Key Stats for Kraft Heinz Co
Creme cheese to Ketchup... licking your lips like Buffett?
| Ticker | KHC |
|---|---|
| Sector | Food Processing |
| Latest price | $89.70 |
| Value | $109,177M |
| Daily vol | $264M |
| Date | 05 May 2017 |
Useful Links
- Latest news from Yahoo Finance
- Latest results from SEC Edgar
- Website: http://ift.tt/1KF4env
Description
The Kraft Heinz Company is a food and beverage company. The Company is engaged in the manufacturing and marketing of food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee and other grocery products. Your know the brands: Heinz, Kraft, Oscar Mayer, Philadelphia, Planters, Velveeta, Lunchables, Maxwell House, Capri Sun, and Ore-Ida, among others!
|Product|Sauces|Dairy|Dry good|Frozen|Meats|Infant| |:---|:---:|:---:|:---:|:---:|:---:| |Sales 2016 | 26% | 21% | 9% | 8% | 10% | 3% |
So its ketchup and cream cheese that counts. But what about the 4 geographic segments?, i.e. the United States, Canada, Europe, and Rest of World.
| Region | USA | Canada | Europe | RoW | Total |
|---|---|---|---|---|---|
| Sales 2016 | $19bn | $2bn | $2bn | $3bn | $27bn |
i.e. watch the US like a hawk!
Recent financials
But the history is a little crazy. With Buffett & the Brazilians, 3G, buying Heinz in mid 2013. And then merging it with Kraft in mid 2015. As a result the numbers are a mess. 2016 is a full year of Heinz and Kraft. 2015 is 100% Heinz and 50% Kraft, 2014 is just Heinz.
Aside: if you have pro-forma data, please send it to me.
| Metric | 2016A | 2015A | 2014A |
|---|---|---|---|
| Revenue | $27bn | $18bn | $11bn |
| Operating profit | $4bn | $1bn | $1bn |
| EPS | $2.81 | -$0.34 | -$0.17 |
| DPS | $2.35 | $1.74 | -$0.17 |
Looking at the annual report, here's how the explain pro-forma sales
Pro forma net sales decreased 3.5%, primarily due to the unfavorable impacts of foreign currency 2.5% ... Excluding these impacts, Organic Net Sales increased 0.3%.
i.e. not great. But on the EPS the flip from loss to gain is great... so their merger and integration plan is clearly yielding results. In fact, if you factor in a rake of adjustments they say they grow EPS on a pro-forma basis by over a $1.
Separately, look at the long-term debt:
| Metric | 2016A | 2015A | 2014A |
|---|---|---|---|
| Long-term debt | $30bn | $25bn | $13bn |
Hmmm... they sure aren't afraid of leveraging this cash cow, are they?
Competition
Their margin is phenomenal. No one comes close, and the managers are focused on maintaining this. It's no wonder Buffett's a fan.
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| Kraft Heinz Co | $26,281M | 30% | 6% |
| Mondelez International Inc | $25,923M | 20% | 6% |
| General Mills, Inc. | $15,741M | 21% | 36% |
| Danone SA (ADR) | $24,103M | 17% | 13% |
| Kellogg Company | $12,873M | 18% | 39% |
| Hershey Co | $7,491M | 22% | 74% |
| Tyson Foods, Inc. | $36,911M | 10% | 20% |
Cash / Debt?
Kraft Heinz Co has $29,438M of net debt. That is 3.7x it's latest operating profit. To me that's a flag, but perhaps we need to relax a little given the management's track record?
Wall Street thinks?
The professionals on Wall Street have a $98.21 for Kraft Heinz Co and their recommendation to clients is Buy. That implies an upside of 9% to their target. Note: back in Feb the stock nearly hit the target price :)
Valuation
Trading at a 10% premium to its peers feels reasonable. And its traded between 23 and 29x in the last 12 months.
| Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | FCF Yield |
|---|---|---|---|---|---|
| KHC.O | $109,177M | 24x | 16% | 3% | 6% |
| MDLZ.O | $68,353M | 21x | 10% | 2% | 5% |
| GIS | $32,869M | 19x | 6% | 3% | 10% |
| DANOY.PK | $46,750M | 19x | 11% | 3% | 9% |
| K | $24,644M | 18x | 6% | 3% | 8% |
| HSY | $22,828M | 22x | 8% | 2% | 5% |
| TSN | $22,478M | 13x | 2% | 1% | 12% |
Though as always with peer lists, the throw up other ideas... i.e. what's the story with Tyson? Is it cheap for a reason?
Dividends
Kraft Heinz Co is forecast to pay a dividend of $2.40 per share, compared with a historic dividend of $2.38 per share. That is just a 1% growth. The forecast dividend of $2.40 compares to a forecast EPS of $3.70. i.e. Earnings are forecast to grow by nearly a $1 again this year.
So looks like there's going to be room to bring debt levels down, or start some buyback.
Catalysts
In the last 3 months the stock price didn't move, versus earnings forecasts up 13%.
And that includes a lacklustre 1Q report at the start of this week. On the analyst call they talked about industry headwinds but...
we are expecting profitable organic sales growth to ramp up as the year progresses, especially in the second half.
Their integration plan is on track to yield billion dollar savings and they expect continued sustainable expansion.
Though perhaps the overtures to Unlever indicate why M&A is needed for the next big leg up... they've build a substantial business in the US and Canada... but EMEA and APAC regions are still fresh pastures.
Well
It's a quality stock... even if it's a little debt heavy ... and though they failed to snag Unilever this time... it's only a matter of time before they catch an EU fish, I bet. Surely KHC can dominate food, as P&G has dominated household goods?
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Disclosure: I have no position in any of the stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare works at a financial website, Stockflare, and is a Chartered Financial Analyst.
Submitted May 05, 2017 at 10:59AM by shane_stockflare http://ift.tt/2pOgQ9H
