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Why Kraft Heinz Co. Shares Were Sliding Today

By Jeremy Bowman – Nov 2, 2018 at 12:30PM

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Shares of the processed-food giant tumbled on a weak bottom-line result in its third-quarter earnings report.

What happened

Shares of Kraft Heinz Co (KHC -1.39%) were taking a spill today after the packaged-food giant posted disappointing results in its third-quarter report. Following a trend with other legacy food companies, the Jell-O maker is struggling to deliver growth without ramping up spending on advertising, new products, and other expenses. As a result, the stock was down 8.8% as of 12:04 p.m. EDT.   

So what  

Organic sales, which strip out the effect of acquisitions and divestitures, increased 2.6% in the quarter, a bright spot for the company, and overall revenue jumped 1.6% to $6.38 billion, topping estimates at $6.31 billion. 

A bowl of mac and cheese on a wooden table

Image source: Getty Images.

However, that growth came at a cost as gross margin fell from 35% to 33%, a reflection of higher input costs and increased discounting through promotional activity. Adjusted EBITDA was down 16.2% in the U.S., its biggest market, to $1.2 billion due to higher inflation, overhead costs, freight, and investments.

Adjusted earnings per share slipped from $0.83 to $0.78, which missed estimates at $0.81. 

CEO Bernardo Hees defended the company's strategy, saying, "While a number of one-off factors-as well as our desire to insure customer service-held back profit in the quarter, we remain confident that we are well-positioned to deliver sustainable, profitable growth going forward."

Now what 

Looking ahead, Kraft Heinz did not offer specific guidance, but said it expected organic top-line growth for the full year and for it to continue into 2019. CFO David Knopf also said bottom line growth would recover, adding, "We also expect a much better balance of top and bottom line growth going forward," and blamed the latest challenges and transitory issues. 

Kraft Heinz shares are now down 35% over the last year. Though Knopf's projection should offer some encouragement to investors, there's no question that packaged-food companies are facing challenges from changing consumer tastes. A recovery in profit growth may come but it won't be easy.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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