KHC Falls 12% in 3 Months: Can Strategic Efforts Reverse the Decline?

The Kraft Heinz Company's KHC shares have lost 12.1% over the past three months, underperforming the industry’s decline of 10.2%. In addition, it has lagged the Zacks Consumer Staples sector, which fell 7.8%, and the S&P 500, which posted 3.9% growth during the same period. Ongoing challenges in the consumer environment, coupled with persistent inflation concerns, have negatively impacted consumer sentiment and hurt Kraft Heinz’s performance.Despite these setbacks, the company is attempting to navigate this tough economic landscape through strategic pricing and enhanced operational efficiency. However, the key question remains: Can these efforts overcome the persistent weak consumer demand and drive sustainable growth?Strategic Pricing Shields KHC's MarginsKraft Heinz has strengthened its performance through effective pricing strategies, maintaining robust margins despite inflationary pressures. In the third quarter of 2024, pricing rose 1.2% year over year, driven by growth in North America and Emerging Markets. The company’s adjusted gross margin improved by 30 basis points (bps) to 34.3%, supported by higher pricing, efficiency gains and lower variable compensation expenses.KHC's Price PerformanceImage Source: Zacks Investment ResearchKHC’s Strategic Transformation Holds PromiseThe Zacks Rank #3 (Hold) company is actively transforming its business to unlock its full potential and boost shareholder value through its AGILE@SCALE strategy, launched in February 2022. Focused on enhancing agility and capabilities, the company has partnered with leading technology firms to improve productivity and operational efficiency. Since 2023, Kraft Heinz has generated $1.1 billion in gross efficiencies, moving toward its $2.5 billion target. By 2027, the company aims to unlock an additional $1.4 billion in efficiencies, driven by digital transformation, automation, supply chain advancements and operational excellence. These efforts are keys to aiding growth, improving efficiency and supporting Kraft Heinz's innovation strategy.Kraft Heinz Expands Through InnovationKraft Heinz's innovation strategy continues to deliver value to consumers by offering high-quality, convenient solutions that meet their evolving needs. The company is focused on providing delicious, family-friendly meals that can be prepared in minutes. In response to changing consumer preferences, Kraft Heinz is enhancing its core products with globally inspired, exploratory flavors. Expanding product options and functionality is more crucial than ever, as consumers seek choices that offer unique benefits.The company is also committed to offering accessible solutions across different price points. The company’s innovation pipeline is gaining momentum and delivering strong results. In its third-quarter earnings call, management highlighted that year to date, innovation, as a percentage of organic net sales, reached 2.8%, marking a 100 bps increase from 2023.Weak Demand Pressures Overall PerformanceDespite its efforts to maintain profitability through pricing and efficiency, the ongoing struggles in the consumer environment and persistent inflation concerns have dampened consumer sentiment and increased the focus on value seeking. This led to a slower-than-expected recovery across the industry. As a result, Kraft Heinz faced a challenging third-quarter 2024, wherein the top line decreased year over year and missed the Zacks Consensus Estimate. The company’s volume/mix dropped 3.4 percentage points, with declines in North America and International Developed Markets in the quarter. The negative impact on the volume/mix was due to changing consumer behavior stemming from economic uncertainty. Our model suggests a volume/mix decline of 3.3 percentage points in 2024.KHC Faces Continued Challenges Despite Strategic EffortsKraft Heinz is navigating a tough economic environment, with weak consumer demand and persistent inflation impacting its performance. While the company has made strides through strategic pricing, operational efficiencies and innovation, these efforts are not enough to offset the decline in volume and the ongoing consumer sentiment challenges. As a result, the company has revised its growth expectations for 2024, signaling a cautious outlook.For 2024, organic net sales are now expected to be at the lower end of the earlier guidance range of down 2% to flat year over year. The adjusted operating income growth is now projected at the lower end of the previously guided range of 1-3%. The adjusted earnings per share for 2024 is now envisioned in the lower end of the previously projected range of 1-3% growth to $3.01-$3.07. For 2024, management anticipates inflation to be around 4%, up from the previous forecast of around 3%.Some Solid Staple BetsWe have highlighted three better-ranked stocks from the Consumer Staples sector, namely Ingredion Incorporated INGR, Freshpet FRPT and US Foods Holding Corp. USFD.Ingredion Incorporated manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.INGR has a trailing four-quarter earnings surprise of 9.5%, on average. The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.4% from the year-ago reported number.Freshpet, a pet food company, presently carries a Zacks Rank #2. FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 27.3% and 228.6%, respectively, from the year-ago period’s reported figure.US Foods, together with its subsidiaries, engages in the marketing, sale and distribution of fresh, frozen and dry food and non-food products to food service customers in the United States. It currently carries a Zacks Rank #2. USFD delivered a negative earnings surprise of 0.4% in the last reported quarter.The Zacks Consensus Estimate for US Foods Holding’s current fiscal-year sales and earnings indicates growth of 6.4% and 18.6%, respectively, from the prior-year reported levels.Zacks Naming Top 10 Stocks for 2025Want to be tipped off early to our 10 top picks for the entirety of 2025?History suggests their performance could be sensational.From 2012 (when our Director of Research Sheraz Mian assumed responsibility for the portfolio) through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2025. Don’t miss your chance to get in on these stocks when they’re released on January 2.Be First to New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Freshpet, Inc. (FRPT): Free Stock Analysis Report Ingredion Incorporated (INGR): Free Stock Analysis Report Kraft Heinz Company (KHC): Free Stock Analysis Report US Foods Holding Corp. (USFD): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks