Summary
Kraft Heinz was a non-growing business, which reported sky high margins.
The company has cut prices and has seen real volume leverage, with lower pricing taking a big bite out of margins.
I like the route, although I prefer better balance in sales, margins and thus earnings.
Following the reduced expectations (share price), I like improved operating momentum as small divestments keep leverage in check.
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Time to give a quick update on Kraft Heinz (KHC) after the company announced disappointing third-quarter results (or better said margins) while it announced some small divestitures as well, although the impact of those transactions is relatively limited.
I have long been critical on the company, that is until I turned a bit more positive in May following the fact that shares fell to the mid-fifties, while the fall in the share price was accompanied by some stabilisation in the actual operations. Nonetheless, I sold out of most of my position following a quick 15% move higher in early summer.
Shares have now fallen back to $53 per share again as price cuts drove solid volume growth but hurt earnings and thereby pushed up leverage ratios a little further. This means that the debt load warrants continued attention going forward, despite some recent small divestitures.
