Kraft Heinz Stock Could Fall on Weak Sales
Weak demand to blame
Kraft Heinz (KHC) stock is down 10.0% on a YTD (year-to-date) basis and trading close to its 52-week low, as the continued decline in sales remains a drag. The company’s sales have fallen in the past four quarters, as consumers are shifting towards fresh and healthy foods, which is leading to lower demand for packaged food manufacturers, especially in the US.
During the last reported quarter, the company’s sales fell 1.7%, while they fell 3.1% in 1Q17. A decline in volumes, lower pricing, and currency headwinds continue to take a toll on the company’s top-line performance.
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The company managed to expand margins despite reporting lower sales as increased productivity and cost savings more than offset the negative impact of lower sales.
Why sales might remain soft in the near term
Kraft Heinz’s management expects sales to improve in 2H17 driven by innovation-led new product launches. Meanwhile, the company’s in-store activity is further projected to help boost sales.
However, lower demand in North America, reductions in shelf space in stores, increased competition, and distribution losses could adversely impact the company’s sales. Meanwhile, currency fluctuations are also expected to remain a drag.
Moreover, investors are wary of the fact that continued volume declines and rising input costs could eventually hurt margins and in turn, its EPS growth. J.M. Smucker (SJM) and General Mills (GIS) have been hurt by these trends as well.