Stock Story -
Packaged foods company Kraft Heinz (NASDAQ:KHC) fell short of analysts' expectations in Q2 CY2024, with revenue down 3.6% year on year to $6.48 billion. It made a non-GAAP profit of $0.78 per share, down from its profit of $0.79 per share in the same quarter last year.
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Kraft Heinz (KHC) Q2 CY2024 Highlights:
- Revenue: $6.48 billion vs analyst estimates of $6.56 billion (1.3% miss)
- EPS (non-GAAP): $0.78 vs analyst estimates of $0.74 (5.7% beat)
- EPS (non-GAAP) Guidance for the full year is $3.04 at the midpoint, beating analysts' estimates by 1.1%
- Gross Margin (GAAP): 35.4%, up from 33.6% in the same quarter last year
- Free Cash Flow of $1.17 billion, up 145% from the previous quarter
- Organic Revenue fell 2.4% year on year (4% in the same quarter last year)
- Sales Volumes fell 3.4% year on year (7% in the same quarter last year)
- Market Capitalization: $41.09 billion
The result of a 2015 mega-merger between Kraft and Heinz, Kraft Heinz (NASDAQ:KHC) is a packaged foods giant whose products span coffee to cheese to packaged meat.
Shelf-Stable FoodAs America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.
Sales GrowthKraft Heinz is one of the most widely recognized consumer staples companies in the world. Its influence over consumers gives it extremely high negotiating leverage with distributors, enabling it to pick and choose where it sells its products (a luxury many don't have).
As you can see below, the company's revenue was flat over the last three years as consumers bought slightly less of its products. We'll explore what this means in the "Volume Growth" section.
This quarter, Kraft Heinz missed Wall Street's estimates and reported a rather uninspiring 3.6% year-on-year revenue decline, generating $6.48 billion in revenue. Looking ahead, Wall Street expects sales to grow 1.8% over the next 12 months, an acceleration from this quarter.
Volume GrowthRevenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
To analyze whether Kraft Heinz generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.
Over the last two years, Kraft Heinz's average quarterly sales volumes have shrunk by 2.9%. This decrease isn't ideal as the quantity demanded for consumer staples products is typically stable. Luckily, Kraft Heinz was able to offset fewer customers purchasing its products by charging higher prices, enabling it to generate 4.2% average organic revenue growth. We hope the company can grow its volumes soon, however, as consistent price increases (on top of inflation) aren't sustainable over the long term unless the business is really really special.
In Kraft Heinz's Q2 2024, sales volumes dropped 3.4% year on year. This result was a reversal from the 7% year-on-year increase it posted 12 months ago. A one quarter hiccup shouldn't deter you from investing in a business. We'll be monitoring the company to see how things progress.
Key Takeaways from Kraft Heinz's Q2 Results It was good to see Kraft Heinz beat analysts' gross margin and EPS expectations this quarter. On the other hand, its revenue unfortunately missed Wall Street's estimates. Overall, this was a mediocre quarter for Kraft Heinz. The stock remained flat at $33.73 immediately following the results.
