Why Kraft Heinz Co's Shares Are Up 21% in 2016

Cost-cutting is driving this food conglomerate higher in 2016.

Travis Hoium
Travis Hoium
Jul 5, 2016 at 6:35PM
Consumer Goods

Image source: Getty Images.

What: Shares of Kraft Heinz Co (NASDAQ:KHC) have jumped 21.3% in 2016, according to data provided by S&P Global Market Intelligence, as cost savings from the 2015 Kraft and Heinz merger start to materialize.

So what: Despite sales being down 3.8% in the first quarter to $6.57 billion, adjusted EBITDA was up 21.3% to $1.95 billion and earnings per share jumped 37.7% to $0.73. The ability to cut costs was a big justification for the merger in the first place and it's definitely starting to show.

While investors can't count on cost-cutting like this to last long, and the long-term concern is the decline in revenue, for now, the market is pleased with the progress on the bottom line.

Now what: As one of the biggest powerhouses in the food business, Kraft Heinz is built to last for a long time. Its many brands include Oscar Mayer, Jell-O, and Planters. But I would be concerned that slow growth in revenue will last long term and a consolidation in power in the food business will lead customers to search for local brands. If you're a dividend investor, the 2.7% yield should be attractive, but I don't see a lot of upside after this pop given the limits to cost-cutting measures long term.