Kraft Heinz Whiffs on Its Earnings

Kraft Heinz Co (Nasdaq: KHC) stock slid more than 4 percent Friday after the food giant reported a fourth-quarter earnings miss driven by a persistently weak North American environment.

Kraft Keinz reported adjusted earnings per share of 90 cents on revenue of $6.88 billion. Both numbers fell short of consensus analyst estimates of 95 cents and $6.92 billion, respectively.

The U.S. business was particularly weak in the quarter. Kraft Heinz reported U.S. sales declined 1.1 percent to $4.79 billion, short of analyst expectations of $4.81 billion. Fewer shipments of nuts, natural cheese and cold cuts contributed to the company’s seventh consecutive quarter of revenue declines in the U.S. market. On the positive side, the company reported strong sales growth for macaroni and cheese in the U.S. and a strong performance from condiments and sauces in Europe, China and Indonesia.

“There’s no question that our financial performance in 2017 did not reflect our progress or potential,” CEO Bernardo Hees said in a statement. “We made significant improvements in many of our businesses and were able to accelerate some important business investments at the end of the year.”

Since the U.S. tax reform law was enacted, Kraft Heinz said it has invested $300 million in improving its business capabilities, made $800 million in capital expenditures to improve its quality, capacity and safety and invested $1.3 billion in pre-funding its post-retirement benefit plans.

Investors may not have gotten the numbers they wanted from Kraft Keinz on Friday, but Bank of America analyst Bryan Spillane says long-term investors shouldn’t hesitate to buy the stock on the weakness.

“Our buy rating is based on our view that KHC has better than average underlying fundamentals and the potential for value-added strategic actions,” Spillane says.

In the fourth quarter, Kraft Heinz reported gross margins of 37.9 percent, missing Bank of America’s estimate of 40 percent. However, Spillane maintains his $100 price target for KHC stock, which represents a 25.6 forward earnings multiple based on Bank of America’s 2018 EPS estimate of $3.90.

“The multiple is…

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