Kraft Heinz (KHC) on Track With Pricing Actions Amid Inflation

The Kraft Heinz Company KHC is on track to revamp its business operations to unlock its complete potential. The consumer products company’s primary focus on implementing efficient pricing strategies to mitigate the effects of inflationary pressures bodes well.

Let’s discuss this in detail.

Growth Efforts in Place

Kraft Heinz is benefiting from strength in its three key pillars — Foodservice, Emerging Markets and U.S. Retail Grow platforms. In the Foodservice business, management is prioritizing higher margin spaces and undertaking customer-friendly innovations to drive growth. Kraft Heinz’s data-driven and repeatable go-to-market model has been yielding well across Emerging Markets. In the fourth quarter, the company’s Foodservice organic net sales grew nearly 7%. The company expects to keep seeing continued momentum in organic sales across Foodservice platform in 2024. Emerging Markets increased 12% during the quarter. Management envisions witnessing double-digit growth across Emerging markets in 2024. Talking about the U.S. Retail GROW platforms, Taste Elevation’s organic net sales went up low-single digits.

Also, Kraft Heinz is committed to accelerating its profit and enhancing the long-term shareholders’ value. As part of its transformation phase, management unveiled AGILE@SCALE in February 2022. The strategy helps it improve its agile expertise and capabilities via partnerships with technology giants and cutting-edge innovators.

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Favorable Pricing Environment

Kraft Heinz has been undertaking strategic pricing initiatives to improve its performance. Robust pricing strategies have been protecting the company’s margin performance amid inflation. The trend continued in the fourth quarter of 2023, wherein pricing rose 3.7 percentage points on higher list prices to counter escalated input costs. Pricing is likely to make a positive impact on organic net sales throughout 2024. The company’s quarterly adjusted gross margin expanded 260 basis points (bps) to 34.8% in the fourth quarter. Management expects a modest adjusted gross margin expansion in the 25-75 bps band in 2024.

What’s Hurting Kraft Heinz?

Kraft Heinz has been witnessing soft volumes for the past few quarters now. We note that the company is battling greater-than-anticipated challenges as higher interest rates continue to put pressure on consumer spending. In the fourth quarter of 2023, the company’s volume/mix fell 4.4 percentage points. The company continues to battle an inflationary environment, although the inflation has been moderating. The company saw nearly 3% inflation in the fourth quarter, mainly in tomatoes and sweeteners. The persistence of cost escalations is a concern for margins.

The focus on undertaking effective pricing actions along with other growth efforts is likely to keep KHC well-positioned for growth. The Zacks Rank #3 (Hold) company’s shares have increased 17.4% in the past six months compared with the industry’s 10.2% growth.

Appetizing Food Picks

Vital Farms Inc. VITL offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2 (Buy). VITL has a trailing four-quarter average earnings surprise of 155.4%. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings suggests growth of 18.7% and 30.5%, respectively, from the year-ago reported numbers.

Utz Brands Inc. UTZ manufactures a diverse portfolio of salty snacks, currently carrying a Zacks Rank #2. UTZ has a trailing four-quarter earnings surprise of 2.6% on average.

The Zacks Consensus Estimate for Utz Brands’ current financial-year earnings suggests growth of 19.3% from the year-ago reported numbers.

Celsius Holdings CELH, which offers functional drinks and liquid supplements, currently carries a Zacks Rank #2. CELH has a trailing four-quarter earnings surprise of 67.4%, on average.

The Zacks Consensus Estimate for Celsius Holdings’ current financial-year sales and earnings suggests growth of 41.6% each from the year-ago reported figures.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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