Kraft’s strong Q3 has management optimistic on near-term performance

Written by: Jayson Derrick
October 30, 2020
  • Kraft Heinz reported a top-and-bottom line beat in its third quarter results.
  • Management offered an upbeat outlook for the fourth quarter and 2020.
  • The company noted it is attracting and retaining customers at a "greater rate than before."

Global food giant Kraft Heinz Co (NASDAQ: KHC) reported Thursday morning third quarter results that prompted management to revise its outlook higher.

Q3 results

Kraft said it earned 70 cents per share in the third quarter on revenue of $6.44 billion. Both numbers were better than the 62 cents per share and $6.31 billion that analysts were expecting. Other key metrics from the report include Adjusted EBITDA rising from $1.469 billion last year to $1.667 billion, and year-to-date net cash provided by operating activities rose 67% to $3.3 billion.

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Comparable sales were also up by 6.3% in the quarter as grocery store sales accelerated in the back half of September amid rising COVID-19 infection rates in many parts of the U.S.

Net sales were higher by 7.4% in the U.S. and 3.9% in the international market while sales in Canada fell 2.2%. Total company-wide sales were higher by 6.0% in the quarter.

Organic net sales rose 6.3% despite a negative 1.2 percentage point negative impact from the end of a McDonald’s licensing agreement. Pricing was higher by 3.7 percentage points and each business segment recorded positive pricing.

The company recorded strong growth across the retail channel, e-commerce, and club stores and this more than offset low sales in the foodservice category.

During the company’s post-earnings conference call, management attributed its strong performance to its ability to maintain new consumers “at a greater rate than before,” according to The Wall Street Journal.

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Strong outlook

Kraft’s strong third quarter reflects the company’s “agility we are creating as an organization” and warrants an upward lift to management’s prior guidance, Kraft Heinz CEO Miguel Patricio said in the earnings report. Management’s confident and optimistic view of the business is reflected as follows:

  • Mid-single-digit organic net sales growth in the fourth quarter.
  • High-single-digit constant currency adjusted EBITDA growth in the fourth quarter.
  • Mid-single-digit organic net sales growth for the full-year 2020.
  • High-single-digit constant currency Adjusted EBITDA growth for 2020.

Preparing for the future

The COVID-19 pandemic’s path remains as unclear as ever with some hopeful a vaccine and new medications can drastically help turn the tide. But Kraft isn’t sitting back and hoping for the best as it remains active in helping retailers prepare for a potential unprecedented holiday season rush.

Kraft is also adding factory capacity and adjusted manufacturing lines to focus on high-demand items, according to WSJ. The company is also prioritizing marketing campaigns on products that have plenty of supply, such as box Kraft macaroni and cheese instead of single-serve microwavable cups that aren’t as easy to find.