Kraft Heinz Company (KHC)

[FUNMAN]

Kraft Heinz chief procurement officer: ‘Relationships with suppliers should not be purely transactional'

02-Jan-2020 By Elaine Watson

Type ‘Kraft Heinz procurement’ into Google and the search engine helpfully suggests ‘scandal,’ ‘misconduct’ and ‘investigation,’ serving as a reminder that the buying function at one of the world’s most iconic food companies had something of an annus horribilis in 2019.

Read it at this link. It's a very good and actually a comforting article, letting us know someone recognizes and cares about this issues. - FUNMAN

https://www.foodnavigator-usa.com/Article/2020/01/02/Kraft-Heinz-chief-procurement-officer-Relationships-with-suppliers-should-not-be-purely-transactional

[Stock_Barber]

Thanks for posting that, interesting...

[FUNMAN]

Kraft Heinz Company Could Potentially Spin Off Kraft As A Separate Company
Dec. 17, 2019 8:48 PM ET

Please read at this link to see the charts and graphs.

https://seekingalpha.com/article/4313026-kraft-heinz-company-potentially-spin-off-kraft-separate-company

Summary

* Kraft Heinz can't afford its dividend if it wants to pay down debt. I have written several articles here showing this. The Q3 numbers confirmed this.

* However, both the CFO and new CEO implied that there would be capital structure changes. This will obviously involve large asset sales to pay down debt.

* But theoretically, it could also involve a "carve-out" capital raise of a large portion of the company. This could mean listing Kraft as a separate stock, raising equity as well.

* Of course, theoretically, the company could be taken private again, but I somewhat doubt it. If a carve-out is done, Kraft Heinz could split its dividend between the companies.

* That might be the only way the dividend wouldn't be cut. It could also allow one or both of the companies to both reduce debt and keep the dividend stable.

This idea was discussed in more depth with members of my private investing community, Total Yield Value Guide. Get started today »


My Thoughts Since the Q3 Financial and Conference Call


I've thought a good deal about both the recent financial performance of The Kraft-Heinz Company (KHC) as well as the conference call with analysts. I have written articles here before that Kraft Heinz can't afford its $1.60 per share dividend. I've refined my thoughts a bit.

After looking at the Q3 financials, I believe that KHC can afford its dividend, barely. But this is only if KHC does not want to seriously reduce its large amount of debt.

Debt and Dividends

For example, so far this year, despite paying the dividend and interest associated with the debt, it has fallen by only 0.63%, or by $197 million from $31.147 billion. On a net debt basis, it fell a little more. You can see this in the following table:

On a net basis, the debt fell by $1 billion, or just 3.5%. But dividends paid so far this year have been $1.464 billion.

Moreover, the company can not afford more than about $870 million a year, or $218 million per quarter of debt reduction. At that pace, it would take over 30 years to pay down its large debt pile.

You can see this in my table below, including my projections for Q4 2019:

I forecast that free cash flow in Q4 2019 will be similar to Q4 2018, at 24.3% of sales. I estimate that Q4 sales will be $6.693 billion. After deducting capex, at 3.2% of sales, I project that Q4 free cash flow will be $1.413 billion.

This allows KHC to essentially earn about $2.8 billion in FCF during the year 2019. The dividend costs $1.952 billion at the $1.60 rate. The excess is $870 million, or $218 million per quarter with which KHC can pay down debt.

So management is facing a choice. Do something about the debt through asset sales, like it did this past quarter:



Source: 10-Q 2019 KHC

The 10-Q shows that KHC has made $1.875 billion in asset sales so far this year. Without that the cash balance would not have risen by $1.18 billion (see the bottom part of the cash flow statement).

In fact, net debt would not have fallen by $1 billion, as I showed above, with those asset sales.

In other words, without asset sales, KHC cannot afford both the dividend and large scale debt reduction.

Management's Options and Their Comments During The Conference Call
A mistake on FCF. The first thing that made me think further from the comments during the conference call was the CFO, Paulo Basilio, claimed numbers that are not supportable.

Here is what he said in response to a question about whether the dividend would be cut:


First, of all, his numbers are wrong. In Q3 KHC generated only $532 million in free cash flow, and the dividend cost $488 million. You can see this in the table above. This leaves only $44 million.

Just in case you don't believe me, here the cash flow statement for the six months ending June 30, 2019. We can the FCF number nine months ending Q3 cash flow statement above and subtract the difference to find the Q3 FCF:

Here is how the math works:

So the difference between the nine-month and six-month Cash Flow statements shows that FCF for Q3 was only $532 million, not the $860 million that the CFO claimed. And since dividends use up $488 million of that meager cash flow, there was only $44 million left in Q3 to pay down debt. That is why they sold $1.875 billion in brand assets.

(Why the CFO said this I do not know. He must be thinking about some adjustments, or including asset sales, or referring the average for the whole year. The latter is more likely. I estimate that average quarterly FCF, including the higher amount in Q4 is $706 million. This is close to the CFO's claim that FCF is $860 million, especially if his estimate for Q4 FCF is higher than mine. There were no numbers in the presentation or slides to justify what he said for Q3).

Asset Sales. Now think about that for a minute. You can't keep on financing the dividend and debt reduction with asset sales. Otherwise, there will not be enough FCF left to pay both of these items.

For example, interest expense so far this year, based on the income statement, has only been $1.035 billion. So even if they sold $15 billion in assets, and paid down half the debt, the savings would only be $500 million over nine months or $667 million per year ($167 million per quarter).

On the other hand, with $15 billion less assets, there would be 15 to 20% less free cash flow, since KHC has $102 billion in assets. So, the net quarterly cash flow gain would be just $26 million, or about $104 million per year. ($167 million - ($706 million x .20) = $167 mil - 141 m = $26 million per quarter).

That is nothing. I have shown that the average estimate for FCF after dividends is only $44 million in Q3 and for the year as a whole, $218 million per quarter. Adding another $26 million through selling half of the assets is not going to make a dent. There would still be remaining $15 billion in debt (after using the $15 billion in asset sales to pay off half the debt). \

Capital Structure Options - Carve Outs?

I got to thinking that possibly the company is thinking of "carving" out some asset and listing it as a separate company along with an equity raise. This could solve two problems in one. They could raise equity for the new brands, pay off debt, and still not have to cut the dividend between the two remaining companies (i.e. adding the two lower dividends per share amounts together).

This is what the company formerly known as DowDuPoint did in March and June of this year. You can read some of my articles about this. They essentially split the company into three parts through both a spin-off and a 2 part split-up: Dow (DOW), Corteva (CTVA) and DuPont (DD). Each pays a separate dividend. The total dividends that shareholders now receive are roughly the same as when the old company paid for them. But now there are three companies, with better balance sheets and management and capital raise abilities.

Here is why I think Kraft-Heinz might be thinking along these lines. Listen carefully to what both the CFO and the CEO said during the call. They mentioned "capital structure" and "strategic review" numerous times:

The latter quotes from the CEO heavily imply that the company will divest a large number of assets. That does not necessarily mean selling them. It could involve a carve-out, spin-off, or something similar to the DowDuPoint moves this summer. I am sure that the company is looking at this option.

After all, a partial or full spin-off of a company or brand, with its own management would allow that company to raise equity. It would come with the transfer of a portion of the debt from KHC to that new company, just like DowduPont did when it spun off Dow in March and then later split itself into both Dupont and Corteva in June.

In addition, the dividend would not have to be cut. It could simply be partitioned among two or three companies.

The Rationale For a Spin-off / Carve-Out
One of KHC's problems with investors right now is there no visibility in the financials about the actual brand performance, either in sales or earnings. The company divides itself into geographical regions. Right now it has 19 reporting units, but they are all just parts of the world.

But this is a food company. Not a single product company that can be split into regions. When the sh hit the fan and the company had to write down $15.6 billion of assets, it did this by citing different food groups that had not performed well enough to live up to their brand values. You can read my article about the analysis of this.

So why not split the company into major brands, especially putting Kraft products as a separate company. It seems to be the "bad bank" so-to-speak. When the write-offs occurred earlier this year, it was mostly their products, as I wrote in my original article on KHC and subsequent articles.

Perhaps Oscar Meyer and Heinz could stay as separate companies, but let's not assume that they need to be. I suspect the problem child really is Kraft. KHC could spin it off as a separate company, or alternatively, sell 20% to the public as a separate company in a new carve-out. Now there would be sufficient cash and cash flow to pay down debt and yet still pay the dividend.

For example, let's say that all of Kraft brands are put into a separate company. 3G Capital paid $23 billion for it in 2013 and inserted it into KHC. Even if they "carved out" $6 billion in an IPO capital raise for say, 25% of the company, would give the KHC both a remaining 75% stake, $6 billion to pay down debt, plus transfer a good portion of existing debt to the new Kraft carve-out company. That makes three birds killed with one stone - (1) a capital raise (2) transfer of debt, (3) dividend remains the same through both companies.

