Will Kraft Heinz Stock Rise Further on Q4 Results?



What to expect

Kraft Heinz (KHC) is expected to announce its fourth-quarter results on February 21. The company didn’t impress investors with its financial performance in the first three quarters of 2018. Heightened competition, the promotional environment, cost headwinds, and adverse currency rates affected the financials of the company, and in turn, its stock price. Kraft Heinz stock fell about 45% in 2018 following the company’s tepid financial performance.

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However, management remains upbeat and expects organic sales to improve in the fourth quarter driven by higher volumes. Also, benefits from acquisitions and divestitures and distribution gains are expected to support the top line. However, lower pricing amid the heightened competitive environment and currency volatility are expected to remain a drag.

Kraft Heinz’s profit margins are expected to remain low owing to the pressure on pricing and higher commodity and transportation costs. However, earnings are likely to return to the growth trajectory in the fourth quarter, driven by a lower effective tax rate.

The top lines of packaged food manufacturers are benefitting from their recent acquisitions. Food companies including Kraft Heinz, Kellogg (K), Hershey (HSY), Conagra Brands (CAG), General Mills (GIS), and J.M. Smucker (SJM) have seen improved net sales growth driven by the incremental sales from their recent acquisitions. However, profit margins are under pressure owing to continued weakness in the underlying sales and higher cost pressure. Meanwhile, promotional spending to push product demand further remains a drag.

Q4 consensus estimate

Analysts expect Kraft Heinz to post net sales of $6.9 billion, which implies a YoY increase of about 1%. Meanwhile, analysts expect Kraft Heinz to report adjusted earnings of $0.94 per share, which indicates a YoY improvement of 4.4%.

Kraft Heinz stock is up 10.6% so far this year. The improved quarterly performance could drive the stock higher.


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