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James Li
James Li
Articles (898)  | Author's Website |

2 Companies With Higher Profitability Than Kraft Heinz

Consumer packaged goods companies that have thrived while Kraft languishes near all-time low

September 19, 2019 | About:

In light of The Kraft Heinz Co. (NASDAQ:KHC), a major holding of Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B), remaining near its all-time low, two consumer packaged goods companies that have high profitability, expanding margins and a six-month return higher than that of the Standard & Poor’s 500 Index according to the All-in-One Screener are Lamb Weston Holdings Inc. (NYSE:LW) and McCormick & Co. Inc. (NYSE:MKC).

Kraft Heinz remains near all-time low

Shares of Kraft Heinz traded at an intraday low of $28.15 on Thursday, down 5.25% from the five-day high of $29.71 set on Monday. The worst-performing stock of 2019, Kraft is down over 34% for the year on several disappointing events, including a dividend cut and the postponement of its first-quarter and second-quarter filings in light of its Securities and Exchange Commission subpoena regarding impairment asset controls.

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The Pittsburgh-based company said on Wednesday that Tracy Britt Cool, who is also leaving Berkshire to start her own firm according to CNBC, is resigning from Kraft’s board of directors in first-quarter 2020. Berkshire will nominate a replacement, reflecting the conglomerate’s ongoing commitment to Kraft.

Industry still offers good potential, but invest only in margin-expanding companies

According to the Screener’s backtesting feature, consumer packaged goods companies with a profitability rank of at least 7 out of 10 and a five-year operating margin growth rate of at least 1% returned 26.63% year to date, outperforming S&P 500's return of 20.48%.

Lamb Weston

Lamb Weston produces, distributes and markets value-added frozen potato products. The Eagle, Idaho-based company operates four business segments: Global, Foodservice, Retail and Other. According to Screener data, the company has outperformed the S&P 500 by approximately 0.98% over the past six months.

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GuruFocus ranks Lamb Weston’s profitability 8 out of 10 on several positive investing signs, which include a strong Piotroski F-score of 7 and a return on assets that outperforms 89.25% of global competitors.

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Lamb Weston’s operating margin of 17.79% is near a 10-year high and outperforms 85.57% of global competitors. Margins have increased approximately 7.90% per year on average over the past five years, higher than Kraft’s five-year operating margin growth rate of 5.80%.

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Gurus with large holdings of Lamb Weston include Pioneer Investments (Trades, Portfolio) and 2019 Value Conference speaker Mario Gabelli (Trades, Portfolio).

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McCormick

Hunt Valley, Maryland-based McCormick manufactures and markets spices, herbs, extracts and seasonings through brands like Old Bay, Zatarain’s and Thai Kitchen. GuruFocus ranks the company’s profitability 7 out of 10: Operating margins are expanding and outperforming over 85% of global competitors despite a three-year revenue growth that underperforms 50.15% of global peers. According to the Screener results, McCormick has outperformed the S&P 500 by approximately 8.89% over the past six months.

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Gurus with large holdings of McCormick include George Soros (Trades, Portfolio)’ Soros Asset Management and Joel Greenblatt (Trades, Portfolio).

Disclosure: No positions.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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