I have no inside knowledge of whether the company is considering this. But I highly suspect that they are reviewing the possibility of doing this, especially after the success of the DowduPont breakup this summer.

Summary and Conclusion
Seeking Alpha pays me to think outside the box. This is what thinking outside of the box looks like. I am trying to be creative about what management could do. Certainly, they have to do more than just asset sales. The dividend is not affordable even if they sell assets.

And here is what is important. Even if the dividend is supportable with asset sales, the stock price will not believe it. There will always be people like me saying the dividend is not supportable with existing cash flow.

In summary, KHC needs to do something creative. That will move the stock. What I have suggested is creative enough to move the stock out of first and second gear, which it seems to be stuck in.

Total Yield Value Guide
Extensive financial analysis of high total yield and deep value stocks
The Total Yield Value Guide follows high dividend yield, and high buyback stocks (total yield) and stocks with abundant net cash, cash flow, and catalysts. Our focus on high buyback yield stocks (buybacks/market price) plus high dividend yield is unique. These stocks tend to perform well over time.

Subscribers receive exclusive articles, model spreadsheets on stocks published both here and on other sites, access to my historical articles and a chat room.

Subscribers also receive a free two-week trial to review the service.

Here is the link to subscribe.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

[ezyE]

Than why is the stock down and they had a sale off .
Why did Kraft implement new attendance rules to stream line their employees ?

Why have some opted to retire early ?

The stock price speaks for itself .
Their debt also speaks for itself.


I know many true kraft employees that will differ with what you posted.

[Stock_Barber]

Pfffttt!

I know many Kraft employees that work here at the Chicago HQ... and NONE are worried that the company is in any trouble whatsoever!

Hell, they are BUYING shares in their own company!

[ezyE]

Kraft workers are disgruntled because they believe they going bankrupt.
Some are even leaving for higher pastures, I heard .

[tw0122]

Kraft fined for what could be viewed as criminal activity. Caught and fined for rigging the Commodity Wheat markets

[FUNMAN]

Kraft Heinz: Stability Might Be Arriving
Nov. 19, 2019
12:54 PM ET

https://seekingalpha.com/article/4307771-kraft-heinz-stability-might-arriving?app=1


Summary

* Kraft Heinz is showing some signs of stabilization, as EBITDA declines are much less pronounced.

* This is comforting to see as the company torches along a big net debt load, while deleveraging potential is modest absent of further divestments.

* Low expectations and solid earnings potential in relation to the current valuation mean that I am still upbeat here.

Kraft Heinz (KHC) has seen better days as of recent as the third quarter earnings report was better than feared. Back in August, I concluded that there was blood & ketchup in the streets with shares trading at $26 halfway August.

The company was making large investments into the business, while it furthermore faced inflationary pressures, was forced to cut prices and saw deleveraging from lower volumes. The other concern is that reduced earnings power furthermore jacks up leverage ratios which meant that there was quite some bad news for investors to digest.

Despite the dismal outlook, I saw some green shoots as 3G/Buffett might take the company private of course and divestments have the potential to reduce leverage. The biggest upside might come from the fact that expectations were simply very low, making the situation still very much "fixable".

The Thesis, Zooming In On The Numbers

For the first half of the year, Kraft Heinz reported a 4.8% fall in sales to $12.36 billion. A strong dollar reduced sales by 2.6%, divestments reduced sales by 0.7% and organic sales declines came in at 1.5%. The latter was mostly driven by lower prices, rather than declining volumes.

The company reported adjusted EBITDA of $3.03 billion in the first half of the year, down from $3.76 billion reported in the first half of 2018. This was my main cause of concern. At this rate the company is generating $6 billion in EBITDA per year. With net debt totaling $29.7 billion, this translates into a heavy 5 times leverage ratio.

Working with D&A expenses at a rate of $500 million a year, I pegged adjusted EBIT at $5.5 billion. Using a 4% cost of debt and a 20% tax rate, I saw potential for after-tax profits around $3.5 billion, for earnings equal to $2.90 per share. While the challenges were very high, equity traded at just 9 times the earnings potential in August. Not only did earnings come down a lot in recent times, multiples have compressed a lot as well, meaning that shares were down nearly three quarters from their highs.

An Update Following Q3

In August I concluded to be a happy buyer of the shares at levels in the mid-twenties, and fortunately I did as shares recovered to $33, before now settling around $31 per share.

Third quarter reported sales fell 4.8% to $6.08 billion although divestments are responsible for a 2.0% decline in sales. Currencies reduced sales by 170 basis points as organic growth improved to a decline of 1.1%. In contrast to recent quarters, prices were actually up a percent, indicating that volume declines were still quite severe.

Reported net earnings improved thanks to a one-time gain on the divestment of the Canadian natural cheese business. Adjusted EBITDA fell just 8% to $1.47 billion (note that this is a seasonally softer quarter), while adjusted earnings came in at $0.69 per share. The limited declines in these earnings metrics stem from positive pricing and the impact of cost cuts starting to play through on the bottom line.

Retaining some earnings and factoring in the proceeds from some recent divestments, the company has been cutting its net debt position, although very gradually. With the proceeds from the sale of the Canadian cheese business, net debt has fallen to $28.0 billion. This reduces the leverage ratio from 5.0 to 4.7 times, assuming a similar $6 billion EBITDA number for the year.

Remaining Constructive

Following the latest results the earnings power of the company remains more or less intact at around $2.90 per share, resulting in a low double digit earnings multiple, as leverage has come down a bit. It is furthermore comforting to see the decline in adjusted EBITDA nearly coming to a halt. With some divestments still at hand and the company being aware that dramatic improvements are needed, the situation is getting more manageable. This is certainly the case as the company cut the dividend earlier this year from $2.50 per share to $1.60 per share, allowing for more earnings to be retained along the way.

Hence I firmly believe that while margins are still very high, and perhaps not sustainable, and most brands still have a positioning issue, there are reasons to become upbeat as well. These include the modest expectations, signs of stabilization in sales and EBITDA, and the fact that takeover interest might arrive at some point in time at these levels. Furthermore, low expectations (and thus valuation multiples) have an advantage as well. If the company can sell non-core assets at higher multiples, it might not just address the leverage situation, yet make the ''remainder'' of the company even cheaper.

With the company is getting closer to achieve real stabilization, I am still a happy holder which has averaged down to $29-$30, making for essentially a break-even investment at this point in time at these levels. If the company can stabilize sales in short term, that implies that leverage ratios will fall given that a portion of earnings will be retained, causing debt overhang concerns to come down. This and growth prospects could, in such a case, result in real room for valuation multiple expansion. Even at just 15 times earnings, while not counting on any earnings per share growth, fair value of $40-$50 could be achieved in a year or two.

This is far from a given however, as it requires real operational execution, real investments into the brand and healthier foods. With the appointment of a central R&D head and Growth Officer, Kraft Heinz is showing its commitment to achieve such things, although ambitions still have to turn into reality of course.

Please subscribe to the premium service for more investment ideas.

Disclosure: I am/we are long KHC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

[FUNMAN]

Crafty little devils?!?!?!?

[Stock_Barber]

As Goldman issues an "inside buy" recommendation...

I got the call myself!

[FUNMAN]

The worst isn't over yet for Kraft Heinz

By Paul R. La Monica, CNN Business

Updated 4:05 PM ET, Thu November 14, 2019


New York (CNN Business)Kraft Heinz was crushed like an overripe tomato Thursday after Goldman Sachs cut its rating on the struggling food company to a "sell," citing concerns about a "persistent" decline in profit.

Shares of Kraft Heinz (KHC) fell more than 6% following the downgrade. It was the second-worst performer in the S&P 500, trailing only tech giant Cisco Systems (CSCO), which tumbled 7% after issuing a weak outlook after the closing bell Wednesday.
Kraft Heinz, which named Anheuser-Busch InBev (BUD) veteran Miguel Patricio as its new CEO earlier this year, had rallied lately following its last earnings report at the end of October. Wall Street seemed excited by the fact that profit topped forecasts, even though sales continued to fall.

But Goldman Sachs analyst Jason English argued in his report Thursday that the 15% spike since that release was overdone. English has a price target of $29 on Kraft Heinz. Shares were trading just below $31 on Thursday.

English added that Kraft Heinz may take a short-term hit if it sells some brands that the company feels might be "too expensive to turn around." And he said that the company, which already slashed its dividend by 36% earlier this year, may need to cut it again to shore up cash. English is now one of five Wall Street analysts who have Kraft Heinz rated a "sell."

