Management at Kraft Heinz (NASDAQ: KHC) has done a lot of hard work to improve its financial position. That’s the good news, and investors should be pleased with what has been achieved. However, recent earnings results highlight that there’s still a lot of work to be done in other areas of the business. Here’s a look at some of the good and the bad facing its shareholders.
Kraft Heinz is a consumer staples giant with a stable of iconic food brands found in grocery stores around the world. It is large and financially strong enough to support those brands with the innovation and advertising they need to compete effectively. It also has a strong distribution network to ensure that its products get onto store shelves quickly and easily. It is a valuable partner to a global list of retailers.
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The company took on a lot of debt when Kraft and Heinz combined to create Kraft Heinz. That was a notable problem, but management has been working hard to get its balance sheet back in fighting shape. In just the past five years, the company’s ratio of debt to earnings before interest, taxes, depreciation and amortization (EBITDA) has gone from a peak of more than 12 times to a more recent figure of roughly 5.
And then there’s the stock’s lofty dividend yield. At 4.7%, it is well above that of the market (around 1.2%) and above the average consumer staples company (roughly 2.6%). That is likely to make Kraft Heinz attractive to dividend investors looking to live off of the income their portfolios generate. However, you need to ask why the dividend is so high before you buy the stock.
There’s another interesting fact to consider related to the dividend. It has been stuck at the same $0.40 per share per quarter since 2020. So one factor to think about before buying this high-yield stock is that Kraft Heinz hasn’t been rewarding investors with dividend growth. To be fair, it has been working to reset its business, so this isn’t shocking. But that speaks to a bigger problem.
And that bigger problem is that the business reset isn’t working as well as hoped. As noted, the balance sheet is in a better place, so it isn’t like management is failing investors.
However, the current business plan is to focus around core brands that are expected to drive long-term growth. One number is all you need to understand the problem. The North American retail “accelerate” platforms (where management is focusing most of its efforts) saw organic sales decline 4.5% in the third quarter of 2024. This isn’t new; in the second quarter, organic sales for these brands fell 2.4%.
