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What's in Store for Kraft Heinz's (KHC) Debut Q2 Earnings? - Analyst Blog

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The Kraft Heinz CompanyKHC is set to report second-quarter 2015 results on Aug 10, after market closes. The company, previously known as H.J. Heinz Holding Corporation, changed its name to Kraft Heinz after it merged with Kraft Foods Group, Inc. on Jul 2. Kraft Heinz started trading on Jul 6.

This is the first quarterly result for the combined Kraft Heinz.

Let's see how things are shaping up for this announcement.

Factors at Play

In July, Kraft Foods was acquired by privately owned ketchup maker, H.J. Heinz Company, to form The Kraft Heinz Company, the third largest food and beverage company in North America. The deal was backed by Brazilian private equity firm, 3G Capital, and billionaire investor, Warren Buffet.

The merger has brought popular consumer food brands like Heinz, Kraft, Oscar Mayer, Ore-Ida and Philadelphia under one banner. Kraft Heinz owns eight Billion Dollar brands and is expected to garner approximately $28 billion in revenues. The company is also expected to save $1.5 billion in annual costs by the end of 2017 gaining from increased scale and possibly aggressive cost cuts.

Kraft's reported weak sales for the past few quarters due to volume losses associated with price increases and softness in certain categories resulting from the lack of innovation/brand building activities.

As regards Heinz, organic sales trends were sluggish in the first quarter due to weak revenues in the U.S. and Europe. Both Kraft and Heinz are suffering as a result of declining consumer demand for packaged food products.

Though sales trends might not show any meaningful improvement in the to-be-reported quarter, Kraft Heinz has strong long-term growth potential. The combined company's leading market position, compelling international presence, aggressive cost cut plans and synergies from the merger should improve the earnings growth potential, going forward.

Earnings Whispers

Our proven model does not conclusively show that Kraft Heinz is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP is 0.00% as both the Most Accurate estimate as well as the Zacks Consensus Estimate stand at 84 cents per share.

Zacks Rank: Kraft Heinz carries a Zacks Rank #4 (Sell).

As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Some stocks in the broader food/beverage sector that have both a positive Earnings ESP and a favorable Zacks Rank are:

Campbell Soup Company CPB , with an Earnings ESP of +2.38% and a Zacks Rank #1.

Dean Foods Company DF , with an Earnings ESP of +3.85% and a Zacks Rank #2.

The J. M. Smucker Company SJM , with an Earnings ESP of +3.28% and a Zacks Rank #3.

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DEAN FOODS CO (DF): Free Stock Analysis Report

CAMPBELL SOUP (CPB): Free Stock Analysis Report

SMUCKER JM (SJM): Free Stock Analysis Report

KRAFT HEINZ CO (KHC): Free Stock Analysis Report

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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.


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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