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Why Kraft Heinz Stock Jumped 23% Last Month

By Jeremy Bowman - Updated May 4, 2020 at 10:11PM

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Shares of the packaged food company rose on strong first-quarter sales growth.

What happened

Shares of Kraft Heinz (KHC -2.41%) moved higher last month as the company benefited from stay-at-home orders, which led to a surge in demand, as a result of the COVID-19 pandemic. And the packaged food giant's stock gained as the broader market bounced back as the worst fears about the coronavirus faded.

According to data from S&P Global Market Intelligence, the stock finished the month up 23%. As you can see from the chart below, shares moved steadily higher over the course of the month, outpacing the S&P 500.

^SPX Chart

^SPX data by YCharts.

So what

Kraft Heinz stock climbed nearly 3% on April 7 after the company shared an upbeat business update with investors. Management said that demand had surged during the pandemic, driving overall sales up 3% in the first quarter, and organic sales -- which strip out the impact of divestitures, acquisitions, and currency exchange -- up 6%. That compares with previous guidance calling for a low-single-digit decline in organic sales.

The Oscar Mayer Weinermobile.

Image source: Kraft Heinz.

Nonetheless, the company said the full benefit of those incremental sales would not flow through to the bottom line due to additional expenses to meet the increase in demand. Kraft mac and cheese was among the products seeing sales surge as restaurants shut down and consumers reached for comfort food.

On April 16, the stock moved higher on an upgrade from Wells Fargo as analyst John Baumgartner lifted his rating from equal weight to overweight and raised his price target from $28 to $38. Baumgartner said Kraft Heinz's product line was more on-trend than critics think as many of its brands are popular with high-income households and millennials.  

Finally, Kraft Heinz stock edged lower on April 30 after it reported first-quarter earnings. As expected, revenue rose 3.3% in the quarter and organic sales were up 6.2%. Adjusted EBITDA still fell 1.1%, due in part to a divestiture and currency headwinds, and adjusted earnings per share declined from $0.66 to $0.58 due to lower other income, a higher tax rate, and a change in equity compensation expenses. On an organic basis, profits would have been higher.

Now what

In its outlook, management noted the uncertainty in the current environment, but forecast organic sales growth of low-to-mid-single digit and adjusted EBITDA growth in the mid-single digits, a sign that the COVID-related tailwinds are expected to continue. Though the current sales bump won't last forever, Kraft Heinz has become a surprisingly safe stock during the crisis after years of mismanagement and disappointing results.

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Kraft Heinz Intermediate Corporation II Stock Quote
Kraft Heinz Intermediate Corporation II
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