Kraft Heinz is down nearly 30% in 2019, making it one of the worst-performing stocks in the S&P 500 this year.

Turnaround in question

The company has faced a host of challenges that Patricio is trying to address, including accounting issues, a stale product lineup after years of cost cutting and challenges from other food companies who have latched on to hot trends like plant-based proteins and organic food.
Kraft Heinz was forced to delay the release of some of its financial results earlier this year because of an internal investigation of its accounting practices as a result of a probe by the Securities and Exchange Commission.

The company has also been much slower than many of its other traditional rivals to branch out into newer categories to address the booming demand for fake meat and other health food items.

General Mills (GIS) bought organic mac and cheese maker Annie's in 2014. Hershey (HSY) acquired SkinnyPop maker Amplify Snack Brands in 2017 and also bought the maker of Pirate's Booty from B&G Foods last year. And ConAgra (CAG) scooped up Pinnacle, owner of Smart Balance and the Udi's brand of gluten free food last year.

The rise of Amazon (AMZN) and Walmart (WMT) in the grocery business isn't helping either. Those two retailers, along with Target (TGT), have put significant pressure on food companies to lower prices. That has hurt profit margins for Kraft Heinz.

And Goldman's English sees no end in sight.

"The company has under-invested in multiple areas and now faces renewed cost pressure in dairy, and potentially protein next year. We see little opportunity for new net-cost savings," he said in Thursday's report.

Problems bruise Buffett and 3G too

The problems at Kraft Heinz have been a notable black eye for the company's top two investors -- Warren Buffett's Berkshire Hathaway (BRKB) and private equity firm 3G Capital. Berkshire and 3G teamed up in 2013 to buy Heinz and they followed that deal up with the Kraft merger in 2015.

Berkshire owns nearly 27% of Kraft Heinz and Buffett said earlier this year that Berkshire and 3G overpaid for Kraft. Berkshire has since written down a big chunk of its investment in the company but Kraft Heinz is still Berkshire's sixth-largest holding.

3G has taken a hit on its Kraft stake too. 3G sold more than 25 million Kraft Heinz shares earlier this year. Kraft Heinz told CNN Business at the time that the sale was "driven by periodic liquidity windows by 3G investors in the 3G fund that holds Kraft Heinz stock."

"3G remains a committed long-term owner of the company and has no current plan or intention to sell any additional shares," a Kraft Heinz spokesman told CNN Business, adding that 3G co-founder and Kraft Heinz board member Jorge Paulo Lemann personally bought more shares.

Lemann said at the time that he bought more stock in Kraft Heinz "because I believe in its potential for a turnaround, and plan to hold this investment for the long run."

But Goldman Sachs clearly disagrees.

[FUNMAN]

Tomorrow it bounces ... Price ... $30.74 ... Day's Change ... -2.16 ... (-6.57%)

Volume(Heavy Day) ... 10,233,519 ... November 14, 2019 ... 1:59pm ET


I'm wondering if it can go sub $30. If "yes", I will buy back what I sold the day the earnings came out.

[legarcon]

Who are these people at Goldman Sachs?

[FUNMAN]

Kraft Heinz Turnaround Taking Shape, With Perfect Timing Given Economic Cycle
Nov. 13, 2019 4:31 PM ET
About: The Kraft Heinz Company (KHC)

By: Zoltan Ban

To read with the charts and graphs, click on this link:

https://seekingalpha.com/account/portfolio/latest

Summary

At the root of Kraft Heinz misery in the past few years has been a flawed strategy of focusing on mergers followed by cost-cutting.

New leadership is bringing in new strategy of product innovation, combined with better marketing. Latest quarterly results suggest that Kraft Heinz has necessary financial strength to sustain the turnaround.

The global economic outlook suggests consumer staples companies may be in favor going forward, providing an extra boost for Kraft Heinz.

I bought Kraft Heinz (NASDAQ:KHC) stock at the end of 2018, the idea being that I should start adding more non-cyclical stocks to the portfolio in preparation for a global economic slowdown. I by no means think the idea is bad, and I will continue to increase the non-cyclical proportion of my investments. But it goes without saying that my timing in regards to the Kraft Heinz investment was by no means ideal. Soon after I bought some shares, there was the dividend cut. The announcement came along with the $15 billion write-down in assets, which sent the stock into a tailspin. The pain continued for the rest of the year, until the third quarter results were released, which seems to signal a stabilization of the situation. It shows an improvement in profitability trends. An early sign of perhaps a turnaround being in its early stages. Or at least, a sign that the new corporate leadership in place has put an end to the continued collapse and managed to stabilize the situation. New refocus on product development is welcome news, which I have been insisting all along, that it will be key to a turnaround. Early signs of a turnaround are welcome and may work to the advantage of this stock as the global economy continues to show signs of slowing down, which should benefit consumer staples companies, like Kraft Heinz.

Declining sales revenue, but improved profitability
Looking at the reported financial results of the third quarter, we see a slight decline in revenues from $6.4 billion in the third quarter of 2018, to $6.1 billion for the latest quarter. This is a troubling trend, which in my view will need to at the very least stabilize before we can have any chance of seeing this stock begin to forge a path towards regaining the value it lost in the past few years. Given that the stock currently trades at just under $33/share while it traded at a peak of just under $97/share at the beginning of 2017, it would have a very long way to go. The only way to sustain a return to such levels in the next decade will be to find ways to grow sales.

The aspect of the latest quarterly report which excited the market, which helped this stock rise by about 30% compared with the low it hit in August of $25/share, was the improvement in profitability. Net income came in at $899 million, compared with $619 million in the corresponding quarter from a year ago. It seems that write-downs are no longer weighing down results as they did in the last few quarters. The cost of products sold also declined in line with revenues, meaning that its profitability prospects are stable. The one major negative trend is the increase in debt servicing costs. Interest payments amounted to $398 million, versus $326 million for the same quarter from a year ago.

Kraft Heinz's plan to focus on product development and marketing is promising
The losing business model which was mostly focused on growth through acquisitions is now gone. It did not focus on innovation but rather on cutting costs, to the point of arguably hollowing out the company brand as well as its human capital. It goes without saying that once opportunities for major mergers dried out, the model's flaws were exposed. With new leadership in place, in the form of CEO Miguel Patricio, who worked as chief marketing officer at AB InBev, I feel that Kraft Heinz is being steered in the right direction.

As stated in recent CEO statements in regards to the new direction of the company, the re-focus will be on maximizing the brand power of its product lineup, through better advertising as well as product innovation. What this means is that more effective advertising, combined with fine-tuning efforts to evolve brands in a direction that meets consumer preferences, will be relied on to grow sales. It is something I have been saying for a while now that the company needs, which I expressed in a number of articles on the subject.

Kraft Heinz's recovery taking shape just as global economic climate favors non-cyclical stocks going forward
It is still early, of course, to know whether the new Kraft Heinz direction will be successful. Latest quarterly results only go as far as confirming that the situation has now stabilized, providing the company a good solid platform for a strategic relaunch. Assuming that the relaunch will bring some success, it could not come at a better time than now, given the global economic climate. The global economy is showing more and more signs of weakening. Kraft Heinz is considered to be a non-cyclical, safe heaven stock, at least when it comes to its product lineup. The stock has not been trading as such in the past few years, because of all the problems that stemmed from the company's flawed leadership. With the turnaround, however, it can once more become such a stock.

The global economic picture is starting to look worse across the world, with industrial production seeing a significant decline in most major economies. The trade war issue is assumed to be the main culprit. Therefore, it is often assumed that things will get back on track once the issues are resolved. I, however, believe there are some problems which go beyond the trade issue. For instance, EU industrial production started shrinking in late 2017.

EU industrial production
Source: Eurostat

As we can see, especially within the Eurozone, which is represented by the red line, it has been declining at a pace that was last experienced in the 2011 to 2013 period, as the Greek crisis caused the EU to experience a second dip in economic growth. The EU is not in recession at this moment, but Eurozone growth has permanently downshifted into the 1%/year range, and there is nothing I see on the horizon which could bring back its growth pace to 2% or higher. Europe's lack of growth potential is found in many faults, such as a dysfunctional Euro currency, or too much emphasis on unilaterally reducing emissions, with little acknowledgement of negative economic consequences. This obsession has in my view taken up too much of the continent's economic efforts and resources. One of the resulting negative consequences has been a dramatic deterioration in innovation across the EU. For instance, at this point in time, South Korea registers more patents every year than the entire EU.

