Deutsche Bank Downgrades Kraft Heinz

Deutsche Bank has downgraded Kraft Heinz (NASDAQ:KHC) from a Buy to a Hold rating following the company's Q3 2024 results, adjusting the price target from $39 to $35.

Key Points

• Reduced Growth and Profitability: Analysts cited reduced growth and profitability assumptions for FY25 and beyond, indicating a protracted timeline for meaningful improvements.
• Q3 Results: Kraft Heinz's third-quarter results aligned with expectations; however, the company lowered its FY24 forecast to the lower end of prior projections, revealing ongoing pressure.
• Lunchables Brand Recovery: Management noted a slow recovery for the Lunchables brand due to supplier challenges and rising inflation in coffee and dairy, problems expected to continue into 2025.
• Challenging Retail Environment: Deutsche Bank suggests that 2025 may not be an “on-algorithm” year for Kraft Heinz, highlighting difficulties in the U.S. retail market.
• Operational Missteps: The bank mentioned multiple top-line and supply chain execution errors that undermine confidence in the company's long-term goals.
• Emerging Markets Potential: Despite these challenges, there are promising signs from emerging markets and away-from-home channels; still, the risk of new operational issues remains significant.
• Investment Concerns: The bank warns Kraft Heinz may reduce planned investments to maintain profits, potentially hindering long-term growth.
• Outlook: Deutsche Bank awaits more definitive signs of consistent improvement before reassessing the stock rating.