Kraft Heinz (KHC): Four factors that work in favour of this food company

Shares of the Kraft Heinz Company (NASDAQ: KHC) stayed green on Tuesday. The stock has dropped 9% year-to-date and 3% over the past three months. Despite this, there is a positive sentiment around the stock in view of the company’s prospects. Kraft grew revenue and profits in its most recent quarter and its outlook remains encouraging. Here are four factors that work in favor of this ketchup maker:

Sales and profit growth

Kraft Heinz is seeing healthy growth on its top and bottom line numbers. Net sales in the first quarter of 2023 increased 7% to $6.5 billion compared to the year-ago quarter. Organic sales rose 9%, driven by price increases. The company also saw sales growth in its North America and International segments during the quarter.

Net income increased nearly 8% year-over-year to $836 million, or $0.68 per share, in Q1. Adjusted EPS grew 13% to $0.68. Gross profit margin rose by 62 basis points to 32.6%. On an adjusted basis, gross profit margin expanded by 126 basis points.

Foodservice

Foodservice is a key growth driver for Kraft Heinz. In Q1, North America Foodservice and International Foodservice grew over 25% and 35%, respectively. The company also gained share across both markets.

In North America Foodservice, Kraft Heinz continues to drive volume growth on the back of its popular brands such as Heinz, Philadelphia, and Kraft Mac & Cheese. In Q1, cases sold on core SKUs increased 20% year-over-year.

As stated on its quarterly conference call, the company generates nearly 80% of its foodservice sales in North America from distributors and it has been working on increasing distribution through joint business plans. This includes selling-in additional formats and expanding the penetration of adjacent categories. During the quarter, distribution increased 4% YoY.

Within foodservice, Kraft Heinz sees vast opportunity for expansion into areas like the education, and travel and leisure segments. Through the roll-out of its new products in schools and airports, the company has the potential to expand into untapped channels.   

Emerging markets

Kraft Heinz has the opportunity to expand further into emerging markets which will help drive growth. Emerging markets grew 23% in Q1 with volume growth of 3.7%. The go-to-market model has played a key role in driving this growth. The company is working on expanding this model to newer markets like Indonesia and it plans on having it in place in 90% of its emerging markets by the end of the year. It is also strengthening its portfolio through innovation and new products to drive growth in emerging markets.

Outlook

For fiscal year 2023, Kraft Heinz expects organic sales to grow 4-6%, driven by price increases. The company expects adjusted gross profit margin to expand by 125-175 basis points for the year helped by pricing efficiencies. Inflation is anticipated in the high single digits for the year. Adjusted EPS is expected to range between $2.83-2.91.