EU versus South Korea Patent applications
Source: World Bank

While few indications suggest there is potential for a European economic revival, especially within the Eurozone core, there are plenty of reasons to expect the already fragile economy to be pushed into a deep recession in the coming years. There is the never-ending Brexit saga, which will continue to weigh down the EU economy, and then cause a potential shock when it will finally happen. If it does happen in January 2020 as is currently expected, it is more than likely that the entire EU economy will enter a period of crisis. Then, there is the continuing animosity between the Western EU and a number of newer members, over a number of mostly ideological issues. It seems that the richer West is looking at undermining the economies of the developing East, by introducing EU rules which could punish member states financially for not falling in line ideologically speaking. The negative effects of such initiatives on the entire EU economy should not be underestimated. Trade volumes between the Visegrad group (Poland, Slovakia, Hungary and Czechia) and the rest of the EU rival that of the EU with China or the US. These countries are seeing relatively robust growth rates, in the 4%/year range, which is helping to boost economic activity in the rest of the EU as well. If the EU will move to undermine this last bastion of growth within the overall EU economy, it would in my view plunge the EU into a serious economic crisis.

The reason why I pay so much attention to the economic well-being of Europe, when contemplating the future of Kraft Heinz stock, is because I believe that the EU economy is the best indicator in regards to what we should expect in regards to the entire global economy. If the EU enters an economic crisis, it will affect the rest of the world. A weak global economy in turn means that more people will be likely to skip going out to eat and make something cheaper at home to eat instead, which is where Kraft Heinz products come into play. It could see a boost in sales, even as the world sees a contraction in overall consumption. Not to mention that it will be one of the few companies around which will be able to report a profit. The latest profit margin numbers are encouraging in this regard, with net earnings at almost 15% of revenue, providing for enough of a cushion to help the company remain profitable, even if it has to discount its products somewhat in response to a potentially severe economic downturn.

While much market sentiment negativity continues to surround this company and its stock, I do believe that between a potentially successful company turnaround story, combined with an economic environment which will most likely be beneficial for consumer staples companies, such as Kraft Heinz, it could be one of the best-performing stocks in the next few years. There is, of course, a risk, not so much in regards to the wider economic outlook, but because a successful turnaround is by no means certain at this point. The fact that the company leadership is making the right decisions, however, is very encouraging, and from my perspective, it makes it worth remaining invested in its stock, because odds of success are now likely higher than odds of failure in the longer term, even if there may be a bit more turbulence in coming quarters.

Disclosure: I am/we are long KHC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

[FUNMAN]

Kraft Heinz: Early And Bullish

Nov. 8, 2019 11:15 AM ET
About: The Kraft Heinz Company (KHC)

By: Michael A. Gayed, CFA
The Lead-Lag Report
Actionable ideas. Powerful data. Useful insights.


Read at this link to see the charts.

https://seekingalpha.com/article/4304410-kraft-heinz-early-bullish


Summary

Kraft Heinz beat low earnings expectations for the 3rd Quarter.

Currency translations had a negative impact on earnings.

Kraft Heinz looks poised to continue building from this new level.

This idea was discussed in more depth with members of my private investing community, The Lead-Lag Report. Get started today »

The best way to predict your future is to create it.

– Abraham Lincoln

Kraft Heinz (KHC) is digging its way out of the bottom of the Consumer Staple barrel one inch at a time. As a follow up to my bullish article on Kraft Heinz dated October 20, I still see a positive future for the stock. With a 19% gain from Oct 21 through November 6, there is a lot of good news built into the price, but from a technical and fundamental standpoint I see the stock maintaining this new base and rising from here.

KHC released earning on October 31, and the stock popped 13% in the day. Their earnings were nothing impressive, but expectations were set so low that they beat earnings estimates across the board. Net sales for 3rd quarter were $6.08 billion which is a 1.1% drop in organic sales, but this beat expectations of a 1.6% drop. Adjusted EPS decreased 9% from a year ago at $0.69, but again beat expectations of $0.54. These ultralow hurdles have bought KHC some time to show a turnaround. They divested of a Canadian cheese business this quarter and need to start looking at all their product lines to only focus on the core business units that will be profitable.

“While our third-quarter results remained below our potential, we showed sequential improvement versus the first half, and I believe we are beginning to operate the business better,” recently appointed CEO Miguel Patricio said in a statement. “We are making good progress in identifying and addressing the root causes of past performance, as well as setting our strategic direction.” The fact that Patricio acknowledged KHC’s results were not spectacular and didn’t try to sugar-coat them is a good sign for investors. Patricio’s plan for the future will determine how well Kraft Heinz does. He has a plan for 9 transformational projects including 5 that focus on top line growth. The future of KHC really depends on Patricio’s team making changes to the product line-up that give consumers what they want.

There was strong growth in emerging businesses such as Brazil and China and in condiments and nuts in general.

One of the most bullish signs is that Kraft Heinz maintained their $0.40 dividend, payable November 15. This would have been the chance to cut the dividend based on all the changes they are making for the future of the business. The fact that they retained the dividend at the current level shows management’s belief in the future of the company.

One of the largest hindrances to showing positive earnings growth has been the effect of currency. In the EMEA region, net sales were down 3.5% but this was due to a 3.9% negative effect of currency translation. So, on an organic basis, net sales increase 0.4%. This currency impact will be less prevalent as the U.S. dollar weakens. U.S. Dollar expectations from our Lead-Lag report this week were, “the dollar declined again continuing a trend that’s been persisting for nearly two months. The fact that the dollar is reacting in this manner signals to me that the year-long rally is running out of steam and could be pointing to an environment for international equity outperformance from here.” A weaker U.S. dollar is out of KHC’s control, but as investors we will benefit from this expected direction.

From a technical standpoint, KHC’s 50-day moving average is pointed upward and its price is trading above this average which is a bullish signal. The stock has outperformed the market over the last 50 trading days when compared to the S&P 500. With an RSI of 80.2 it is in a short-term overbought condition. Over the last 50 trading sessions, there has been more volume on up days than on down days indicating that KHC is under accumulation, which is a bullish condition. This validates the strong technical condition for KHC.

Any short-term pullback in the overall market that leads to a slide in KHC’s price should be seen as a buying opportunity. This company knows it needs to change and acknowledging there are problems to be fixed is a positive influence for the future. With a weaker dollar, KHC should benefit from currency translation compared to last quarter.

[FUNMAN]

WOW, a day after posting the article about KHC learning to use social media to reach millennials, look at what they put out today. It's a start.

kraftheinzus - Have you tried our new unicorn shapes Mac N’ Cheese? Raise your hand if you think shapes taste better than normal shells ?????????


https://www.instagram.com/p/B4kygn9pMii/

[FUNMAN]

Millennial parents want ads to reflect equal roles, Kraft Heinz study says

https://www.fooddive.com/news/millennial-parents-want-ads-to-reflect-equal-roles-kraft-heinz-study-says/566745/

First published on Dive Brief:

Millennial parents are influenced by social media and not by traditional advertising, and most of those surveyed (82%) said that ads should message mothers and fathers equally, according to a new study from Kraft Heinz done with YPulse that was shared with Marketing Dive.

* Millennial parents are shopping online to make up for limited time.

* More than have (57%) have Amazon Prime accounts, and 74% say their child watches more content on streaming devices than via cable.

* Social media is a big influence on this demographic. More than three quarters (77%) of new millennial parents admit to feeling pressure from social media and 32% have bought something they saw on social media for their kids.

Dive Insight:

Millennial parents represent a significant spending group with $1.3 trillion in spending power, and brands that can connect with this audience could build lifetime loyalty over the time millennials spend raising their kids. The study named Target, Facebook, Amazon, YouTube and Nike among the top ten brands for the cohort.

With social media being more influential over this group than traditional media, marketers like Kraft Heinz should consider more social-first campaigns. The high percentage of kids watching content on streaming services, reinforces the need for marketers to develop campaigns for connected TV (CTV) and over-the-top services (OTT). CTV media spending will surge 38% to $6.94 billion in the U.S. this year as advertisers work to reach audiences on streaming services, according to a just-released eMarketer survey.

In addition, creating e-commerce offers that are easy to order could help attract these time-starved parents who are looking for convenience rather than spending time in a store. These messages should promote a message of equality in which both moms and dads are involved in the parenting. This echoes a previous study that found 74% of millennial fathers in the U.S. thought advertisers and marketers are out of touch with modern family dynamics.

The study comes as Kraft Heinz, who commissioned the report, is making a comeback after a tough year for revenues. Net sales were just over $6 billion, down 4.8% from the same time a year ago, according to the company’s latest quarterly report. Still, things are looking up from earlier in the year, as the brand posted massive losses in February which caused its stock price to drop 28%. The crisis led to a number of executives leaving, including former CMO Eduardo Luz.

[FUNMAN]

Today's beat down is bringing the PPS a lot closer to my sale price on the day of the ER.

I was beginning to think there was going to be no end in sight to the euphoria.

