Kraft-Heinz's  (KHC) - Get Report  management is beginning to unveil its new long-term strategy, but it hasn't done so completely, leaving analysts tepid on the short-term outlook for the struggling consumer packaged goods company. 

"As we assess the prospects for Kraft Heinz from this level, we believe the company maintains some earnings risk in the short run in front of what will likely be a heavier level of reinvestment into the business at least in FY20 as the company attempts to reignite sales growth," wrote Stifel analyst Christpher Growe in a note. 

"[We] will need to wait for more clarity from management, but a number of key topics remain in focus in the near term," wrote Goldman Sachs analyst Jason English in a note, adding that "it is unclear to us how successful management would be in achieving benefits large enough to move the needle in the short to medium term." 

The stock has fallen about 40% year-to-date to $26.06 a share. After having been largely flat at around $33 between late February and early August, the stock slipped some more after a rough second quarter earnings report.

Analysts note the company hasn't lived up to its guidance over the past several years. 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. Sales for 2019 are expected to decline 3.7% in 2019 over 2018, with earnings per share expected to decline 25%, according to FactSet. 

Cost Structure 

"While we believe the company has savings in its sights to help pay for the incremental spending, we believe other investment requirements (people, capability, white space investments, etc.) and the time it will likely take to achieve these savings could result in a weaker outlook for fiscal year 2020 in relation to our current expectation," said Growe. 

The company has focused on increasing marketing spend as a core expense that can reignite sale growth, elevating those costs in the near-term. Growe mentioned Kraft-Heinz's marketing has been far less prevalent than that of its peers, with marketing spend at 3.2% of its 2018 sales. Ab Inbev, comparatively, had marketing expense at 20% of its 2018 sales. Kraft-Heinz has "not been investing sufficiently," Growe said, adding that the company wants to focus on "being more efficient with its marketing spending." 

English agreed with Growe on near-term marketing spend, saying "the increase in working media investment" will likely "take time and money to execute." 

Kraft-Heinz is trying to offset the higher marketing spend with a new productivity program, Growe noted. Kraft-Heinz executives told analysts that careful supply chain management could lead to "substantial" cost savings. 

Analysts want to see the company move back closer to an EBITDA margin of 30%. That margin was at 26% in 2018, and is expected to fall to 23% in both 2019 and 2020. That margin could decline even more with the re-investment plan. And Growe lowered his 2019 and 2020 EPS estimates to $2.54 and $2.67 from $2.62 and $2.75, respectively. 


"A return to a consumer-centric mindset with focus on premiumization, geographic expansion, and channel expansion as growth enablers," is the main objective on the revenue side, according to English.

English says new CEO Miguel Patricio is targeting distribution channels in North America other than traditional grocery stores. North America is Kraft-Heinz's largest geographical market. Management is particularly keen on delivering products through e-commerce, convenience stores and value stores such as dollar stores. These channels have "above-market growth trends," English says. But he thinks what the company could do differently in these channels than prior leadership teams is currently unclear, as management had previously said it would like to pursue those strategies. The more robust and more "efficient" marketing spend, as Growe put it, would support the new sales strategy. 

Growe didn't comment much on the revenue side of the equation, but did recognize the company's focus on regrowing sales as valid, as Patricio was formerly an executive at Anheuser Busch Inbev (BUD) - Get Report

The analysts agree that Kraft-Heinz's forward one-year earnings multiple has collapsed recently (9.9 at present), partly because of the company's rising debt level in relation to its falling operating profits. The slimmer margins and uncertain growth outlook hasn't helped, either. Kraft did announce Tuesday it is buying back all of its outstanding 2020 5.375% bonds.