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Kraft Heinz: Even With a Pending C-Suite Switch, Strategic Sea Change Unlikely; Shares Attractive

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The Kraft Heinz Co

After nearly five years at the helm, no-moat Kraft Heinz KHC announced CEO Miguel Patricio will step down in January, with Carlos Abrams-Rivera—who joined the firm in 2020 and currently serves as executive vice president and president of North America—poised to take the reins. Patricio will continue to serve as executive chairman to ensure a smooth transition. Abrams-Rivera boasts an extensive career in the consumer packaged goods industry, with time spent at wide-moats Campbell Soup and Mondelez, and strikes us as a sound fit for the role. And because he has been intimately involved in scripting and executing the firm’s strategic playbook (anchored in upping the ante on brand spending and bolstering its category management and e-commerce capabilities), we don’t expect Kraft Heinz will veer off its current course under his watch. Our Standard capital allocation rating remains in place.

Even against macro upheaval, the strides made since Patricio took the helm are quite noteworthy. Kraft Heinz proactively enhanced its financial flexibility, with net debt/EBITDA hovering in the low-3 times range, down from north of 4 times in 2019. We believe this affords the firm the ability to reinvest in its operations and selectively pursue acquisitions while bolstering shareholder returns, embodied by our forecast for mid-single-digit percentage increases in its dividend each year beginning in fiscal 2023, implying a payout ratio of 50%-60%. He has instilled enhanced operational agility in aligning its mix with evolving consumer trends that we think should unlock modest low-single-digit sales growth while holding margins. The success of these efforts is evident in organic sales that are running more than 5% above prepandemic levels.

At around a 35% discount to our $53 fair value estimate (and a nearly 4% dividend yield), we think investors would be wise to stock up on the name.

(Aug. 15, 2023): This note has been updated to correct the discount to our fair value estimate to 35%.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Erin Lash

Sector Director
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Erin Lash, CFA, is director of consumer sector equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. In addition to leading the sector team, Lash covers packaged food and household and personal care companies.

Before joining Morningstar in 2006, she spent four years as an investment analyst covering retail, transportation, and technology firms for State Farm Insurance.

Lash holds a bachelor’s degree in finance from Bradley University and a master’s degree in business administration, with concentrations in accounting and finance, from the University of Chicago Booth School of Business. She also holds the Chartered Financial Analyst® designation. She ranked second in the food and tobacco industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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