[OldAIMGuy]

Maybe just the Pause that Refreshes!

[FUNMAN]

Is the euphoria over? Will I be able to buy my shares back under $30?

Price ... $32.61 ... Day's Change ... -0.725 ... (-2.18%)

Volume(Average) ... 1,961,380 ... November 05, 2019 ... 10:24am ET

[FUNMAN]

Kraft Heinz 3Q results mixed as company scrambles for fixes

I sold 33% of my holding to book a profit. Kept my core holding. Am hoping for a pull back, because I want to buy back what I sold. But if we keep going up, oh well, I'll be happy.

I believe any pull back will simply be a calming period to the enthusiastic PPS jump. I believe KHC is really on the right turnaround path.

Kraft Heinz 3Q results mixed as company scrambles for fixes

By: DEE-ANN DURBIN
Associated Press
October 31, 2019

https://finance.yahoo.com/news/kraft-3q-earnings-snapshot-114909474.html

It's no picnic at Kraft Heinz Co.

Four years after a merger that promised growth and innovation, the maker of iconic brands like Oscar Meyer, Kool-Aid and Jell-O is struggling to find its place in a rapidly changing market.

Sales are faltering as consumers increasingly seeking fresh, minimally processed foods. In a recent Nielsen survey, 41% of consumers globally said they would pay more for foods with natural or organic ingredients. That's not good news for a product like Kraft Heinz's Velveeta cheese, which contains 20 ingredients and has no organic option.

When shoppers do buy processed foods, they're considering the growing number of store brands that compete with Kraft Heinz. Kroger sells a 20-ounce bottle of Heinz Ketchup for $2.79; on the same shelf, a 24-ounce bottle of Kroger brand ketchup is $1.00.

Kraft Heinz's new CEO Miguel Patricio, who came to the company in July from Anheuser-Busch InBev, says he's been taking stock of the company's strengths and weaknesses and will present a detailed plan for the future early next year.

Patricio said Kraft Heinz needs to get better at predicting trends. Kraft acquired the Boca veggie burger brand 19 years ago, for example, but has fallen behind startups like Beyond Meat in the plant-based burger space.

"We need to transform this company into a much more consumer-driven company, rather than just operating in the present," Patricio told investors and analysts on a conference call Thursday to discuss the company's third quarter earnings.

Kraft Heinz also needs to introduce fewer, better and more profitable new products, he said. In recent years, it's put out too many new things that cannibalize existing products and don't drive incremental sales. One much-derided recent entry was "salad frosting," which is just ranch dressing packaged to appeal to kids.

But some analysts aren't convinced that company's current leadership can turn things around.

Kraft Heinz was created in 2015 by billionaire Warren Buffett and Brazilian private equity firm 3G Capital, which own nearly half of the combined company's shares. 3G was also behind the formation of Restaurant Brands International — a merger of Burger King, Tim Hortons and Popeyes — and Anheuser-Busch InBev. It's known for strict cost controls and so-called zero-based budgeting, which requires all expenses to be justified each quarter.

Some analysts say that kind of belt-tightening has stifled innovation. In 2018, Kraft Heinz spent $108 million on research and development. Nabisco owner Mondelez International — which has similar annual sales to Kraft Heinz — spent $362 million. Kellogg Co., which is about half the size of Kraft — spent $154 million.

"While Kraft Heinz's lean culture is hard for other U.S. food companies to replicate, some may argue that the company has gone too far with its cost focus," Bernstein analyst Alexia Howard said in a recent note to investors.

Howard thinks Kraft Heinz should consider selling some businesses like Maxwell House, which is under pressure from premium coffee brands, or Planters nuts, which face intense competition from store brands.

On Thursday, Kraft Heinz beat Wall Street's profit forecasts thanks to the sale of its Canadian natural cheese business for $1.2 billion.

The company's net income jumped 45% to $899 million. Adjusted earnings of 69 cents per share beat analysts' forecasts of 53 cents, according to FactSet.

Kraft Heinz shares jumped 13.5% to $32.36 on the news. But they are still down nearly 30% since the start of the year.

Third quarter revenue fell 5% to $6.08 billion — missing analysts' forecasts — as price increases in the U.S. and Europe failed to make up for lower sales.

Patricio didn't say Thursday whether any other brands will be sold next year. But he said zero-based budgeting isn't the problem.

"I see it as a way to do things better every day and to be more efficient and free up more resources to do better in the business," he said.

Patricio said the company is revamping its research and development team and has named a chief growth officer to help speed product development.

Still, some analysts say the damage to the company's brands has already been done. In February, Kraft Heinz slashed the value of its Oscar Mayer and Kraft brands by more than $15 billion.

Then in August, it took a $474 million impairment charge because of the falling value of six other brands, including Maxwell House, Lunchables, Velveeta and Cool Whip. Its shares fell to an all-time low.

"We think it is more than fair to ask if any fundamental value for KHC has been created since the Kraft Heinz merger," J.P. Morgan analyst Ken Goldman wrote in a note to investors earlier this year.

[FUNMAN]

Kraft Heinz Bears: There Will Be Ketchup
Nov. 2, 2019 9:31 AM ET|33 comments | About: The Kraft Heinz Company (KHC)

Better to read this article at this link, so you can see all of the charts and graphs.

https://seekingalpha.com/article/4301763-kraft-heinz-bears-will-ketchup

If you can't open the link, the text follows:


By: Trapping Value
Deep Value, special situations, REITs, dividend investing


Summary
KHC spiked on its earnings report.

Analysts are still behind the curve on where earnings are headed.

20% higher stock price plus a nice dividend makes for a great total return over the next 12 months.

The dividend though could be cut and the probability of a cut did go up in our view.

Bears are still likely to lose big and should cover.

I do much more than just articles at High Dividend Opportunities: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

When we last covered The Kraft Heinz Company (KHC), we left with a bullish message:

KHC's current EPS run rate would allow for paying the dividend and reducing the debt by about $1.2 billion a year. While that is not a large number, it is sufficient. In this low-yielding environment, no one is going to refuse to finance KHC's debt. We think KHC will make it out okay, and we are getting a good brand at a decent price. We would still buy the stock in light of where the company is in the cycle and believe a $40 stock price can be achieved rather rapidly if KHC turns its organic sales around.

Source: Kraft Heinz Might Be Close To The Final Bottom

Our thesis rested on a turnaround in sales and bottoming out in earnings per share metrics. While not specifically mentioned in the conclusion, we also had a very bearish outlook on the US dollar and we expected that to help sales. With Q3-2019 results out, we decided to see if this battleship was actually turning.

Q3-2019
At first glance net income was up rather strongly despite falling sales.



Source: KHC 10-Q Q3-2019

This was driven though by $380 million of gains (shown as negative expenses) from the gain on the sale of Canadian natural cheese business. Adjusted EPS came in at 69 cents for a 9.2% year-on-year decline. But the Street had thrown in the towel on this and was expecting 54 cents. In light of that, KHC totally blew away expectations.

What worked
Looking back at the first half of 2019, we can see that KHC had a very hard time controlling expenses as sales fell. The 4.8% decline in sales translated into a 19% plus drop in EBITDA.

Source: KHC Q2-2019 earnings press release

Q3-2019 sales decline was exactly the same as the first half, but KHC was able to control costs better and EBITDA decline was significantly better managed.



Source: KHC Q3-2019 earnings press release

In addition investors got to see two segments actually start to show some organic growth.



Source: KHC Q3-2019 earnings press release

EMEA net sales were $612 million, down 3.5 percent versus last year. This was driven by a negative 3.9 percentage point impact from currency. Organic sales increased 0.4 percent versus the year-ago period. We saw similar trends in the "Rest of World" segment.



Source: KHC Q3-2019 earnings press release

It is very notable what currency trends are doing to the final reported number in US dollars. Last 12 months have been a period of brutal US dollar strength and abatement of that pressure alone would allow KHC to improve its reported sales numbers.

The Mumakil In The Room
While the far fringes of the world showed organic growth, KHC remains challenged in its home turf. Organic sales declined 1.6% year over year.



Source: KHC Q3-2019 earnings press release

Since US forms the bulk of the total sales, turnaround here is rather essential to any long-term bullish thesis. While this segment still looks in a rut, inventory movements at retailer level seem to be driving this more than anything else. Specifically KHC mentioned:

This was driven by realization of the pricing actions we announced in the first part of the year in the United States and EMEA as well as ongoing pricing to offset inflation in Latin America. Vol/mix was lower versus the prior year as we are lapping the strong gains in the prior year and continue to see unfavorable changes in retail inventory levels versus the prior year. In Q3, retail inventory change resulted in a negative 110 basis point impact to U.S. vol/mix. That translated into a roughly 80 basis point decline versus the prior year for total Kraft Heinz results. And for the fourth quarter, I will note here that we currently expect a roughly 50 basis point headwind from lower retail inventory levels for our U.S. business.

