Long-established in the Consumer Packaged Goods industry, The Kraft Heinz Co (KHC, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 1.6%, juxtaposed with a three-month change of 1.34%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of The Kraft Heinz Co.
What Is the GF Score?
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 5/10
- Profitability rank: 6/10
- Growth rank: 2/10
- GF Value rank: 9/10
- Momentum rank: 1/10
Based on the above method, GuruFocus assigned The Kraft Heinz Co the GF Score of 62 out of 100, which signals poor future outperformance potential.
Understanding The Kraft Heinz Co Business
In July 2015, Kraft merged with Heinz to create one of North America's largest food and beverage manufacturers. Beyond its namesake brands, the combined firm's portfolio includes Oscar Mayer, Velveeta, and Philadelphia. While the retail channel drives around 85% of its total sales, the firm also maintains a growing foodservice presence. Outside North America, Kraft Heinz's global reach counts a distribution network in Europe and emerging markets that drives nearly 25% of its consolidated sales base, as its products are sold in more than 190 countries and territories.
Financial Strength Breakdown
The Kraft Heinz Co's financial strength indicators present some concerning insights about the company's balance sheet health. The company's Altman Z-Score is just 0.96, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.07 indicates a struggle in handling existing debt levels.
Additionally, the company's debt-to-Ebitda ratio is 7.32, which is above Joel Tillinghast's warning level of 4 and is worse than 86.37% of 1,489 companies in the Consumer Packaged Goods industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Growth Prospects
A lack of significant growth is another area where The Kraft Heinz Co seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by 0 per year over the past three years, which underperforms worse than 0% of 1,754 companies in the Consumer Packaged Goods industry. Stagnating revenues may pose concerns in a fast-evolving market.
Over the past five years, The Kraft Heinz Co has witnessed a decline in its earnings before interest, taxes, depreciation, and amortization (EBITDA). The three-year growth rate is recorded at -16.3, while the five-year growth rate is at -4.4. These figures underscore potential challenges in the company's profitability. Lastly, The Kraft Heinz Co predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
The Kraft Heinz Co's financial strength, profitability, and growth metrics, as highlighted by the GF Score, indicate potential underperformance. The company's low financial strength and growth ranks, coupled with its high debt levels and declining revenue, suggest that it may struggle to maintain its historical performance. Investors should carefully consider these factors when evaluating the company's future prospects. For those seeking companies with strong GF Scores, GuruFocus Premium members can find more options using the following screener link: GF Score Screen.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
