The Kraft Heinz Company

Source: Investor Presentation


Turnaround
As the market hates uncertainty, particularly when the uncertainty is related to accounting issues, it is easy to understand the suppressed stock price of Kraft Heinz in the last 10 months. However, investors should note that the company is in the early phases of a major turnaround, which has passed under the radar of most investors due to their risk-averse nature.

The efforts for the turnaround began in July, with the replacement of the old CEO with Miguel Patricio, who had a successful two-decade career in Anheuser-Busch (BUD) and also served Philip Morris (PM), Coca-Cola (KO) and Johnson & Johnson (JNJ). His tenure in consumer product giants is certainly a great advantage in the ongoing efforts of Kraft Heinz to return to growth mode.

In the third quarter, Kraft Heinz showed signs of stabilization of its business, as its organic sales grew 0.4% compared to the first half of the year and fell less than the analysts’ consensus (-1.1% vs. -1.6%) on an annual basis. The improvement was driven by a 1% increase in the average selling price thanks to price hikes in the U.S, Europe, Middle East and Africa [EMEA]. The company also managed to stabilize its supply chain costs.

Despite its improved performance, Kraft Heinz still has a long way to go to return to sustained growth mode. The food & beverage giant is still losing market share in natural cheese, cold cuts and its coffee business in the U.S. while it also incurs infant nutrition declines in China and EMEA.

However, it is important to note that Kraft Heinz is running nine transformational projects, which will help the company enhance its efficiency and tackle the issues in the above segments.



Source: Investor Presentation

Five projects are focused on the top line, two projects aim to enhance the operational efficiency and the other two projects are focused on organizational effectiveness. Moreover, management aims to boost the promotional spending on media, particularly for the brands that are the largest growth drivers.

Analysts seem to believe in the promising prospects of the ongoing turnaround of Kraft Heinz. While they expect an 8% decrease in the earnings per share this year, from $2.80 to $2.57, they expect 13.2% average annual earnings-per-share growth in the following three years, from $2.57 this year to $3.73 in 2023.


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