Kraft Heinz: A Rising Warren Buffet Stock

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Kraft Heinz: A Rising Warren Buffet Stock

 Kraft Heinz: A Rising Warren Buffet Stock
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Summary

  • The stock outperformed its competitors like Mondelēz International, Inc. (NASDAQ: MDLZ), and PepsiCo, Inc. (NASDAQ: PEP) this year.
  • Kraft Heinz’s largest shareholder Berkshire Hathaway seems confident in its CEO and management.
  • Kraft Heinz’s net income grew 49 percent YoY in Q1.

The stock of Kraft Heinz Company (NASDAQ: KHC) rallied to its 52-week high of US$44.42 recently. In contrast to S&P 500’s gain of 10.60 percent, it is up over 26 percent year to date.

The stock also outperformed its competitors like Mondelēz International, Inc. (NASDAQ: MDLZ), Conagra Brands, Inc. (NYSE: CAG), and PepsiCo, Inc. (NASDAQ: PEP) this year.

In May alone, the share price of the Chicago-based food company has grown around 7 percent, while it rose 47 percent in the last one year.

Here, we explore a few factors that could have propelled the stock.

Berkshire Hathaway’s Confidence in Kraft Heinz’s Leadership

Kraft Heinz’s largest shareholder is Warren Buffett’s Berkshire Hathaway, with a 26.62 percent stake.

During Berkshire Hathaway’s 2021 shareholder meeting, Greg Abel, who was named as the successor of Buffet at the conglomerate, said he feels “comfortable” in Miguel Patricio’s leadership at Kraft Heinz. Able also noted that they are pleased with Kraft Heinz’s plans and the existing team.

Kraft Heinz had been struggling since the merger between Kraft and Heinz in 2015. Under Patricio, who became Kraft Heinz CEO in 2019, the company took several vital decisions such as a cost-cutting plan and divestitures of less popular brands to boost its operating metrics.

In 2020, the company sold its cheese business for US$3.2 billion and set a target to cut US$2 billion in costs through 2024 and increase marketing expenditure by 30 percent. It also sold its nuts business to Hormel Foods Corp. for US$3.35 billion.

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First Quarter Performance

The maker of Capri Sun, Kool-Aid and Jell-O brand said its net income jumped 49 percent year over year to US$568 million and diluted EPS rose from 31 cents to 46 cents YoY in the first quarter ended March 27, 2021.

Adjusted EBITDA grew 11.6 percent to US$1.6 billion, while adjusted EPS increased 24.1 percent year over year to 72 cents.

Kraft Heinz’s net sales totaled US$6.39 billion, up 3.9 percent from US$6.16 billion in the first quarter previous year. Organic net sales rose 2.5 percent during the quarter.

For the second quarter, Kraft Heinz projects organic net sales to decline in a low-single-digit percentage while adjusted EBITDA is expected to decrease in mid-single-digit percentage.

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