Source: KHC Q3-2019 conference call transcript

This is extremely encouraging and suggests underlying negative trends might be petering out.

Dividend safety
The $1.60 of dividends looks well covered based on the earnings. But the key trend will be if KHC can get the EBITDA moving higher. While KHC did beat estimates, one must remember that EBITDA moved lower again and the rating agencies have their eyes glued on that. KHC did reduce leverage again this quarter so that does buy it some breathing room.

In Q3, we announced an additional $2.3 billion of cash-funded debt take-out that was enabled by a combination of divestiture proceeds and solid cash generation. And along the way, we have taken a number of actions to put our patience in an overfunded stock and have prefunded most of our post-retirement benefit obligations. As a result, we have minimum future contribution requirements going forward. Also in Q3, we undertook a successful leverage near to $3 billion refinance that further strengths our liquidity. We have a strong investor participation in our offering that we think reinforced investor confidence. And this refinance gives us significant flexibility through 2025, especially given the fact that we currently have no commercial paper outstanding and a $4 billion revolving credit facility that has never been drawn. Refinancing our debt as well as establishing our long-term strategy are critical steps to defining how we will continue to deleverage our company and maintain our investment-grade status.

We think the dividend cut is still possible and only if we get a couple of quarters of EBITDA growth would it be out of danger. The conference call also contained some ambiguous language (which is not atypical) for the dividend. We assess the overall risk of a dividend cut as:



This is one level higher than where we rated it last quarter. While core sales have done well, we had expected the US dollar to be much weaker at this point, which has not happened. Hence, the risk has gone up in our view.

Reasons to be bullish
If US sales can just stabilize and the US dollar starts reversing its jump against emerging market currencies, KHC's earnings are likely to power to $3.00 share very rapidly. The Street is still in "thrice bitten, forever shy" mode. We do not blame it, but it does open up a good possibility of further gains. Right now, 2020 estimates remain entrenched and lower than 2019.



Source: Yahoo Finance

There is a lot of room for upside surprise, and when these analysts finally start getting optimistic, KHC will have moved another 20% higher.

Conclusion
KHC has got the momentum swinging back. To be fair, it really had lowered the bar quite substantially after the previous 12 months of misses. We still like it here and investors fretting over the debt "burden" are likely not appreciating how quickly those debt to EBITDA numbers can improve if sales start showing some life. But until we see an uptick in EBITDA numbers, the dividend could be cut. Regardless of that, the stock is still cheap. Bears pressing here are likely to lose. We think KHC should trade at about 13X 2021 EPS estimates, and when we say estimates, we mean our estimates. We maintain a $40 price target on this.

While KHC did not make it our Buy list, we are making it easy for you to see the whole portfolio. Join us today and get instant access to our model portfolio targeting 9-10% yield, our preferred stock portfolio, our bond portfolio, and income tracking tools.

[FUNMAN]

Kraft Heinz: Possible Dividend Cut May Overshadow Solid Earnings

Nov. 1, 2019 12:32 PM ET
About: The Kraft Heinz Company (KHC)

By Ian Bezek
Long/short equity
MARKETPLACE Ian's Insider Corner

IMO the author is a very angry investor. Personally, I think the turnaround is well underway, and the EPS pretty much locked the dividend in place. Reducing the debt is a priority, but as long as the EPS can be maintained or increased, paying down debt doesn't have to come at the expense of stimulating another selloff further punishing the PPS and shareholders with another dividend cut.

Read the article here to see all of the charts and graphs.

https://seekingalpha.com/article/4301470-kraft-heinz-possible-dividend-cut-may-overshadow-solid-earnings?app=1

Summary

* Kraft Heinz reported significantly better than expected earnings Thursday.

* The stock bounced in a major way and is now well off its August lows.

* Don't expect a straight path higher from here, however.

* The company signaled Thursday that it may cut the dividend in 2020 to shore up the balance sheet.


This idea was discussed in more depth with members of my private investing community, Ian's Insider Corner. Get started today »

Kraft Heinz (KHC) surprised a lot of folks on Thursday. The company announced quarterly earnings that - while far from spectacular - significantly topped expectations. Not surprisingly, KHC stock exploded higher, enjoying its best trading day of the year:



Source: Finviz

In fact, shares have gotten back nearly all their post-February losses and are up a quick 30% off the August lows.

Unfortunately, I got to the Kraft Heinz story way too early. I started buying in the $50s, thinking that was a fine discount to the prices that original 3G/Buffett followers had paid. Don't forget that KHC stock traded as high as $90 at the height of optimism around 3G building a packaged foods M&A platform. It's been a long tumble for this former blue chip company. Regardless, with more purchases subsequent to the February collapse, I lowered my overall cost basis to $43. All that to say, I'm certainly not taking a victory lap with Kraft's recovery Thursday.

In fact, I write this to offer a note of caution. While I'm still bullish on the stock, it won't be a painless recovery, and the earnings report gives us at least one big reason to be cautious going forward.

Over the long-haul, I expect Kraft Heinz stock to trade higher, at least back to $40. If you compare it to other mediocre packaged foods companies, it still looks cheap; Kraft Heinz went from being overly-loved with its Buffett/3G backing to being overly shunned following the dividend cut, write-offs, management changes, and so on. Take all the drama away and imagine Kraft Heinz was a generic food company selling so-so products at high profit margins and generating a lot of cash. The $25 share price this August made no sense given that the company can still do nearly $3/share in annual EPS (8x earnings at that price). But don't mistake Thursday's price action for everything being fixed in a day.

These Were Hardly Amazing Quarterly Results
If you read Kraft Heinz's quarterly earnings in a vacuum, with no knowledge of the drama around the stock, you'd probably be shocked to see that folks bid the stock up 13% Thursday on these results. Overall, the company's organic revenues dropped 1.1%. The headline number was even weaker still, though that was driven by brand divestitures and currency translation.

The organic sales figure should raise concern though. A company with a clean balance sheet can survive a lot of boneheaded management decisions and other hardships. A levered-up company needs most things to break correctly, by contrast. Kraft Heinz has a huge debtload, and has already optimized its business as far as overhead costs and profit margins go. You can fault 3G all you want for a lack of skill in R&D and marketing, but they keep a lid on costs. Thus, Kraft Heinz really needs to figure out the top line to turn things around. There's simply not much left to cut on the cost side of the equation, other than the dividend (more on that in a second).

Kraft Heinz did manage to push through price increases this quarter, which is a good sign. Packaged foods companies have had to deal with flat pricing or even decreases as they face stiffer store brand and online competition. So, it's nice to see Kraft Heinz be able to show some pricing power. Unfortunately, it came at the expense of volumes - organic sales volumes dropped 2.1% on the quarter. I just want to reiterate that a shrinking business is a particularly dangerous place to be when your balance sheet is weak; you can't shrink your way to prosperity when your debtload remains the same size.

Did Management Just Signal A Dividend Cut Next Year?
Here's the facts as far as the Kraft Heinz dividend goes. The company is currently paying $1.60/share per year in dividends. Across 1.22 billion shares of KHC stock, this results in the company sending roughly $1.95 billion annually to shareholders.

As the company noted in its most recent conference call, between the merger and the end of the 2018, the company paid down just $2.4 billion of gross debt. For a company with about $30 billion in total debt, that's not a particularly satisfying rate of debt retirement. Sending nearly $2 billion out the door in dividends annually when it is struggling to repay debt - even with asset sales - doesn't necessarily make a lot of sense.

Take this just announced quarter. As management noted, in Q3 they generated $860 million of free cash flow and used just shy of $500 million of that on the dividend. If your top priority is the debt, you might not want to maintain a dividend policy of paying out roughly 60% of your cash flow.

To that end, CFO Paulo Basilio, gave a non-committal answer when asked on the call if the company was planning to cut the dividend. He started by talking of investment grade status - not maintaining the dividend - and then went on to seemingly hint that there will be significant changes in capital allocation next year:

[F]irst of all, I think investment-grade status for us is -- continues to be very important. We've just declared the dividend, as you saw. And again, we are in a very solid position in terms of liquidity after the recent refi we did and also in the cash flow generation that would allow us to reduce our leverage over time. But now we are going to a very deep strategic review of the business, understanding how we're going to see the future performance of the company. And in this analysis, in this review, a capital structure is going to be a very important chapter. So we expect to come back to the market with our full view and full picture of how we're expecting the company's performance, the company's strategy for the future, including capital structure at the beginning of next year.

