Why The Kraft Heinz Company’s Outlook Still Seems Promising
The Kraft Heinz Company’s (KHC) net sales grew 44% in 2016 before falling 1% in 9M17. Every product category drove the growth in 2016, offset by a decline in the infant and nutrition segments.
Jan. 10 2018, Updated 3:44 p.m. ET
The Kraft Heinz Company’s net sales
The Kraft Heinz Company’s (KHC) net sales grew 44% in 2016 before falling 1% in 9M17. Every product category drove the growth in 2016, offset by a decline in the infant and nutrition segments. The United States and Canada recorded growth in 2016, offset by the United Kingdom and other countries. In 9M17, every product category—barring frozen and chilled meals and the Other segment—noted a decline. The United States, Canada, and Europe noted declines, offset by the rest of the world in 9M17.
Gross profit grew 66% and 2% in 2016 and 9M17, respectively. SG&A (selling, general, and administrative) expenses increased 10% in 2016 before falling 16% in 9M17. Operating income grew 133% and 13% in 2016 and 9M17, respectively. The increase of 83% in SG&A for 2015 affected operating income for the year. Adjusted operating income rose 24% and 14% in 2016 and 9M17, respectively.
Interest expenses decreased in 2016 and increased in 9M17. As a result, adjusted net income grew 52% and 11% in 2016 and 9M17, respectively. Adjusted diluted EPS (earnings per share) grew 52% and 10% in 2016 and 9M17, respectively.
Dividend and price growth
The company’s dividend per share grew 4% in both 2016 and 2017. Prices rose 20% in 2016 before falling 11% in 2017, which explains the growth in dividend yield for 2017 after a fall in 2016. A forward PE of 21.6x and dividend yield of 3.2% compares to a sector average forward PE of 20.9x and a dividend yield of 2.5%.
Compare to the broad indexes?
The S&P 500 (SPX-INDEX)(SPY) offers a dividend yield of 2.2%, a PE ratio of 23.4x, and a YTD (year-to-date) return of 19.6%. The Dow Jones Industrial Average (DJIA-INDEX)(DIA) has a dividend yield of 2.2%, a PE ratio of 22.3x, and a YTD return of 25.1%. The NASDAQ Composite (COMP-INDEX)(ONEQ) has a PE ratio of 28.2x and a YTD return of 24.8%.
Net sales and EPS outlook
The Kraft Heinz Company is projected to record negative net sales growth of 1% in 2017 and positive 2% growth in 2018. The 2017 and 2018 diluted EPS are projected to grow 8% and 9%, respectively.