Kraft Heinz Earnings: Reigniting Growth to Take Priority; Split Shelved

Key Morningstar Metrics for Kraft Heinz Company

• Fair Value Estimate: $42.00
• Morningstar Rating: ★★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of Kraft Heinz Company’s Earnings

In an about-face, Kraft Heinz Company KHC scrapped its plans to split, and the firm is instead plowing another $600 million into its brands and capabilities. This news came alongside a 4.2% downdraft in fourth-quarter organic sales and a 130-basis-point erosion in adjusted gross margin to 33.1%.

Why it matters: We’d held that splitting was unlikely to address the core issues plaguing Kraft Heinz’s business—namely, an inability to profitably grow its top line. During his inaugural earnings call as CEO, Steve Cahillane gave credence to this stance.

• The incremental investment will be directed to research and development and advertising, as well as beefing up sales and marketing (including added personnel). This is notable, as a host of firms are slimming down, indicating the level of underinvestment that has hampered Kraft’s business.
• Like others, Kraft intends to alter price packs and lower opening price points to enhance its appeal to cash-constrained consumers. While promotions won’t lead to durable volume and market share gains, we see the prudence in these steps following rampant inflation-induced pricing.

The bottom line: With the split indefinitely paused, we value the firm using our discounted cash flow model rather than a sum-of-the-parts. Based on this, we’re cutting our fair value estimate to $42 per share from $51 for narrow-moat Kraft Heinz.

• The reduction stems from increased brand spending and an elongated path to low-single-digit sales growth. We forecast a 3% decline in fiscal 2026 sales, flat sales in 2027, and low-single-digit growth thereafter.
• Trading at a 40% discount, we think Kraft is a show-me story until its strategic course yields stabilization.

Between the lines: Where investments have already been targeted, Kraft Heinz is seeing gains. This includes its sauces line, where 70% of its mix is gaining share.

• We forecast Kraft to allocate 6%-7% of sales to research, development, and marketing annually over our forecast, up from 4%-5% historically.