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Why Kraft Heinz's Plans and Outlook Have Its Shares Trading Higher

By Rhian Hunt - Updated Sep 15, 2020 at 1:10PM

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Investors started bidding its stock up before hours following its update.

After releasing a fresh outlook and strategic transformation plan, food and beverage giant Kraft Heinz (KHC 0.95%) saw its stock trade more than 2% higher before hours today, an upward trend that continued once markets opened. The press release was issued ahead of the company's third-quarter 2020 earnings release and conference call, scheduled for late October.

Among the savory details, Kraft Heinz says it's now confident enough in its rebound to provide "long-term growth targets." It is now forecasting earnings per share (EPS) growth of 4% to 6%, along with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) growth of 2% to 3%, and 1% to 2% organic net sales increases.

A shopper putting a bottle of ketchup into their shopping basket.

Image source: Getty Images.

CEO Miguel Patricio says the new growth outlook is based on the fact that "business momentum is stronger than expected." The company has undertaken a strategic review, saying it has developed a new, more efficient operating model, which includes a 30% boost to advertising expenditure.

To rationalize and streamline its administration, it is reducing its previous 55 product categories to just six "consumer platforms," such as "snacking" and "hydration." Kraft Heinz also says it's rebuilding its supply chain and processes using both data analytics and new technology. The result is expected to be $2 billion in "efficiencies" savings, which will give the company more liquidity for growth investment. It also anticipates cutting its "net leverage to approximately 4x by the end of 2020."

Kraft Heinz's recent performance appears to lend some support to its optimistic claims, with its second-quarter organic sales blasting 7.4% higher. However, some analysts question whether the strategic turnaround will succeed or if the company is simply riding high on temporary COVID-19 profits

Rhian Hunt 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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