Emerging Markets And Away From Home Will Expand New Opportunities

Key Takeaways

• Strategic focus on Emerging Markets and Away From Home is expected to boost future revenue through increased market penetration and customer growth.
  
• Investments in technology, innovation, and consumer-facing marketing aim to improve margins, enhance profitability, and contribute to sales and earnings growth.
  
• Concerns about strategic investments, market challenges, and execution issues could impact Kraft Heinz's revenue growth, profit margins, and market share.

Catalysts

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

• Kraft Heinz is focusing on its growth pillars, including Emerging Markets and Away From Home, with 75% of new customer wins locked in, which is expected to drive a 40% year-over-year growth in their Away From Home business. This is poised to impact future revenue growth.
  
• The company is planning a 17% distribution increase in Emerging Markets with 40,000 additional points planned for 2025, which could significantly boost future earnings from increased market penetration.
  
• Kraft Heinz's innovation pipeline for 2025 is 75% locked in, supported by their Brand Growth System, which aims to enhance product offerings and marketing efficiency. This could result in increased revenue and improved net margins.
  
• Investment in technology and efficiency solutions are planned to drive cost savings exceeding inflation, which is likely to support future margin expansion and enhance profitability.
  
• The company's strategic investments in marketing and shifting more dollars towards consumer-facing channels could increase brand visibility and drive sales, contributing to top-line growth and potentially boosting earnings.

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 1.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 10.6% today to 14.2% in 3 years time.
• The bullish analysts expect earnings to reach $3.8 billion (and earnings per share of $3.25) by about April 2028, up from $2.7 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 14.3x on those 2028 earnings, up from 12.7x today. This future PE is lower than the current PE for the US Food industry at 16.9x.
• Analysts expect the number of shares outstanding to decline by 1.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Kraft Heinz Future Earnings Per Share Growth

Risks

• Despite planned investments, there are concerns about whether Kraft Heinz's strategy will provide adequate room for volume growth in key brands, potentially affecting future revenues and net margins.
  
• The company faces challenges with market share softness as reducing unprofitable trade may not be offset sufficiently by other investments, which could impact their profit margins and earnings.
  
• The tax rate increase into 2025, driven by changes in global tax regulations, could adversely affect net earnings compared to peers.
  
• There is persistent underperformance in some U.S. Retail brands relative to category growth, which might not only require significant price investments but could also underscore broader execution issues, thereby affecting revenue growth.
  
• Competition and challenges with brand portfolios, such as the Lunchables supplier issue and slow recovery, could hinder revenue growth and market share improvements.

Valuation

• The assumed bullish price target for Kraft Heinz is $39.93, which represents one standard deviation above the consensus price target of $32.59. 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 $56.91, and the most bearish reporting a price target of just $26.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $26.7 billion, earnings will come to $3.8 billion, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $29.1, the bullish analyst price target of $39.93 is 27.1% 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.