With 75% Of Its Innovation Pipeline Secured, The Company Will Drive Future Success In North America Retail

Key Takeaways

• Strategic focus on growth pillars, distribution increase, and consumer engagement targets future revenue and earnings improvement.
  
• Technology investments and innovation pipeline aim to enhance operational efficiency and drive top-line growth.
  
• Limited gross margin expansion and flat advertising investment may hamper revenue growth, while reliance on current strategies might not withstand competitive pressures and changing consumer preferences.

Catalysts

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

• Kraft Heinz is focusing on its growth pillars, with 75% of new customer wins secured in the Away From Home segment and a planned 17% distribution increase in Emerging Markets, which should drive future revenue growth.
  
• The company is investing in technology-led solutions to improve operational efficiencies and expand gross margins modestly in 2025, which can have a positive impact on net margins.
  
• Efforts to shift marketing spend towards consumer-facing marketing and improve the returns on non-working dollars aim to enhance the effectiveness of advertising, potentially boosting revenue through increased consumer engagement.
  
• Kraft Heinz's strategy for innovation with 75% of its 2025 innovation pipeline already locked in, aims to drive top-line growth, especially within their ACCELERATE platforms in North America Retail.
  
• Plans to invest strategically in product enhancements and pricing across core brands are expected to better align with consumer demands and market dynamics, which could lead to improved future earnings.

Kraft Heinz Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kraft Heinz's revenue will decrease by 0.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.6% today to 14.4% in 3 years time.
• Analysts expect earnings to reach $3.7 billion (and earnings per share of $3.2) by about March 2028, up from $2.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $4.3 billion in earnings, and the most bearish expecting $3.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.0x on those 2028 earnings, down from 13.2x today. This future PE is lower than the current PE for the US Food industry at 17.3x.
• 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

• The expected gross margin expansion for 2025 is minimal, indicating limited flexibility for further investment in price and marketing, which could impact future revenue growth and profitability.
  
• The company's plan to address declining market share and drive volume growth relies heavily on current strategies and product enhancements, which may not be sufficient to counter competitive pressures and changing consumer preferences affecting future revenues.
  
• The flat investment in advertising as a percentage of revenue may not be adequate in an increasingly competitive market, potentially limiting the ability to boost brand visibility and consumer engagement, impacting long-term sales growth.
  
• There is a notable concentration of performance challenges in key U.S. brands, which if not adequately addressed, could have a disproportionate impact on overall revenue and earnings.
  
• The increase in the financial statement tax rate by 500 basis points for 2025, although moderated by cash tax savings, could put additional pressure on net margins and earnings.

Valuation

• The analysts have a consensus price target of $33.043 for Kraft Heinz based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be $25.9 billion, earnings will come to $3.7 billion, and it would be trading on a PE ratio of 12.0x, assuming you use a discount rate of 6.2%.
• Given the current share price of $30.39, the analyst price target of $33.04 is 8.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.