E-commerce And Omni-Channel Trends Will Drive Global Packaged Food Markets

Key Takeaways

• Expanding innovation and marketing are strengthening core brands and fueling a rebound in revenue and branded market share, outpacing industry peers.
  
• Growth in emerging markets and digital transformation are set to boost international earnings, while strategic portfolio moves could unlock further value.
  
• Structural brand challenges, lagging innovation, weak pricing power, and potential risky business changes threaten profitability, market position, and long-term value.

Catalysts

Manufactures and markets food and beverage products in North America and internationally.

• Analyst consensus anticipates that expanded marketing and brand growth investments will gradually enhance revenue, but these measures have already doubled innovation rates and, with plans to scale across 40% of the portfolio, could drive an accelerated and outsized rebound in both revenue and branded market share, surpassing peers.
  
• While analysts broadly recognize growth in emerging markets, the company is now achieving double-digit growth and record margins in these regions, and with an expanding, replicable business model focused on the global Heinz brand, the pace and scale of international revenue and earnings growth could far exceed expectations as urbanization and rising incomes accelerate demand.
  
• The advancement of Kraft Heinz's direct-to-consumer and e-commerce capabilities positions the company to capture a disproportionate share of the rapid shift in grocery shopping habits, driving higher-margin sales and improving digital engagement, which are set to meaningfully enhance both top-line growth and net margins.
  
• With its intensified innovation agenda and brand renovations, Kraft Heinz is poised to tap into evolving preferences for convenient, ready-to-eat, and modernized staple foods, strengthening both its ability to outcompete private label entrants and drive long-term volume growth.
  
• Active evaluation of strategic transactions-including potential portfolio realignment or divestitures-could unlock significant hidden value and catalyze a rerating of earnings as the company sharpens its focus on high-growth, global platforms and redeploys capital into higher-return segments.

Kraft Heinz Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Kraft Heinz compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Kraft Heinz's revenue will grow by 1.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -20.8% today to 19.1% in 3 years time.
• The bullish analysts expect earnings to reach $5.1 billion (and earnings per share of $4.37) by about September 2028, up from $-5.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, up from -6.0x today. This future PE is lower than the current PE for the US Food industry at 19.5x.
• Analysts expect the number of shares outstanding to decline by 2.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Kraft Heinz Future Earnings Per Share Growth

Risks

• The company recorded a $9.3 billion noncash impairment charge due to a sustained decline in the stock price, signaling structural challenges for Kraft Heinz's brand equity and the long-term value of intangible assets, which could limit future earning power and put downward pressure on net margins.
  
• North America retail continues to see top-line declines, specifically a drop of 2.7% year-over-year outside of cold cuts and bacon and an annual decline of 4%, reflecting ongoing struggles for legacy brands facing shifting consumer preferences, threatening revenue stability in key markets.
  
• Management acknowledges that innovation as a percentage of sales remains below peers, reaching just 3% in the most recent year, leaving Kraft Heinz vulnerable to eroding market share and muted revenue growth as consumer demands for healthier and fresher options outpace the company's innovation pipeline.
  
• The company is currently passing on pricing increases well below the rate of input cost inflation-about 1% pricing versus 5 to 7% inflation-raising the likelihood of continued margin compression and pressure on profitability, especially amidst ongoing commodity, meat, and coffee price volatility.
  
• Ongoing consideration of strategic transactions, including potential business separations, carries the risk of costly dis-synergies, possible loss of scale, and uncertainty for management focus-all of which could result in higher costs and diluted shareholder value, impacting net margin and earnings over time.

Valuation

• The assumed bullish price target for Kraft Heinz is $39.95, which represents two standard deviations above the consensus price target of $29.71. This valuation is based on what can be assumed as the expectations of Kraft Heinz's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $51.0, and the most bearish reporting a price target of just $27.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $26.4 billion, earnings will come to $5.1 billion, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 6.8%.
• Given the current share price of $26.67, the bullish analyst price target of $39.95 is 33.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.