Kraft Heinz (KHC) has long been ¨criticised¨ by many, including myself. Let me rephrase this: I am not that critical on the business, which is actually a wonderful business with strong brands and sky-high margins, although it has a growth problem. Rather, I have been critical on the high valuation attached to this business, especially if we consider the leverage position as well.
In February, I called shares ¨almost attractive despite another growth setback.¨ Fortunately, shares had already retraced from a high of nearly $100 in the summer of 2017 to levels in the seventies in February of this year before seeing declines only accelerate with shares trading at just $55 heading into the first quarter earnings report.
Not A Pretty Picture
Growth has been hard to find by Kraft Heinz. The company reported a 0.3% increase in fourth quarter sales of 2017. This looks better than it was, as organic sales were down 60 basis points despite a point increase in prices, suggesting that volumes were down by 160 basis points.
