On February 21, Kraft Heinz (KHC) shares fell ~21% in the after-hours of trade following the company’s weaker-than-expected fourth-quarter results. Kraft Heinz’s top line improved slightly on a YoY (year-over-year) basis due to its higher volumes and mix. However, the company’s net sales fell short of analysts’ estimate.
The company’s earnings were disappointing. Analysts expected Kraft Heinz’s bottom line to return to the growth trajectory in the fourth quarter. However, Kraft Heinz’s adjusted EPS remained weak and fell on a YoY basis, which reflected higher cost pressure and increased interest costs.
We expect persisting challenges to continue to hurt Kraft Heinz’s top and bottom line in 2019. Management expects 2019 to be another challenging year with pressure on the top and bottom line. The company’s management also slashed its annual dividend from $2.50 per share to $1.60, which probably won’t sit well with investors.
Stock could erase its gains
We expect near-term weakness to set the direction for Kraft Heinz stock. So far, the stock has risen 1.9% in 2019 as of February 21. Due to the company’s weak quarterly performance, tepid guidance, and decreased dividend, the stock is expected to fall and erase all of the gains.
General Mills (GIS), Mondelēz (MDLZ), Conagra Brands (CAG), and J.M. Smucker (SJM) shares have risen 20.6%, 20.9%, 12.7%, and 14.2%, respectively. Pressure on the earnings due to increased costs and higher interest expenses could limit the upside.