Speculation of acquisition fails to impress investors
Wall Street analysts have long maintained a favorable outlook on the prospects of Kraft Heinz (KHC) stock despite the company’s sluggish performance in its top line and bottom line. Analysts believe that Kraft Heinz could benefit from the consolidation in the food space, especially given Kraft Heinz’s knack of acquiring fast-growing brands to boost its financial performance.
However, this scenario didn’t seem to impress investors. KHC stock is witnessing a steep downtrend and has underperformed almost all of its peers.
Kraft Heinz (KHC) stock is down ~20.3% on a YTD (year-to-date) basis as of March 21, 2018. The company’s peers are also trading in the red. However, their rate of decline is lower than that of Kraft Heinz. The exception was General Mills (GIS) stock, which nosedived on March 21, reflecting tepid outlook for its margins.
On a YTD basis, Mondelēz (MDLZ), J.M. Smucker (SJM), Kellogg (K), Conagra (CAG), Campbell Soup (CPB), General Mills, and Hershey (HSY) stock prices have declined 1.8%, 3.3%, 6.3%, 6.2%, 12.3%, 23.2%, and 13.2%, respectively.
Financial performance doesn’t look impressive either
The chart above reflects that Kraft Heinz has been disappointing investors with its top-line and bottom-line performance. Low demand for packaged foods from health-conscious consumers, the rise of private label products, and an ongoing price war among retailers are adversely impacting these sales.
The benefit from cost-saving measures is likely to diminish, and inflation in input product costs are expected to hurt margins and its EPS (earnings per share) growth rate.
However, Kraft Heinz’s focus on new product launches and in-store activities are expected to support its top line. Analysts expect the company’s sales to mark low-single-digit growth in 2018.
Its earnings per share are expected to gain from cost-saving initiatives and lower tax rates. However, soft sales, increased commodity prices, and higher transportation costs are expected to remain a drag on KHC’s growth.