Kraft Heinz Stock Rises as Profit Beats Analysts' Estimates

(Bloomberg) -- There's finally some goods news for Kraft Heinz Co. investors.

The maker of Heinz ketchup posted first-quarter profit that exceeded analysts' estimates, giving its struggling stock a lift in after-hours trading Wednesday. The company's shares have been battered in the aftermath of the company's failed bid to acquire Unilever last year.

Like its packaged-food competitors, Kraft Heinz is navigating intense competition in the grocery industry and changing consumer tastes that have weighed on results. The company's sales have lagged, but its aggressive cost cuts in the aftermath of the 2015 merger that created the food giant has boosted profit.

“The stock has been so weak, there may have been an expectation for a big miss,” said Ken Shea, an analyst at Bloomberg Intelligence. “The bar is pretty low.'

The shares rose as much as 6.2 percent to $57.57 in late trading after the results were released. The stock had slumped 30 percent this year through Wednesday's close.

Excluding some items, profit was 89 cents per share in the quarter, topping the average estimate of 82 cents. The company said its profit increase in the period mainly reflected a lower tax rate.

Kraft Heinz revenue was sluggish -- coming in at $6.3 billion -- and narrowly missed projections. Sales in the U.S., where the company generates about 70 percent of its revenue, dropped 3.3 percent.

High Hopes

Investors have had high expectations for Kraft Heinz, created in a 2015 merger orchestrated by Warren Buffett and the private equity firm 3G Capital. Its shares have been hammered since the company's failed takeover attempt of Unilever last year, with investors pondering a world where the company has to sell more cheese, condiments and deli meats.

Buffett and 3G teamed up in 2013 up to take Heinz private -- with a strategy of slashing costs and ramping up profit margins. That's been the playbook at the combined company too.

Earlier this year, Kraft Heinz said it had cut more than $1.7 billion expenses after integrating the two businesses. That has raised pressure on the company to find another acquisition.

Since Kraft's attempt to acquire Unilever fell apart a year ago, lackluster growth across the industry has led to a flurry of acquisitions among its rivals. That may make it harder for 3G Capital to do what it does best: Use Buffett's deep pockets to buy growth, cut costs and improve profit margins.

Without a deal, the big worry is that the maker of Planters peanuts, Maxwell House coffee and Oscar Mayer hot dogs will end up like any old U.S. food company, struggling to boost sales with a lineup of brands whose best days are behind them.

“We're still waiting to hear what they're going to do to innovate and drive sales growth,” Shea said.

--With assistance from Brandon Kochkodin

To contact the reporter on this story: Craig Giammona in New York at cgiammona@bloomberg.net.

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Lisa Wolfson, Jonathan Roeder

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