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Stock Market News: Cronos Gets Whipsawed; Kraft Heinz Takes Big Charges

By Dan Caplinger – Aug 8, 2019 at 11:47AM

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The broader stock market was higher on Thursday morning.

Thursday morning saw some solid gains for the stock market, as investors were a bit more upbeat about the prospects for the U.S. economy to escape the recessionary fears that have arisen lately. Macroeconomic machinations in the currency markets are getting a lot of attention, but the doomsday scenarios that have gotten discussed more frequently in recent days appear far less likely. As of 11:30 a.m. EDT, the Dow Jones Industrial Average (^DJI -1.54%) was up 217 points to 26,224. The S&P 500 (^GSPC -2.11%) picked up 36 points to 2,920, and the Nasdaq Composite (^IXIC -2.84%) rose 120 points to 7,983.

Earnings remain center stage in assessing individual stocks, and in some cases, reactions from shareholders can be unpredictable. Cronos Group (CRON -5.18%) saw its stock fluctuate wildly in both directions after it released its second-quarter financial report, but for Kraft Heinz (KHC -0.18%), the news was all negative as investors wrestle with whether the food giant can regain its former glory.

Cronos Group goes through highs, lows after earnings

Shares of Cronos Group were down 4% after the Canadian cannabis company reported its second-quarter financial results. The move lower came after the stock had jumped as much as 8% in pre-market trading Thursday morning.

Cronos Group logo with green letter O.

Image source: Cronos Group.

At first glance, Cronos Group's financials looked solid. Revenue tripled from year-ago levels to 10.2 million Canadian dollars, and unit sales volume jumped to 1,584 kilos. Net income soared to CA$251 million, even though that was due solely to a massive revaluation on Cronos' derivative liabilities, as its weaker stock price cut the value of warrants that major shareholder Altria Group owns.

Yet on reflection, investors seemed nervous about all the things that Cronos is juggling. The company opened its Cronos Device Labs global research and development center in Israel, acquired a new fermentation facility, and looked to take advantage of hemp opportunities in the U.S. by acquiring CBD assets from Redwood Holding. Combined with partnerships with Altria and Gingko Bioworks, Cronos has a lot of irons in the fire right now.

Cronos has been volatile over the past year, and its stock has seen an extensive pullback since the early part of 2019. To regain its momentum, it'll have to post strong financials on an operating basis, and that'll take time for the cannabis cultivator to accomplish.

Kraft Heinz can't satisfy investors

Shares of Kraft Heinz slumped 15%, hitting their lowest levels since the two companies merged back in 2015. The food giant disappointed investors with its first-half performance, and the future doesn't look bright for the company after it had to take massive impairment charges.

Fundamentally, Kraft Heinz just isn't executing the way investors want to see. Preliminary results showed a 4.8% drop in revenue for the first half of 2019 compared to the year-earlier period, and net income got cut in half. Even on an adjusted basis, earnings per share fell 24% from year-ago levels, as Kraft Heinz encountered difficult promotional conditions in North America and had to cut prices on certain products to reflect lower U.S. commodity costs.

Moreover, an accounting investigation forced Kraft Heinz to revalue its goodwill and other intangible assets. Writedowns in the two areas added up to $1.22 billion, due largely to the need to use new operating forecasts for key international markets in making predictions over the next five years.

Kraft Heinz has been hard-pressed to deliver good news in any part of its business lately, and investors are losing patience with the food company. With the stock having lost more than half its value in less than a year's time, time's running out for Kraft Heinz to mount a full recovery.

Dan Caplinger 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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Stocks Mentioned

The Kraft Heinz Company Stock Quote
The Kraft Heinz Company
KHC
$33.56 (-0.18%) $0.06
Cronos Group Stock Quote
Cronos Group
CRON
$2.93 (-5.18%) $0.16
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$29,225.61 (-1.54%) $-458.13
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,640.47 (-2.11%) $-78.57
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$10,737.51 (-2.84%) $-314.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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