Why Analysts Have Low Expectations for Kraft Heinz’s 1Q18

Kraft Heinz (KHC) is set to announce its 1Q18 results on May 2. Analysts expect the company’s sales and earnings to fall YoY (year-over-year). Its organic sales are projected to fall, reflecting US and Canadian volume decline due to distribution and market share losses and soft demand. A tough retail environment is also posing a challenge.

Kraft Heinz’s bottom line is also projected to fall YoY, dragged down by increased cost pressure and lower volumes. Moreover, analysts expect benefits from cost-saving initiatives to diminish as the year progresses. Given the near-term challenges, multiple analysts have lowered their target prices for Kraft Heinz stock, and low expectations for its 1Q18 earnings are likely to pressure its stock further.

The graph above shows how packaged food manufacturer stocks have unperformed broader markets and are trading negatively. Sales and margin headwinds are taking a toll on their performance. Kraft Heinz, underperforming most of its peers, had fallen ~26.9% year-to-date as of April 25. Meanwhile, General Mills (GIS), Hershey (HSY), Kellogg (K), Conagra Brands (CAG), and J.M. Smucker (SJM) had fallen 25.7%, 17.6%, 10.3%, 1.4%, and 7.0%, respectively, and the S&P 500 (SPY) had fallen 1.3%.