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Kraft Heinz's (KHC) Operating Model & Pricing Efforts Solid

The Kraft Heinz Company KHC is benefiting from its focus on growth-oriented operating model, which was laid out in September 2020. The company’s strategic pricing efforts and efficiency-building plans are worth mentioning.

Let’s discuss further.

Operating Model Holds Promise

The Kraft Heinz is committed to its operating model, which was laid out last year. The model incorporates five key elements — People with Purpose, Consumer Platforms, Ops Center, Partner Program and Fuel Our Growth. The Consumer Platforms represent a portfolio of six consumer-driven platforms like Taste Elevation, Easy Meals Made Better as well as Real Food Snacking, among others. Kraft Heinz is committed to expanding the International Taste Elevation product platform across emerging markets. In December 2021, Kraft Heinz entered into an agreement to buy 85% stake in Germany-based Just Spices GmbH. The buyout will enhance its direct-to-consumer operations and go-to-market expansion. Management acquired sauces-focused business — Assan Foods — from privately-held Turkish conglomerate Kibar Holding in October 2021. The move accelerates its retail and foodservice growth across Europe, the Middle East and Africa. In September 2021, the company signed an agreement to buy the Brazil-based condiments and sauces company — Companhia Hemmer Indústria e Comércio —to further accelerate growth in the condiments and sauces category.

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Ops Center element will enable Kraft Heinz to establish an efficient, fast and integrated supply chain network. The Partner Program element is designed to create solid customer partnerships and develop new strategic partnerships. The Fuel Our Growth strategy is aimed at investing in growth opportunities, solidifying its long-term market position and staying committed to boosting shareholders’ returns. This strategy will help the company manage its portfolio and accelerate its strategic plan, augment geographic presence, increase focus on growth areas and undertake sustainable pricing actions.

What Else is Driving Growth?

Solid pricing initiatives have been aiding Kraft Heinz for a while now. In third-quarter 2021, pricing rose 1.5 percentage points year over year with growth in all reporting segments, reflecting inflation-justified price increases across the foodservice and retail channels in all geographies. During the quarter, pricing in the United States moved up 1.4 percentage points. In Canada, pricing inched up 0.2 percentage points and the same increased 2.2 percentage points in the International markets.

In terms of cost savings, the company has been increasing visibility and control of its cost components. It is also keeping a close watch on investments made for enhancing sales and customer services. The company is on track with examining its SKU’s to remove complexities and boost mix. In this regard, the company’s Ops Center platform has been driving efficiency gains via simplification and waste reduction. Other productivity-improvement initiatives include programs such as zero-based budgeting, modernization and capability building within the manufacturing footprint and establishing a performance-driven culture in the company.

Wrapping Up

Kraft Heinz is grappling with supply chain disruptions, labor issues and raw material inflation. During third-quarter 2021, Kraft Heinz’s adjusted EBITDA fell 11.3% to $1,479 million. Gross profit of $2,028 million declined 13.5% from $2,344 million reported in the year-ago quarter. For 2022, the company expects escalated inflation for at least the first half, primarily due to the carry-over impact from 2021.

We believe that this Zacks Rank #3 (Hold) company’s aforementioned upsides are likely to keep aiding growth. Kraft Heinz’s shares have increased 13.9% in the past year compared with the industry’s growth of 7%.

Hot Consumer Staples Bets

Some better-ranked stocks are Medifast, Inc. MED, United Natural Foods UNFI and Sanderson Farms, Inc. SAFM.

United Natural Foods, the leading distributor of natural, organic and specialty food and non-food products in the United States and Canada, sports a Zacks Rank #1 (Strong Buy) at present. Shares of UNFI have rallied 91.4% in the past year.You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for United Natural Foods’ current financial year earnings per share (EPS) suggests growth of 7.7% from the year-ago reported number. UNFI has a trailing four-quarter earnings surprise of 35.4%, on average.

Sanderson Farms, the producer of fresh, frozen and minimally prepared chicken, currently sports a Zacks Rank #1. Shares of SAFM have risen 40.6% in the past year.

The Zacks Consensus Estimate for Sanderson Farms’ fiscal 2022’s sales suggests almost 1% growth from the year-ago reported figure. SAFM has a trailing four-quarter earnings surprise of 496.3%, on average.

Medifast, the manufacturer and distributor of weight loss, weight management, healthy living products, and other consumable health and nutritional products, currently carries a Zacks Rank #2 (Buy). Shares of Medifast have decreased 8.7% in the past year.

The Zacks Consensus Estimate for Medifast’s current financial-year sales and EPS suggests growth of about 63% and 49.3%, respectively, from the year-ago reported figure. MED has a trailing four-quarter earnings surprise of 17.3%, on average.


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United Natural Foods, Inc. (UNFI): Free Stock Analysis Report
 
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The Kraft Heinz Company (KHC): Free Stock Analysis Report
 
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