Summary
The entire packaged goods sector has been struggling of late. Kraft Heinz has been no exception to the rule.
The firm has a reasonable organic pipeline and strong sales initiatives, but the headwinds facing the firm are very significant.
3G Capital's strategy of cutting the fat and improving profitability might be proving a little more challenging than originally expected, but it is the only way forward.
Good business, but a tough environment
Packaged goods companies have been struggling of late. Kraft Heinz's (NASDAQ:KHC) stock has dropped very significantly in the last 18 months and is down more than 30% from its all-time highs. The company faces a number of difficult challenges which will almost certainly make business more complicated going forward. Firstly, exactly like peers such as Campbell Soup (NYSE:CPB) (who it is rumoured to take over), Heinz is struggling to grow organically. The firm posted volume numbers which were down around 1% and has barely increased total sales in the last five years. There are certainly some line items which are experiencing minor growth, but as a whole, the portfolio is largely flat.
Heinz's management team has also reflected that they are beginning to feel some amount of inflation, which has forced them to raise prices on their products. Given that volumes are low and organic growth has slumped, this is not exactly an ideal situation for the firm. Here is what the management of Heinz had to say with regards to inflation:
