Manage at Kraft Heinz (NASDAQ: KHC) has done a lot of work to improve its financial position. That’s the good news, and investors can be happy with what has been achieved. However, recent earnings results show that there is still a lot of work to be done in other areas of the business. Here’s a look at some of the good and bad that shareholders face.
Kraft Heinz is a consumer goods giant with a range of iconic food brands found in supermarkets around the world. It is large and financially strong enough to support these brands with the innovation and advertising they need to compete effectively. It also has a strong distribution network to ensure products reach store shelves quickly and easily. It is a valuable partner for a global list of retailers.
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
The company took on a lot of debt when Kraft and Heinz merged to create Kraft Heinz. That was a notable problem, but management has worked hard to get the balance sheet back in good shape. In the past five years alone, the company’s debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio has risen from a peak of more than twelve times to a more recent figure of roughly five.
And then there is the stock’s high dividend yield. At 4.7%, it is well above the market (about 1.2%) and above the average consumer goods company (about 2.6%). That likely makes Kraft Heinz attractive to dividend investors who want to live off the income their portfolios generate. However, you should ask yourself why the dividend is so high before buying the stock.
There is one more interesting fact to consider regarding the dividend. Since 2020, the price has remained at the same $0.40 per share per quarter. One factor to think about before buying these high-yield stocks is that Kraft Heinz has not rewarded investors with dividend growth. To be fair, the company has been working on resetting its business, so this isn’t shocking. But that speaks to a bigger problem.
And that bigger problem is that the business reset doesn’t work as well as hoped. As mentioned, the balance sheet is in better shape, so it is not the case that management is letting investors down.
However, the current business plan focuses on core brands that are expected to drive long-term growth. One number is all you need to understand the problem. North America’s accelerated retail platforms (where management is focusing most of its efforts) saw organic revenue decline 4.5% in Q3 2024. This is not new; in the second quarter, organic sales of these brands fell by 2.4%.
