On Thursday, Kraft Heinz (KHC) reported better-than-expected earnings results, despite overall weak demand for packaged food and beverages. Can this stock keep going higher on engineered earnings?
Year to date, shares of Kraft-Heinz are up 25%, but the company has no real revenue growth. Kraft Heinz reported third-quarter earnings of 83 cents per share, 9 cents better than the consensus estimate. Sales declined 1.5% to $6.27 billion, vs. the $6.3 billion estimate. Adjusted earnings before interest, taxes, depreciation and amortization jumped 21.7% to $1.8 billion. Kraft Heinz earned $842 million in the third quarter.
Total organic sales fell 1%. North American organic sales were down 1.2%, Europe declined 7.8%. Only the rest of world (3.6%) and Canada (2%) were up.
The better-than-expected earnings mostly came from lower expenses and better margins. During the quarter, the company saved $300 million in integration savings. Since the merger of Kraft and Heinz, the company has cut out about $1.3 billion of management's $1.5 billion target. Adjusted EBIDA was higher than expected because the company was able to cut more deeply than analysts had modeled.
The company also saved about $11 million because of lower commodity costs, but that was down from $50 million in the second quarter. As commodity prices firm up, it's unlikely the company will get much of a benefit from lower commodity prices going forward.
Third-quarter operating margin rose to 22.5% from 18.5% in the second quarter.
For fiscal 2016, analysts estimate the company will earn $3.24 per share and $4 next year. But that 23% earnings growth is based on a total sales decline of 4% in 2016 and a 0.3% increase in revenue in 2017.