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Tracking Kraft-Heinz's Road Back to Growth: Third Quarter Earnings Breakdown

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The narrative for the second half of 2019 for Kraft-Heinz (KHC) has been that growth will get worse before it gets better for the embattled packaged foods conglomerate. 

Well, the stock rose 7.02% to $30.50 a share Thursday after the company posted a solid third quarter. 

Here were the results:

The Earnings

Kraft-Heinz posted earnings per share of 69 cents on an adjusted basis, beating estimates of 54 cents. Revenue was $6.08 billion, missing estimates of $6.13 billion. 

This leaves lower operating costs as the culprit behind the earnings beat. 

"We showed sequential improvement versus the first half, and I believe we are beginning to operate the business better," said CEO Miguel Patricio. "We are making good progress in identifying and addressing the root causes of past performance, as well as setting our strategic direction. Although there is still much work ahead, we're encouraged by our improving performance, and are even more confident in our ability to turn around the Company and set a path of long term growth and profitability." 

The Significance of Q3

Kraft-Heinz is trying to move back to revenue and earnings growth. The merger of the two units several years ago has not been successful. Management has not realized the cost synergies Wall Street had expected. Sales growth has turned consistently negative due to an ailing product and distribution strategy.

Now, the company is looking to increase marketing spend in the near-term to boost sales, while exercising cost discipline elsewhere. In the long-term sales should grow, margins should expand. 

Analysts expect sales to grow at a positive rate in 2020 and earnings to grow positively by 2021.

The 27% beat of EPS expectations for the quarter certainly makes investors grow positive, potentially on the cost side of the equation. Although revenue missed expectations, Kraft-Heinz said pricing grew 1% year-over-year, driven by solid pricing in the U.S, the company's largest geographical segment. The U.S. is 80% of the business and management is looking to improve strategy in that region. 

This is the second reported quarter under Patricio. 

The stock is down 53% year-to-date. 

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