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Is Kraft Heinz's Strategic Pricing Enough to Counter Weak Demand?
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The Kraft Heinz Company (KHC - Free Report) showcases resilience in a challenging economic landscape, leveraging strategic pricing, operational efficiencies and robust growth pillars. Key programs like Agile@Scale and customer-focused innovations are driving growth.
Strategic Pricing Holds the Line on KHC’s Margins
Kraft Heinz has strengthened its performance through effective pricing strategies, maintaining robust margins despite inflationary pressures. In the third quarter of 2024, pricing rose 1.2% year over year, driven by growth in North America and Emerging Markets. The company’s adjusted gross margin improved by 30 basis points (bps) to 34.3%, supported by higher pricing, efficiency gains and lower variable compensation expenses.
Image Source: Zacks Investment Research
Factors Shaping KHC’s Growth Story
Kraft Heinz is actively transforming its business to unlock its full potential and boost shareholder value through its AGILE@SCALE strategy, launched in February 2022. Focused on enhancing agility and capabilities, the company has partnered with leading technology firms to improve productivity and operational efficiency.
Since 2023, Kraft Heinz has generated $1.1 billion in gross efficiencies, moving toward its $2.5 billion target. By 2027, the company aims to unlock an additional $1.4 billion in efficiencies, driven by digital transformation, automation, supply chain advancements and operational excellence. These efforts are keys to driving growth, improving efficiency and supporting Kraft Heinz's innovation strategy.
Kraft Heinz's innovation strategy continues to deliver value to consumers by offering high-quality, convenient solutions that meet their evolving needs. The company is focused on providing delicious, family-friendly meals that can be prepared in minutes. In response to changing consumer preferences, Kraft Heinz is enhancing its core products with globally inspired, exploratory flavors. Expanding product options and functionality is more crucial than ever, as consumers seek choices that offer unique benefits.
The company is also committed to offering accessible solutions across different price points. The company’s innovation pipeline is gaining momentum and delivering strong results. In its third-quarter earnings call, management highlighted that year to date, innovation, as a percentage of organic net sales, reached 2.8%, marking a 100 bps increase from 2023.
During the quarter, Kraft Heinz’s Global Away From Home and Emerging Markets platforms delivered strong revenue growth. The company’s Global Away From Home segment experienced growth in North America and international markets, driven by expanded distribution in high-margin non-commercial channels. Kraft Heinz’s Away From Home team is securing new business opportunities and expanding beyond ketchup. In Emerging Markets, the company is increasing market share, driving growth through price hikes and improved volume/mix.
Challenges Weigh on 2024 Outlook
Despite its operational and strategic wins, Kraft Heinz’s third-quarter results highlighted ongoing challenges. Net sales declined 2.8% year over year to $6.38 billion. Sales continued to be pressurized by volatile consumer behavior stemming from economic uncertainty. Volume pressures, particularly in North America and International Developed Markets, have overshadowed gains in Emerging Markets.
For 2024, organic net sales are now expected to be at the lower end of the earlier guidance range of down 2% to flat year over year. The adjusted operating income growth is now projected at the lower end of the previously guided range of 1-3%. The adjusted earnings per share for 2024 is now envisioned in the lower end of the previously projected range of 1-3% growth to $3.01-$3.07. For 2024, management anticipates inflation to be around 4%, up from the previous forecast of around 3%.
Looking Ahead: Balancing KHC’s Strengths and Risks
Kraft Heinz’s ability to sustain profitability through pricing and operational efficiency positions it well to weather short-term challenges. However, addressing weak consumer demand will be critical to achieving consistent growth. While innovation and emerging market expansion remain bright, continued volume declines could weigh on overall performance.
Investors should weigh the company’s strategic initiatives against its near-term headwinds. Kraft Heinz’s focus on transformation and efficiency provides a solid foundation, but a clearer path to volume recovery will be necessary to unlock its full potential. At present KHC carries a Zacks Rank #3 (Hold).
Kraft Heinz’s stock has dropped 14.2% in the past three months compared with the industry’s decline of 6.2%.
Top Three Consumer Staple Picks
Ingredion Incorporated (INGR - Free Report) manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently sports a Zacks Rank #1 (Strong Buy). INGR has a trailing four-quarter earnings surprise of 9.5%, on average.
The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.5% from the year-ago reported number.
Freshpet Inc. (FRPT - Free Report) manufactures, distributes and markets natural fresh meals and treats for dogs and cats. It currently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings implies growth of 27.3% and 224.3%, respectively, from the prior-year reported levels.
US Foods Holding Corp. (USFD - Free Report) , together with its subsidiaries, engages in the marketing, sale and distribution of fresh, frozen and dry food and non-food products to foodservice customers in the United States. It currently carries a Zacks Rank #2. USFD delivered an earnings surprise of 3.7% in the last reported quarter.
The Zacks Consensus Estimate for US Foods Holding’s current fiscal-year sales and earnings indicates growth of 6.4% and 18.6%, respectively, from the prior-year reported levels.
