Earnings Review: The Kraft Heinz Company

• KraftHeinz increased its profitability as revenues declined.
• The company is continuing its cost cutting strategy as the company gets ready for another deal.
• This stock is a basically a defensive stock that trades at a premium because of its dividend growth and ability to use M&A to increase value.

The Kraft Heinz Co.(KHC) engages in the production of processed food and beverages. It operated through the following geographical segments: United States, Canada, Europe, and Rest of the World. Kraft Heinz products include condiments and sauces; cheese and dairy; ambient meals; frozen and chilled meals; and for infant and nutrition. Despite declining year over year revenue, the consumer goods company beat on earnings and revenue. Kraft Heinz reported earnings of $0.91/share versus expectations of $0.87/share. Kraft Heinz reported $6.8 billion in revenue compared to analyst estimates of $6.7 billion.

The fifth largest food and beverage company in the world had a 3.7% year over year revenue decline. Organic sales increased by 1.6% and the cost cutting boosted profits. Kraft Heinz increased profitability by 22.8%. The company expects to have $1.7 billion(up from $1.5 billion)in cost savings from its integration program. All the geographical locations where Kraft Heinz sells its products were all down. The United States is still the company’s biggest market and with the changing consumer trends the decline was steeper than expected. I expect the company to make an acquisition soon.

On Friday, 17 February we learnt that Kraft Heinz had a $143 billion merger turned down by Unilever. This was a deal that would value Unilever over $50/share. However, due to the massive amount of debt needed for the deal we don’t think the deal will be successful. Two days later after the news broke out Kraft Heinz withdrew its offer for Unilever. Looking at the deal closely, Kraft Heinz is in need of emerging markets and they need to acquire a company to get that access. However, looking Unilever 40% of their business is dedicated to food while the 60% is dedicated to personal care products so the synergies wouldn’t work. I still think Kraft Heinz will acquire Mondelez International and will continue to trade at a premium.

For now I am going to continue to hold my Kraft Heinz shares and increase my position when I find the opportunity over time.

Verdict: B Quarter.

Disclosure: Cresco Investments is long Kraft Heinz.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.