The stock has fallen about 34% year-to-date, with the stock trading at $27.28. Kraft-Heinz's earnings have declined over that time as it has been unable to consistently realize cost synergies from the 2015 merger that brought both units together, and failed to recognize shifting consumer preferences.
Earnings Will Decline First
Analysts expect heavy reinvestment in the form of marketing as the company seeks a new distribution strategy. CEO Miguel Patricio is expected to announce a new strategy soon.
Sales for 2019 are expected to decline 3.7% in 2019 over 2018, with earnings per share expected to decline 23%, according to FactSet. The new marketing strategy is aimed at setting the company up for higher sales in 2021, but won't bear fruit until that point. Analysts are looking for 2021 EPS growth of about 2.7%. Kraft's EBITDA (earnings-before-interest-tax-depreciation-amoritization) is expected to remain at 23% through 2020, down from 26 in 2018, as sales growth will trail growth in marketing expense.
The company says it would like to offset as much of the higher marketing spend as possible through production and supply chain efficiencies.
Asset Sales, Debt Reduction
Kraft-Heinz wants to focus in on the businesses it can operate with the most efficiency.
As EBITDA has declined in the past several years, the company's debt hasn't. Now, management is looking to keep only its highest potential businesses. Its debt to expected 2019 EBITDA ratio is 5 right now, relatively elevated.
Meanwhile, management may cut the dividend, Stifel analysts wrote in a note out Monday. The dividend currently yields 5.87% to the share price, reflecting a fallen stock as the company has failed to grow earnings. Management may want to cut its dividend in order to free up cash for reinvestment that could spur earnings growth.
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