A Look at Kraft Heinz

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Still a little pricey from the famed value investor’s investment price

As of this writing (8:00 AM CST, 3/3/2018), Kraft Heinz has its share price at $67.17. This is 13.8% down since the year has started, and investors may have become wary.

More importantly, the $82 billion food and beverage company came out with its full year results in February.

In 2017, Kraft Heinz reported -0.1% change in its overall sales and an outstanding 220% rise in profits secondary to cost cutting and some $5 billion addition from adjustments brought by recent corporate tax rule change.

In its report, the company experienced decline in both its US and Canada sales (~78% of sales) while generating growth in other areas of the world.

“There’s no question that our financial performance in 2017 did not reflect our progress or potential.

“We made significant improvements in many of our businesses, and were able to accelerate some important business investments at the end of the year. This, together with benefits from the U.S. Tax Cuts and Jobs Act and additional investments in our capabilities, should help further advantage our brands and grow our business in 2018 and beyond.”

Kraft Heinz CEO Bernardo Hees

“Since the HR-1 Tax Cuts and Jobs Act was signed into law, we have already taken actions and are accelerating key business initiatives.

“This includes approximately $300 million in strategic investments to build our capabilities, our people skills and our brands; more than $800 million in capital expenditures to improve quality, safety and capacity; as well as $1.3 billion to pre-fund our post-retirement benefit plans.”

Kraft Heinz CFO David Knopf

Kraft Heinz also ended the year with a book value of $66.2 billion (+$8.6 billion from last year) and having a debt-equity ratio of 0.47x.

In the past three years, Kraft Heinz raised $1.3 billion in financing activities (net debt repayments), and generated $5.1 billion in cumulative free cash.

Analysts have an estimated $82.86/share target price. While this blog’s estimation ended up with a value of $97.92/share.

Kraft Heinz can also be safely assumed to be part of the watchlists of most Buffett followers. In Buffett’s recent annual report, the famed value investor placed a GAAP figure of $17.6 billion on his investment in the company.

Nonetheless, current market price is still above Buffett’s estimated original investment at about $54/share. With significant purchasing power, ~$116 billion, Buffett’s Berkshire had as of last year. Seeing Buffett acquiring Kraft Heinz entirety may not be just as wild as an idea.

Disclosure: Invested in Berkshire Hathaway class B.

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