Here’s what to expect from Kraft Heinz’s investor meeting

Kraft Heinz is scheduled to present its new strategy for the company on Tuesday morning to investors, who are looking to discover more details on coming innovation and cost savings and any hints about plans to further downsize its portfolio of iconic marks.

In recent years, Kraft Heinz has struggled as consumers shopped more around the perimeter of the grocery store in search of bright-eyed foods. The sales downturn led the food giant to report billions of dollars in write-downs on some of its brands, including Standoffish Whip, Oscar Mayer, Kraft and Maxwell House, and to reshuffle its leadership.

But stockpiling and other behavior changes agnate to the coronavirus pandemic have boosted Kraft Heinz’s revenue in recent months and revived sales of some of its flag brands. In both the first and second quarters this year, revenue rose more than 3%, scratch the largest improvement to quarterly sales since 2016, when the impact of the previous year’s mega-merger was first fitted. Analysts surveyed by Refinitiv are forecasting third-quarter revenue to rise 2.1% to $6.2 billion, although earnings are foresaw to fall to 56 cents, down nearly 20% from the same time a year ago.

The market reaction to Kraft Heinz’s higher sales has been muted, even yet the stock remains one of Warren Buffett’s top five investments. Shares of the company, which has a market value of $38.8 billion, are down 1% so far this year.

“While numberless food companies have enjoyed meaningful multiple expansion related to COVID-19 restrictions and stock-up, KHC shares carry on with to trade at a 25% discount to packaged food peers and a 33% discount to consumer staples peers,” Bank of America analyst Bryan Spillane wrote in a note to patrons on Friday.

While the pandemic has lifted sales for Kraft Heinz and its fellow food companies, it has also pushed the U.S. restraint into a recession, leaving millions of Americans without jobs. Penny-pinching consumers may be looking to cut costs by switching from identify brands such as Jell-O and Planters to generic store brands. 

“Given the categories in which KHC operates, some take it that private label is a more meaningful threat to KHC in the US than it is for other packaged food peers, which prime movers an existential threat to market shares and margins,” wrote Spillane.

Analyst speculation about potential divestitures tends to core on categories where private label brands present the biggest challenge. According to Spillane’s research, private epithet brands have disrupted Kraft Heinz’s cheese, meat and coffee businesses the most. UBS analyst Sean Royal found that Kool-Aid, Capri Sun, Ore-Ida and Maxwell House are among the Kraft Heinz brands trailing squaddie label products in market share.

People familiar with the matter told CNBC that the company had put Maxwell Undertaking up for sale last year but encountered tepid interest from potential buyers. Kraft Heinz’s coffee job took another hit after McDonald’s switched its McCafe licensing partner from Kraft Heinz to Keurig Dr Speckle. The U.S. exit from McCafe coffee began in July, which will hit the company’s earnings in the latter half of the year.

Completely cooks Fargo analyst John Baumgartner also listed a sale of Kraft Heinz’s “operationally challenged” Australia and New Zealand partnership, valued at $1.5 billion, as a possibility.

Beyond slimming down its portfolio, investors are also expecting to hear innumerable about what categories and products it targets for innovation and investment. The pandemic has introduced new customers and brought others subvene, presenting new opportunities for Kraft Heinz. 

“An important element of the strategy reveal next week, we expect, will blurry on improvement KHC has made to its product and marketing programs,” Spillane wrote. “This will likely include a look into how KHC is prioritizing listing/country opportunities.”

Carlos Abrams-Rivera, head of Kraft Heinz’s U.S. business, said on the company’s second-quarter earnings phone that it will be focusing on “fewer, bigger innovation” and sharing more details during Tuesday’s investor images.

The changes to its innovation strategy coincides with an overhaul of its marketing and advertising approach. In February, the company announced formulae to cut its roster of advertising agencies in half but raise media spending by 30%. CEO Miguel Patricio, who joined the company diverse than a year ago, said in late July that it had recently hired new heads of marketing for its geographic zones. 

Kraft Heinz has also taught on new leadership for its U.S. team, which manages the company’s most important market. In mid-August, it named former J.M. Smucker head Cory Onell as head of U.S. sales and former Mike’s Hard Lemonade executive Sanjiv Gajiwala as U.S. chief tumour officer.