If you own KHC stock for the 5%+ dividend yield, this is your clear warning that the company isn't committed to maintaining it. They might, but it's far from a sure thing. Investment grade status seems to be the highest priority.

And as a shareholder, I can't fault them for this, to be honest. I like the high current dividend income, but it's difficult to argue with them cutting the dividend in half and immediately applying that billion of saved cash annually directly into paying off debt.

KHC Stock: Bullish Long-Term, But It Will Be A Bumpy Ride
Morningstar's analyst Erin Lash reaffirmed her $50 price target for KHC stock following earnings. That price target still offers ~50% upside even after Thursday's festivities. Sounds great, right?

However, to get to that $50 valuation estimate, Lash assumes that Kraft Heinz will achieve steady 2-3% organic revenue growth and stable profit margins in coming years. Kraft Heinz is clearly on the right path if this quarter is any guide; the business appears to have stopped actively deteriorating and is close to achieving flat results. But stabilizing at -1% organic growth is a far cry from 2-3% annual increases. Even CEO Miguel Patricio acknowledged as much - 2020 will be another "stabilization" year and even he doesn't see Kraft Heinz returning to much growth until 2021. On the conference call, addressing a question about the company's three-year outlook, he said:

2020 is going to be more about continued stabilization. And then this is what I aim, is that 2020 is a year that we stabilize the business and that we build the foundation for growth in 2021.

Lash's $50 price target may eventually play out; I certainly hope it does. But the assumptions required to get there seem like a tall order at this point. Management has a big credibility gap to make up before we can start banking on steady and predictable organic growth going forward. Lash concluded her report saying:

However, we don’t expect near-term catalysts to materially narrow the gap relative to our assessment of Kraft Heinz’s intrinsic value and suggest investors employ patience with the no-moat name.

I fully concur with that sentiment. Don't take this earnings beat as a reason to start buying up the stock aggressively here. The stock isn't going to make a V-shaped recovery back to where it traded in 2017. Even the CEO acknowledges that the business needs another year to right itself before it can really reach prosperity again.

As part of that, with a potential dividend cut next year, there could be a sizable dip in the share price again as the ownership base in KHC stock rotates from income investors to other holders. It's great that Kraft Heinz has shown positive signs this quarter and finally gotten sentiment going in the right direction again. But don't expect miracles from the share price over the next six months or year.

If you enjoyed this, consider Ian's Insider Corner to enjoy similar reports for all the new stocks that we buy. Membership also includes an active chat room, weekly updates, and my responses to your questions.

Disclosure: I am/we are long KHC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

[FUNMAN]

LOL

[OldAIMGuy]

I've been doing incremental buying and selling since the late '80s, so am used to self-flagellation (ShouldaWouldaCoulda). In the long run I've found that building a cash reserve during upward trends gives me plenty of purchasing power the next time markets descend.

In KHC's case my Next Sell target is a long way off, so my wounds should heal by then!

[FUNMAN]

I never expected it to continue going up. Now I feel stupid for booking my 20% profit yesterday.

[OldAIMGuy]

Nice build this AM on yesterday's gains. Up about 2.5% so far.
Tom

[Spumoni]

Was considering selling today but still want to at least break even, almost there and I hope soon! GLTA

[FUNMAN]

We went up a lot. I thought my sale at $31.90 was fair. Close to the top; only left 26¢ on the table.

Funny thing, if the market was up 300, KHC might not have risen as much. Money might have been chasing other stocks.

Also, if the market rose elsewhere, it wouldn't have changed the number of KHC shorts who needed to cover.

[Stock_Barber]

I wonder where we would be at if the overall market wasn't getting pummeled today?

[FUNMAN]

I am really glad you banked a profit and took a little bit of the sting away.

Some of this upwards PPS pressure will subside when the shorts cover.

I may be naive, but I am counting on the PPS retracing to about $30 next week. If there are any big down DOW days, it might even go lower.


That's when I will re-enter.

I did maintain a core holding.

[OldAIMGuy]

I guess we're all in Sell mode today. I let most of the shares I bought at $24.90 go today at $32.12. Nice LIFO gain there of about 29%. It was around 9% of my pre-sale position that sold.

[Stock_Barber]

Nice!

I sold 10%...

I smell an upgrade!?

[FUNMAN]

I just sold 1/3 of my position at $31.90 in a non-taxable account and made 20% in 25 days.

I will re-enter when the shorts are thru covering and the PPS settles down again.

[FUNMAN]

You HAVE to be correct about the shorts. The ER wasn't good enough to push the PPS up $3 all on it's own.

I do suspect there are quite a few short positions being lightened up in lieu of the latest earnings report!

I still think the PPS will be about $30 by next week and hang around there for a while.

Unreasonable euphoria is what pushed it into the $90's a year ago, and look where that got longs.

So if the same happens now pushing the PPS into the mid 30's, I think I'll bank some profits and keep my core position.

Just thinking with my fingers

[Stock_Barber]

All good points!

I do suspect there are quite a few short positions being lightened up in lieu of the latest earnings report!

[FUNMAN]

I think the dividend is locked in, AND they have FCF to work down debt, AND boost marketing which is exactly what Miguel Patricio, CEO said he intended to do.

In fact in Canada, the loss was attributed to increased promotions. In that regard, he already started to implement his turnaround plan to be announced in Dec.

Also makes sense to work on the turnaround tests in Canada before doing it in the USA. Way less costly to evaluate the ROI up there.

As far as the PPS goes, if YoY revenues can simply be brought back to "no change", stemming the losing tide will be a huge PPS booster.

If they can push revenues back to growth within 12 months, then I think going north of $40 will happen in the blink of an eye on the way to the $50's.

There are a lot of "ifs" in there.

It has definitely been oversold with the worst case scenarios priced in!

The dividend looks safe...

I still think $40+ within 12 months.

[Stock_Barber]

It has definitely been oversold with the worst case scenarios priced in!

The dividend looks safe...

I still think $40+ within 12 months.

[FUNMAN]

Last Trade...$30.50...Change Since Close...2.00...(7.02%)

The Street likes it despite the YoY revenue declines in every country.

Have to look to see what they really liked other than the EPS, which seems to have put to bed any thoughts of a dividend rate cut. Maybe that's what's driving the euphoria.

That 5+% yield looks better than ever.

I expect a PPS pull back during the day.

[Stock_Barber]

Oh yes, Kraft is a P&D!

Funniest thing that I have read all day...

[bigboard]

More like 10 coming - PUMP n DUMP games

[FUNMAN]

Gave back half of today's gain. I think it's obvious there is an investor hunger to catch a turnaround play right now.

I hope they are right. An ER beat would be nice confirmation and probably push the PPS over $30 during the day tomorrow, then pull back under before the EOD.

If they miss, the PPS will probably take another beating.

[OldAIMGuy]

I'm curious to see how End-Of-Day volume looks. There have been EOD spikes off and on for a while. Today's volume looked pretty good until just about the noon hour (EDT). Not so good since.

Still in positive territory for the day.

[FUNMAN]

You made me smile Barber.

[Stock_Barber]

I think this will be back in the $40's within 12 months.

[FUNMAN]

KHC...Price...$28.55...Day's Change...0.41...(1.46%)
Volume(Heavy Day)...5,133,065...October 30, 2019...12:20pm ET


I'm glad it's trading heavy today, and not rising on light volume.

I would hate to think it's rising on the eve of earnings, and the hope of a good ER, and then followed by a big sell off on the news.

An earnings beat will be nice.

Will know before the market opens in the a.m. tomorrow.

[FUNMAN]

Oscar Mayer Brings the Sizzle Back to NASCAR for 2020 Season and Beyond
Wed October 30, 2019 10:35 AM
Business Wire
About: KHC

https://seekingalpha.com/pr/17680381-oscar-mayer-brings-sizzle-back-nascar-2020-season-beyond

This is more evidence of Miguel Patricio's, CEO, increasing commitment to boost marketing.


Oscar Mayer Announces Two-Year Partnership Extension with Roush Fenway Racing and Driver Ryan Newman and Will Offer Fans Opportunity to Design 2020 Paint Scheme

CONCORD, N.C. & PITTSBURGH & CHICAGO--(BUSINESS WIRE)-- Everyone’s favorite name in racing, O-S-C-A-R, is extending its sponsorship of the No. 6 Oscar Mayer Ford Mustang with driver Ryan Newman and Roush Fenway Racing through the 2021 season.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20191030005645/en/


Oscar Mayer will return as the primary partner on the No. 6 Ford (F) for multiple races during the 2020 and 2021 seasons, beginning at the TicketGuardian 500 in Phoenix on March 8, 2020.

