Will Weak Sales Hurt Kraft Heinz's (KHC) Earnings In Q1?

The Kraft Heinz Company (NASDAQ:KHC) will report first-quarter 2018 results on May 2, after market close.

Top-line weakness in the past several quarters has been marring Kraft Heinz’s prospects. In 2017, net sales declined 1.1% year over year primarily due to soft consumer demand in the United States and Canada. The dismal scenario is not expected to see a turnaround in the to-be-reported quarter. Kraft Heinz’s sales are expected to witness negligible growth (0.1%) in the first quarter of 2018, per the Zacks Consensus Estimate.

Increased retail competition in developed markets, distribution losses for Planters in the club channel leading to lower volumes in United States, Ore-Ida supply deficits as well as the impact of some pricing actions and trade spend timing will inhibit top-line growth in the to-be-reported quarter.

Its flagship United States segment, accounting for more than 70% of its total net sales, requires sustained improvement in sales for the company to regain its position. The Zacks Consensus Estimate for the segment’s revenues of $4.4 billion reflects 2.9% decline on a year-over-year basis.

Again, lower retail inventory and lower promotion activity in Canada will hold back organic growth potential in the quarter to be reported. Segment’s revenues of $462 million reflect 4.3% fall for the first quarter, per the Zacks Consensus Estimate.

Meanwhile, Rest of World (Asia Pacific, Latin America and India, the Middle East and Africa) segment revenues of $837 million are likely to witness 1.3% growth. Meanwhile, consensus estimate for Europe segment revenues of $650 million indicates an increase from $543 million a year ago.

Increased Investments to Hurt Margins

In order to boost demand, the company is consistently investing in building go-to-market capabilities, e-commerce and digital investments in selected markets, leveraging distribution and whitespace gains in developing markets, launching a strong pipeline of “Big Bet” products innovation. These initiatives are likely to pressurize margins in the to-be-reported quarter.

Earnings to Decline

Dismal revenue growth and increased costs owing to various investments undertaken will likely translate into lower earnings. The Zacks Consensus Estimate for earnings is pegged at 82 cents, reflecting a 2.4% year-over-year fall. The expected decline in earnings indicates the fact that cost-savings and productivity-improvement initiatives will not be able to provide impetus to earnings in the to-be-reported quarter.

Also, our quantitative model predicts earnings miss for Kraft Heinz in the first quarter.

Kraft Heinz does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — which is required to be confident of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for Kraft Heinz is -0.20%.

Zacks Rank: Kraft Heinz carries a Zacks Rank #3, which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Meanwhile, in the last reported quarter, this packaged food manufacturer’s earnings missed the Zacks Consensus Estimate. Overall, the company surpassed the consensus mark in only one of the last four quarters, the average being a negative surprise 1.34%.

The Kraft Heinz Company Price and EPS Surprise

Peer Release

The Coca-Cola Company (NYSE:KO) started off 2018 on a strong note, beating the Zacks Consensus Estimate for both the counts in first-quarter 2018.

Upcoming Peer Releases

Mondel??z International, Inc. (NASDAQ:MDLZ) is scheduled to report quarterly results on May 1.

Monster Beverage Corp. (NASDAQ:MNST) is expected to report quarterly results on May 3.

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