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Kraft Heinz (KHC) Up on Solid Pricing & Transformation Efforts

The Kraft Heinz Company KHC is benefiting from strength in pricing efforts amid an inflationary environment. The iconic consumer packaged food and beverage company’s efforts to transform its business to unleash its potential are yielding. In this regard, the company’s AGILE@SCALE strategy holds promise.

Let’s delve deeper.

Pricing Actions: Key Driver

Solid pricing initiatives have been aiding Kraft Heinz for a while now. In third-quarter 2022, the company’s pricing rose 15.4 percentage points year over year, reflecting growth in both segments. The upside can be attributed to measures undertaken to counter increasing input costs. In the North America segment, pricing moved up 15.3 percentage points. The International segment’s pricing moved up 15.7 percentage points.

Robust pricing efforts boosted the company’s quarterly net sales, increasing year over year and beating the Zacks Consensus Estimate. The company generated net sales of $6,505 million, up 2.9%, while organic net sales increased 11.6%.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Growth Efforts on Track

Kraft Heinz’s top-line momentum is driven by three pillars of growth, including Consumer Platforms, Foodservice opportunities and expansion in Emerging Markets. In its last earnings call, management highlighted that it remains encouraged about sales growth in its segments, driven by its three growth pillars — GROW platforms in North America, Foodservice and Emerging Markets.

In the third quarter of 2022, demand in GROW platforms across North America, including Taste Elevation was solid. The company’s Foodservice business across North America and International Zone is growing faster than the industry. The company witnessed accelerated organic net sales growth across the emerging market.

Management has been expanding its presence in Emerging Markets via a sustainable and repeatable Go-To-Market model delivering accelerated growth. In April 2022, Kraft Heinz acquired a majority stake in a Brazil-based condiments and sauces company — Companhia Hemmer Indústria e Comércio ("Hemmer"). In January 2022, Kraft Heinz acquired an 85% stake in Germany-based Just Spices GmbH (“Just Spices”). Management acquired the sauces-focused business — Assan Foods — from privately-held Turkish conglomerate Kibar Holding in October 2021.

Kraft Heinz is leaving no stone unturned to transform its business to unleash its full potential. The company is committed to accelerating its profit and enhancing long-term shareholders’ value. As part of its transformation phase, management unveiled AGILE@SCALE in February 2022. The strategy will help Kraft Heinz to enhance its agile expertise and capabilities via partnerships with technology giants and cutting-edge innovators.

What Else is Driving Growth?

Kraft Heinz has been facing several headwinds like elevated input costs and ongoing supply chain challenges and currency volatility.In the third quarter of 2022, Kraft Heinz’s gross profit of $1,843 million declined by 9.1% from the $2,028 million reported in the year-ago quarter. Adjusted EBITDA fell 5.5% to $1,398 million, reflecting the adverse impact of divestitures and unfavorable currency translation. Management highlighted that adjusted EBITDA was hurt by escalated commodity costs (particularly across dairy, soybean, packaging materials, energy and vegetable oils), supply-chain costs (including inflation across logistics, procurement and manufacturing costs) and an adverse volume/mix.

That said, well-chalked transformation efforts and effective pricing are likely to help the Zacks Rank #3 (Hold) company stay afloat amid such hurdles. KHC’s shares have increased 8.1% in the past six months compared with the industry’s 6.2% growth.

3 Solid Staple Picks

Some top-ranked stocks are The Chef's Warehouse CHEF, General Mills GIS and Conagra Brands CAG.

The Chef's Warehouse, which distributes specialty food products, currently sports a Zacks Rank #1 (Strong Buy). Chef's Warehouse has a trailing four-quarter earnings surprise of 93.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for CHEF’s current financial-year sales suggests growth of 46.5% from the year-ago reported number, while earnings indicate significant growth.

General Mills, which manufactures and markets branded consumer foods, carries a Zacks Rank #2 (Buy) at present. General Mills has a trailing four-quarter earnings surprise of 6.1%, on average.

The Zacks Consensus Estimate for GIS’ current financial year sales and earnings suggests growth of 2.7% and 3.8%, respectively, from the year-ago reported numbers.

Conagra Brands, operating as a consumer-packaged goods food company, currently carries a Zacks Rank of 2. CAG has a trailing four-quarter earnings surprise of 1.8%, on average.

The Zacks Consensus Estimate for Conagra Brands’ current financial year sales and earnings suggests growth of 5.2% and 3.4%, respectively, from the corresponding year-ago reported figures.

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