“After a strong 2019 season, we at Oscar Mayer couldn’t be prouder to continue our season-long sponsorship of driver Ryan Newman and Roush Fenway Racing,” said Matt Riezman, associate director for Oscar Mayer. “Through our sponsorship, we’re able to connect with fans in a whole new way from our paint schemes to pre-race celebrations. We look forward to supporting the sport and No. 6 over the next two seasons and feeding people’s love of meat, both on and off the track.”

Fans can catch Ryan sizzling around the track in NASCAR’s tastiest paint schemes highlighting Oscar Mayer’s quality meat offerings for the whole family, including bacon, hot dogs and cold cuts.

To celebrate the two-year extension, Oscar Mayer is giving fans the chance to design a 2020 paint scheme for the No. 6 Oscar Mayer Ford Mustang. Starting today, meat-loving fans can head to Oscar Mayer’s social channels (Facebook, Twitter or Instagram) to download a car template and put their creative pedal to the metal by designing their own meat-inspired paint scheme. The winning design will race at the TicketGuardian 500 in Phoenix on March 8, 2020. Interested fans can keep an eye on Oscar Mayer’s social channels for more details on how to submit their designs and when the window for submission will close.

“We’re obviously excited to continue our relationship with such a great brand in Oscar Mayer and the Kraft-Heinz Company,” said Newman. “The Oscar Mayer team and everyone at Roush Fenway has done a great job on collaborating on various innovative ideas throughout this season, and we’re looking forward to more creative excitement both on and off the track in the future.”

Oscar Mayer made its return to Roush Fenway in 2018 at the famed Darlington Raceway and served as the primary sponsor for seven races during Newman’s run to the 2019 NASCAR Playoffs.

Newman has scored three top-five and 13 top-10 finishes in 2019. He has finished inside the top 15 in 20 races in 2019 and came inches short of putting the No. 6 in victory lane two weeks ago at Talladega Superspeedway.

Prior to last season, Oscar Mayer appeared as a primary sponsor on NASCAR Hall-of-Famer Mark Martin’s Ford in 2004 and served as an associate partner with Roush Fenway Racing in the early 2000s and was featured on Matt Kenseth’s No. 17 Ford and Kurt Busch’s No. 97 Ford, when NASCAR Hall-of-Fame owner Jack Roush led the team to back-to-back Cup championships in 2003 and 2004.

Along with the Oscar Mayer red and yellow displayed across the No. 6 Mustang this season, Oscar Mayer will bring miles of smiles to fans throughout the 2020 season with the help of the Oscar Mayer Wienermobile and the Hotdoggers. To keep up with the vehicle and see exactly what races it will be at, follow along at https://www.oscarmayer.com/wienermobile.

For more information about Oscar Mayer bacon, Deli Fresh and hot dogs, visit OscarMayer.com or Facebook, Twitter or Instagram.

About The Kraft Heinz Company (KHC)

For 150 years, we have produced some of the world’s most beloved products at The Kraft Heinz Company. Our Vision is To Be the Best Food Company, Growing a Better World. We are one of the largest global food and beverage companies, with 2018 net sales of approximately $26 billion. Our portfolio is a diverse mix of iconic and emerging brands. As the guardians of these brands and the creators of innovative new products, we are dedicated to the sustainable health of our people and our planet. To learn more, visit https://www.kraftheinzcompany.com/ or follow us on LinkedIn and Twitter.

About Roush Fenway Racing

Roush Fenway Racing is one of the most successful teams in NASCAR history. In its 32nd season, Roush Fenway is a leader in driver development, having launched the careers for many of the top drivers in the sport. Off-track, Roush Fenway is a leader in NASCAR marketing solutions, producing multiple award-winning Social Media, digital content and experiential marketing campaigns. Roush Fenway is co-owned by NASCAR Hall of Famer Jack Roush and Fenway Sports Group, parent company of Major League Baseball’s Boston Red Sox and English Premier League’s Liverpool F.C. Visit RoushFenway.com, become a fan on Facebook and Instagram, and follow on Twitter at @roushfenway.

https://cts.businesswire.com/ct/CT?id=bwnews&sty=20191030005645r1&sid=acqr7&distro=nx&lang=en

View source version on businesswire.com: https://www.businesswire.com/news/home/20191030005645/en/

Lynne Galia
847-646-4396
[e-mail]

Jenna Perlman
312-377-4130
[e-mail]

Kevin Woods
704-720-4642
[e-mail]

Source: The Kraft Heinz Company

Copyright Business Wire 2019

[FUNMAN]

Heinz Ketchup@HeinzKetchup_US - The ketchup you love, PLUS the goodness of veggies? It’s way too good to be true…except it is true.

The ketchup you love, PLUS the goodness of veggies? It’s way too good to be true…except it is true.

— Heinz US (@HeinzTweets) September 20, 2019

[FUNMAN]

$6.10 Billion in Sales Expected for Kraft Heinz Co (NASDAQ:KHC) This Quarter

Written by Staff Writer ×
October 26, 2019

https://covingtonjournal.com/6-10-billion-in-sales-expected-for-kraft-heinz-co-nasdaqkhc-this-quarter/

Wall Street brokerages expect Kraft Heinz Co (NASDAQ:KHC) to report sales of $6.10 billion for the current quarter, according to Zacks. Three analysts have provided estimates for Kraft Heinz’s earnings, with the highest sales estimate coming in at $6.16 billion and the lowest estimate coming in at $6.04 billion. Kraft Heinz reported sales of $6.38 billion in the same quarter last year, which indicates a negative year over year growth rate of 4.4%. The company is expected to report its next earnings results before the market opens on Thursday, October 31st.

According to Zacks, analysts expect that Kraft Heinz will report full-year sales of $25.18 billion for the current fiscal year, with estimates ranging from $25.10 billion to $25.28 billion. For the next year, analysts expect that the firm will post sales of $25.18 billion, with estimates ranging from $25.07 billion to $25.27 billion. Zacks Investment Research’s sales calculations are a mean average based on a survey of research firms that that provide coverage for Kraft Heinz.

Kraft Heinz (NASDAQ:KHC) last announced its earnings results on Thursday, August 8th. The company reported $0.78 earnings per share for the quarter, beating the consensus estimate of $0.75 by $0.03. The firm had revenue of $5.96 billion for the quarter, compared to the consensus estimate of $6.07 billion. Kraft Heinz had a positive return on equity of 6.06% and a negative net margin of 43.40%. The firm’s revenue for the quarter was down 5.5% on a year-over-year basis. During the same quarter in the previous year, the business earned $0.90 EPS.

Several research analysts have issued reports on the company. UBS Group set a $30.00 price objective on Kraft Heinz and gave the stock a “hold” rating in a report on Friday, August 9th. Zacks Investment Research lowered shares of Kraft Heinz from a “hold” rating to a “sell” rating and set a $30.00 price target on the stock. in a report on Tuesday. BMO Capital Markets decreased their target price on shares of Kraft Heinz from $40.00 to $33.00 and set a “market perform” rating for the company in a research report on Monday, August 12th. Credit Suisse Group set a $26.00 target price on shares of Kraft Heinz and gave the company a “sell” rating in a research note on Friday, August 9th. Finally, Morgan Stanley dropped their target price on shares of Kraft Heinz from $32.00 to $29.00 and set an “equal weight” rating on the stock in a research note on Tuesday, September 3rd. Five analysts have rated the stock with a sell rating, seventeen have assigned a hold rating and two have issued a buy rating to the company’s stock. The company presently has an average rating of “Hold” and an average target price of $35.76.

In other Kraft Heinz news, major shareholder Global Food Holdings Lp 3G sold 25,068,657 shares of the firm’s stock in a transaction on Monday, September 16th. The shares were sold at an average price of $28.44, for a total value of $712,952,605.08. The sale was disclosed in a document filed with the SEC, which is available at the SEC website. Also, Director Jorge P. Lemann purchased 3,496,503 shares of the business’s stock in a transaction on Monday, September 16th. The stock was purchased at an average cost of $28.60 per share, for a total transaction of $99,999,985.80. Following the acquisition, the director now owns 3,516,449 shares in the company, valued at $100,570,441.40. The disclosure for this purchase can be found here. 0.29% of the stock is currently owned by company insiders.

[FUNMAN]

What should new CEO Miguel Patricio do for investors to regain confidence in Kraft Heinz?

24-Oct-2019 By Elaine Watson

Can the new CEO stop the rot at Kraft Heinz, and should selling off the firm’s cheese, snack nuts, and coffee businesses to reshape the portfolio form part of his hotly anticipated strategic plan, to be announced in early 2020?

https://www.foodnavigator-usa.com/Article/2019/10/24/What-should-new-CEO-Miguel-Patricio-do-for-investors-to-regain-confidence-in-Kraft-Heinz?utm_source=copyright&utm_medium=OnSite&utm_campaign=copyright