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The Kraft Heinz Co KHC

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

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Economic Moat

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Capital Allocation

PREMIUM

Rough Waters Fail to Throw Kraft Heinz From Its Strategic Track; Investors Should Stock Up on Shares

Erin Lash, CFA Sector Director

Analyst Note

| Erin Lash, CFA |

Rampant cost pressures, supply chain disruptions, and stepped-up competition did not derail no-moat Kraft Heinz’s performance in the third quarter; we attribute its results to the foresight to set out on a revised strategic course even before COVID-19 took hold. Organic sales edged up 1.3% versus a year ago and impressively jumped 7.6% relative to the prepandemic period in 2019. Further, while adjusted operating margins contracted 250 basis points over last year to 19.8%, we’re encouraged that management has opted to continue funneling resources to support its brands and capabilities despite facing unrelenting inflationary headwinds. In this context, advertising was up 9% through the first nine months of the year, and research and development spend has increased to the tune of 17%. In addition, Kraft Heinz has directed 3.4% of sales toward capital expenditures year to date, versus just 2.1% over the same horizon in 2020. Although the market doesn’t seem enamored (with shares down a touch), we think results showcase the extent to which the company has prudently prioritized investments for the long-term health of the business (as opposed to its previous mandate to boost margins at all costs) since CEO Miguel Patricio took the helm in mid-2019.

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Company Profile

Business Description

In July 2015, Kraft merged with Heinz to create the third- largest food and beverage manufacturer in North America behind PepsiCo and Nestle and the fifth- largest player in the world. Beyond its namesake brands, the combined firm's portfolio includes Oscar Mayer, Ore-Ida, and Philadelphia. Outside North America, the firm's global reach includes a distribution network in Europe and emerging markets that drive around one fifth of its consolidated sales base, as its products are sold in more than 190 countries and territories.

Contact
One PPG Place
Pittsburgh, PA, 15222
T +1 412 456-5700
Sector Consumer Defensive
Industry Packaged Foods
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 28, 2020
Stock Type Slow Growth
Employees 38,000

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