Kraft Heinz Stock Fell 20% in August: What’s Next?

  • Kraft Heinz stock fell about 20% in August and significantly underperformed the broader markets.
  • The stock isn’t attractive despite its low valuation. Challenges are here to stay at least in the near term.

Kraft Heinz (KHC) stock significantly underperformed the broader markets and most of its peers in August. The stock fell about 20% in August. In comparison, the S&P 500 fell about 2%. Kellogg (K), Campbell Soup (CPB), Hershey (HSY), and Mondelēz (MDLZ) shares rose 7.9%, 8.9%, 4.4%, and 3.2%, respectively, during the same period.

Kellogg and Campbell Soup stock benefited from their better-than-expected quarterly performances. Kellogg’s higher pricing and benefits from Multipro’s consolidation helped it beat analysts’ expectations in the second quarter. Campbell Soup beat analysts’ EPS estimate by a wide margin and register double-digit growth.

Meanwhile, Mondelēz and Hershey had balanced growth in volumes and pricing. Mondelēz’s organic sales increased 4.1% during the second quarter, which reflected a 3.0% rise in net selling prices and 1.6% growth in its volumes and mix. Hershey’s organic sales benefited from a 1.2% increase in net selling prices and 0.6% growth in volumes.

Kraft Heinz had a disappointing performance. The company’s sales fell about 5%, while the EBITDA fell 19.3% in the first half of 2019. Kraft Heinz’s adjusted earnings fell nearly 24% YoY.

On a YTD basis, Kraft Heinz stock has fallen about 41%. In contrast, Hershey, Mondelēz, Campbell Soup, and Kellogg stock have risen 48%, 38%, 36%, and 10%, respectively.

What’s next for Kraft Heinz stock?

Kraft Heinz stock trades at a very low valuation due to the considerable decline. However, we think that the recovery in the stock might not be in the offing. Persisting sales and margin headwinds will probably decrease soon.

Competitive headwinds and lower pricing will likely hurt Kraft Heinz’s sales. Analysts expect the sales to mark a low single-digit decline in the coming quarters. Analysts expect Kraft Heinz’s top line to improve in the second half of 2020. However, the increase will likely be very low. Analysts expect Kraft Heinz’s top line to fall 3.5% in the third quarter. Meanwhile, the company’s sales will likely fall 2.5% in the fourth quarter.

Soft sales, currency headwinds, and higher supply-chain costs will likely hurt Kraft Heinz’s EBITDA. Analysts’ consensus estimate indicates a double-digit decline in the EBITDA in 2019. Meanwhile, analysts expect Kraft Heinz to remain weak in 2020.

Weak sales and the lower EBITDA could take a toll on the company’s bottom line in 2019. Analysts expect Kraft Heinz’s adjusted EPS to fall about 25% in 2019. The company’s adjusted EPS will likely decrease by a high-single-digit rate in the first half of 2020.