The shares of world's fifth largest packaged food and beverage company are flat so far this year while the consumer staples sector is sitting on a 7% gain and the S&P 500 Index is up just over 10%. Kraft Heinz Inc. (KHC) is making better-than-expected progress on its integration program to boost profit margins in the absence of sustainable sales growth drivers. But this significant performance difference is partially attributable to a 2.4% decline in revenue recorded by Kraft Heinz albeit sequential improvement during the second quarter 2017.
Despite top-line growth headwinds, Kraft Heinz is trading at a slightly higher forward price to earnings multiple of 22.7x as compared to the packaged foods industry forward multiple of 18.4x. Kraft Heinz is not the only cost cutter as several large packaged food and beverage players are slashing operational costs on some scale to boost profit margins. It means, apparently, the market is valuing Kraft Heinz at a premium for its next big acquisition move. Although another mega deal is critical for diversification and new synergies, the in progress initiatives will play a significant role in accelerating sustainable top-line growth.
