
Kraft Heinz Company price-eps-surprise | Kraft Heinz Company Quote
What the Zacks Model Unveils
Our proven model doesn’t conclusively predict an earnings beat for Kraft Heinz this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Although Kraft Heinz has an Earnings ESP of +0.25%, it currently carries a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors to Note
Much like its peers Campbell Soup (CPB - Free Report) , General Mills (GIS - Free Report) and Conagra Brands (CAG - Free Report) , Kraft Heinz is grappling with a dynamic macroeconomic scenario. The company has been observing erratic consumer behaviors, especially among lower-income segments. High interest rates and decreasing savings have been posing challenges for lower-income consumers. Apart from this, a reduction in the Supplemental Nutrition Assistance Program benefits is affecting consumers’ purchasing power. KHC, which heavily relies on sales from middle and lower-income households, is particularly vulnerable to these changes.
These economic pressures have led consumers to cut back on spending at restaurants and convenience stores, opting instead to cook at home. This trend has resulted in decreased restaurant traffic in the United States, adversely affecting Kraft Heinz's Away from Home segment.
Together, these concerns are likely to have affected KHC’s sales in the quarter under review. Additionally, the company's increased spending on marketing may have driven up operating expenses in the second quarter. Our model suggests a 3.2% increase in adjusted selling, general and administrative expenses for the second quarter. As a percentage of sales, we expect the metric to expand 60 basis points to 13.8%.
On the brighter side, Kraft Heinz's efforts to refresh its core brands to stay relevant and attractive to contemporary consumers appear promising. This includes revamping product offerings and boosting brand value to cater to changing preferences. The company's push to enhance performance is further supported by its Accelerate Platform, which focuses on high-growth categories and brands. These initiatives, along with strategic pricing efforts to offset the inflationary pressures, are likely to have contributed to the company’s upcoming performance.
Price Performance & Valuation
Kraft Heinz has been navigating the pressures of a difficult consumer environment and underlying commodity cost inflation. The company’s shares have tumbled 13.4% in the past three months compared with the industry’s decline of 5.6%. KHC has also lagged the broader Zacks Consumer Staples sector and the S&P 500’s respective gains of 2.7% and 8.2% in the same time frame.
Image Source: Zacks Investment Research
Kraft Heinz appears overvalued from the price-to-sales perspective. The stock is currently trading at a forward 12-month P/S ratio of 1.52, exceeding the industry average of 1.36. This premium valuation raises concerns about the stock’s sustainability, signaling the potential for further downside.
Image Source: Zacks Investment Research
Investment Thesis
Investors are at a crossroads when it comes to Kraft Heinz's future. Even though the company is making efforts to spark growth by diversifying its product range and focusing on areas with high potential, the stock still remains under pressure. High input costs and elevated marketing costs are a threat to profitability, while economic pressures on lower-income households have been hurting sales volumes. Considering the recent stock performance and stretched valuation, investors might find it prudent to explore more promising opportunities elsewhere.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.