Kraft Heinz Co. shares sank nearly 10 percent Friday, a day after reporting earnings that missed Wall Street expectations.
On Thursday Kraft Heinz reported third-quarter profit of $630 million. The company, co-headquartered in Chicago and Pittsburgh, said it had profit of 51 cents per share. Earnings, adjusted for asset impairment costs and nonrecurring costs, were 78 cents per share.
The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of 81 cents per share.
Analysts who cover the company focused on management’s comment that higher investment spending in the third quarter was largely one-time in nature. Those bullish on the stock were buying it, while those with lesser ratings preferred to make Kraft prove itself. Another concern raised by some analysts is that a lower stock price could make major mergers and acquisitions more difficult.
While the company, which makes Oscar Mayer meats, Jell-O pudding and Velveeta cheese, pointed to one-time items as the driving force behind the weak third-quarter profit, Dara Mohsenian of Morgan Stanley kept a cautious outlook and warned of “a litany of guidance misses in the food sector recently.”
Mohsenian called 3.5 percent volume growth “encouraging,” but said he’s worried that the cost of growth will “remain higher than the market expects,” with heavy investment spending and prices kept low to maintain sales momentum.
Jason English of Goldman Sachs noted “delayed productivity initiatives and supply chain transition challenges in the Middle East.” He said Kraft’s profits are being pinched “as its best-in-class margin profile falls closer to the industry average.”
Pablo Zuanic of Susquehanna downgraded his rating on Kraft’s stock to negative. “The increased spending after two years of steep cost cuts may be mostly about catching up,” he said.
Kraft Heinz is valued “at the bottom of the large-cap food group given the nature of the portfolio, and shaken confidence in management,” he wrote in a research note.
On the other hand, David Palmer of RBC Capital said he expects “a sustainable turn” in Kraft’s results in the fourth quarter, with increases in both revenue and earnings. And Kenneth Shea of Bloomberg Intelligence predicted “modest growth into 2019.”
Shares of Kraft Heinz fell $5.47 to close at $50.73 on Friday.
The Associated Press contributed.
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