Kraft Heinz (KHC) shares significantly underperformed the broader markets and fell 24.1% in the first quarter. In comparison, the S&P 500 Index rose 13.1%. The Consumer Staples Select Sector SPDR ETF (XLP) rose 10.5%.
In comparison, General Mills (GIS), Conagra Brands (CAG), and J.M. Smucker’s (SJM) stock prices rose 32.9%, 29.9%, and 24.6%, respectively, in the first quarter due to the benefits from their recent acquisitions and margin expansion.
Kraft Heinz’s poor financial performance irked investors. The news of the SEC probe and brand write-downs made the situation worse. Kraft Heinz’s top line didn’t impress investors. Weak consumer demand, lower pricing, and more competition limited the growth rate. Currency volatility also remained a drag.
The earnings were low despite a lower tax environment. Kraft Heinz’s bottom line decreased for two consecutive quarters, which reflected higher cost pressure on profit margins and increased interest expenses. Kraft Heinz’s weak guidance for 2019 and dividend cut didn’t sit well with investors.
Kraft Heinz stock is trading at a forward PE ratio of 11.7x, which is at a multiyear low. The company’s top and the bottom line are projected to stay low in 2019, which could limit the upside. Analysts expect Kraft Heinz’s top line to decline in all four quarters in 2019, which reflects negative currency rates. The company’s sales are projected to be low in the near term, which reflects the shift in sales driving events.
Kraft Heinz’s bottom line is expected to mark a double-digit decline, which reflects more cost pressure, promotional spending, and increased interest expenses.