Kraft Heinz (KHC) shares fell 5.14% and closed the trading session at $36.94, even after the company reported better-than-expected Q2 results.
The sell-off might have followed the company’s warning of margin pressure during the call, owing to higher prices of ingredients as inflation in the U.S. continues to edge higher. According to Kraft Heinz’s CFO Paulo Basilio, costs have been rising since April, forcing the company to use multiple revenue management levers.
In Q2, net sales came in at $6.6 billion, representing a 0.5% decline from the same quarter last year. However, it beat the consensus estimate of $6.53 billion.
Additionally, adjusted earnings per share of $0.78 easily outpaced consensus estimates of $0.72, but was down 2.5% compared to the prior-year quarter. The decline was primarily related to a 5.2% fall in adjusted EBITDA, which came in at $1.7 billion. (See Kraft Heinz stock charts on TipRanks)
Kraft Heinz CEO Miguel Patricio believes that the company is well-positioned to come out of the global pandemic much stronger. Increased investments in modernizing brands and connecting with consumers should bear fruits in the long run, he added.
Kraft Heinz projects 2021 adjusted EBITDA to come in ahead of the strategic plan and 2019 levels. Additionally, the company expects Q3 organic net sales to increase by a mid-single-digit percentage.
Following the release of the second-quarter print, Jefferies analyst Robert Dickerson reiterated a Hold rating on the stock with a price target of $41, implying 11% upside potential to current levels.
“2021 EBITDA now expected higher than $6.1 billion, but still excludes the pending sale of the Cheese business to Lactalis and with consensus at $6.2 billion, we consider the update in-line with expectations,” Dickerson wrote in a research note.
The consensus rating is a Hold based on 3 Holds and 1 Buy. The average Kraft Heinz price target of $42.75 implies 15.73% upside potential to current levels.
KHC scores a 5 out of 10 from TipRanks’ Smart Score rating system, suggesting that the stock is likely to perform in line with market averages.
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