Kraft beat, I listened to the call. As Clouse had also said, families are eating at home and are going to continue to do so, even after the virus.
Kraft Heinz Signals the Great Grocery Boom Isn't Over -- Heard on the Street
11:04 am ET October 29, 2020 (Dow Jones) Print
By Aaron Back
Big food stocks have declined along with everything else as coronavirus fears have rebounded in the U.S. and Europe. But strong results from Kraft Heinz and Kellogg on Thursday serve as a reminder that this makes little sense.
At Wednesday's close, the two food giants had shed 6.9% and 6.4% of their value over three sessions, respectively, compared with 5.6% for the S&P 500. Both companies reported sales and earnings ahead of expectations Thursday, sending their shares higher.
Kraft Heinz said its third-quarter organic sales, which strip out the effects of currency movements, acquisitions and divestitures, rose 6.3% from a year earlier. It also raised the full-year guidance that it gave as recently as its investor day on Sept. 15. Kraft Heinz said then that it expected "mid-single-digit" growth in adjusted earnings before interest, taxes, depreciation and amortization for the full year. It now says this is set to be in the high single digits.
Similarly, Kellogg reported organic net sales growth of 4.5% and said that its adjusted operating profit should rise 2% this year, having earlier forecast a slight decline.
On a conference call with analysts, Kraft Heinz Chief Financial Officer Paulo Basilio said the company logged an acceleration in retail sales starting in the second half of September. While he didn't cite it specifically, this was likely at least in part due to renewed pantry stocking by consumers ahead of a rising tide of coronavirus infections. Now that the dreaded fall wave has arrived, home food sales are likely to stay elevated.
Importantly for Kraft Heinz, the company is starting to put its money where its mouth has been. New Chief Executive Miguel Patricio has been insistent that he understands the mistakes previous management made by under-investing in brands and focusing excessively on near-term profits. Now the company says it is leaning into the at-home eating surge, boosting its marketing investment in the second half of this year by 70% from the first half and also stepping up spending on capacity expansion.
Kellogg shares aren't exactly cheap at 16 times forward earnings, according to FactSet. But Kraft Heinz is trading at just under 12 times, compared with a rather pricey 20.6 times for the S&P 500. With the company getting its act together just as food sales are set to catch a second wave, it might finally be time to get back into Kraft Heinz.
(END) Dow Jones Newswires
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