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Will Kraft Heinz Deliver Strong Q1 Results amid COVID-19?

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Kraft Heinz (NASDAQ:KHC) is one of the consumer staples companies that has benefited from higher demand for its products amid COVID-19. The company will likely report its first-quarter results on April 30. Earlier this month, Kraft Heinz provided a business update amid the COVID-19 crisis. The company said that it expects first-quarter net sales growth of 3% and organic sales growth of 6%.

The update pleased investors. Earlier, the company predicted a low single-digit fall in its first-quarter organic sales.

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Analysts’ estimates for Kraft Heinz

Analysts expect Kraft Heinz’s first-quarter sales to grow 3.1% YoY (year-over-year) to $6.14 billion. However, they expect about a 17% YoY decline in the company’s adjusted EPS to $0.55. Higher demand amid the pandemic will likely boost the top-line growth in the first quarter. However, Kraft Heinz’s first-quarter earnings could decline due to additional expenses to meet the higher demand.

The company missed analysts’ sales expectations in all four quarters of 2019. Change in consumer preferences, especially Millennials, has been hurting the company’s performance. Notably, some consumers prefer fresh and organic food instead of packaged food. Also, several private brands have made the packaged foods space more competitive.

Kraft Heinz is trying to improve its sales and productivity through several measures. The company was supposed to reveal its detailed turnaround strategy in March. However, the company postponed releasing the strategy until its Investor Day in May. Amid the pandemic, Kraft Heinz has postponed its Investor Day from May to the second half of the year.

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Stock movement before Q1 results

Kraft Heinz stock has fallen 5.3% year-to-date as of April 28. The stock has fared better than the broader US market but lags some of its peers. As of April 28, the S&P 500 and the Dow Jones have fallen by 11.4% and 15.5%, respectively. Meanwhile, General Mills (NYSE:GIS) and Campbell Soup (NYSE:CPB) have risen 13.8% and 3.2%, respectively. In contrast, Kellogg (NYSE:K) stock has fallen 4.9% YTD as of Tuesday.

Aside from weaker results, Kraft Heinz investors had several reasons to be concerned last year. An SEC investigation into the company’s accounting practices and a $15 billion impairment charge related to the Kraft and Oscar Meyer brands drew a lot of criticism.

Recently, Wells Fargo and JPMorgan Chase upgraded their rating for Kraft Heinz stock. However, certain analysts think that the surge in the company’s sales due to pantry loading tendencies amid the pandemic might fade away. The company’s huge debt is also a concern. Even Warren Buffett mentioned the company’s debt in a CNBC interview in February. Warren Buffett’s Berkshire Hathaway is Kraft Heinz’s largest shareholder.

In February, credit agencies S&P Global and Fitch downgraded the rating for Kraft Heinz’s bonds to “junk.” At the end of 2019, the company’s total debt outstanding was $29.2 billion.

Currently, the stock has an average target price of $28.50, which reflects a potential downside of 6%.

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