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Is Kraft Heinz's Strategic Pricing Enough to Counter Weak Demand?
The Kraft Heinz Company (KHC - Free Report) showcases resilience in a challenging economic landscape, leveraging strategic pricing, operational efficiencies and robust growth pillars. Key programs like Agile@Scale and customer-focused innovations are driving growth.
Strategic Pricing Holds the Line on KHC’s Margins
Kraft Heinz has strengthened its performance through effective pricing strategies, maintaining robust margins despite inflationary pressures. In the third quarter of 2024, pricing rose 1.2% year over year, driven by growth in North America and Emerging Markets. The company’s adjusted gross margin improved by 30 basis points (bps) to 34.3%, supported by higher pricing, efficiency gains and lower variable compensation expenses.
Image Source: Zacks Investment Research
Factors Shaping KHC’s Growth Story
Kraft Heinz is actively transforming its business to unlock its full potential and boost shareholder value through its AGILE@SCALE strategy, launched in February 2022. Focused on enhancing agility and capabilities, the company has partnered with leading technology firms to improve productivity and operational efficiency.
Since 2023, Kraft Heinz has generated $1.1 billion in gross efficiencies, moving toward its $2.5 billion target. By 2027, the company aims to unlock an additional $1.4 billion in efficiencies, driven by digital transformation, automation, supply chain advancements and operational excellence. These efforts are keys to driving growth, improving efficiency and supporting Kraft Heinz's innovation strategy.
Kraft Heinz's innovation strategy continues to deliver value to consumers by offering high-quality, convenient solutions that meet their evolving needs. The company is focused on providing delicious, family-friendly meals that can be prepared in minutes. In response to changing consumer preferences, Kraft Heinz is enhancing its core products with globally inspired, exploratory flavors. Expanding product options and functionality is more crucial than ever, as consumers seek choices that offer unique benefits.
The company is also committed to offering accessible solutions across different price points. The company’s innovation pipeline is gaining momentum and delivering strong results. In its third-quarter earnings call, management highlighted that year to date, innovation, as a percentage of organic net sales, reached 2.8%, marking a 100 bps increase from 2023.
During the quarter, Kraft Heinz’s Global Away From Home and Emerging Markets platforms delivered strong revenue growth. The company’s Global Away From Home segment experienced growth in North America and international markets, driven by expanded distribution in high-margin non-commercial channels. Kraft Heinz’s Away From Home team is securing new business opportunities and expanding beyond ketchup. In Emerging Markets, the company is increasing market share, driving growth through price hikes and improved volume/mix.
Challenges Weigh on 2024 Outlook
Despite its operational and strategic wins, Kraft Heinz’s third-quarter results highlighted ongoing challenges. Net sales declined 2.8% year over year to $6.38 billion. Sales continued to be pressurized by volatile consumer behavior stemming from economic uncertainty. Volume pressures, particularly in North America and International Developed Markets, have overshadowed gains in Emerging Markets.
For 2024, organic net sales are now expected to be at the lower end of the earlier guidance range of down 2% to flat year over year. The adjusted operating income growth is now projected at the lower end of the previously guided range of 1-3%. The adjusted earnings per share for 2024 is now envisioned in the lower end of the previously projected range of 1-3% growth to $3.01-$3.07. For 2024, management anticipates inflation to be around 4%, up from the previous forecast of around 3%.
Looking Ahead: Balancing KHC’s Strengths and Risks
Kraft Heinz’s ability to sustain profitability through pricing and operational efficiency positions it well to weather short-term challenges. However, addressing weak consumer demand will be critical to achieving consistent growth. While innovation and emerging market expansion remain bright, continued volume declines could weigh on overall performance.
Investors should weigh the company’s strategic initiatives against its near-term headwinds. Kraft Heinz’s focus on transformation and efficiency provides a solid foundation, but a clearer path to volume recovery will be necessary to unlock its full potential. At present KHC carries a Zacks Rank #3 (Hold).
Kraft Heinz’s stock has dropped 14.2% in the past three months compared with the industry’s decline of 6.2%.
Top Three Consumer Staple Picks
Ingredion Incorporated (INGR - Free Report) manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently sports a Zacks Rank #1 (Strong Buy). INGR has a trailing four-quarter earnings surprise of 9.5%, on average.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.5% from the year-ago reported number.
Freshpet Inc. (FRPT - Free Report) manufactures, distributes and markets natural fresh meals and treats for dogs and cats. It currently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings implies growth of 27.3% and 224.3%, respectively, from the prior-year reported levels.
US Foods Holding Corp. (USFD - Free Report) , together with its subsidiaries, engages in the marketing, sale and distribution of fresh, frozen and dry food and non-food products to foodservice customers in the United States. It currently carries a Zacks Rank #2. USFD delivered an earnings surprise of 3.7% in the last reported quarter.
The Zacks Consensus Estimate for US Foods Holding’s current fiscal-year sales and earnings indicates growth of 6.4% and 18.6%, respectively, from the prior-year reported levels.