Kraft Heinz Downgraded by Piper Sandler

Investing.com — Piper Sandler downgraded Kraft Heinz (NASDAQ: KHC) to Neutral from Overweight on Tuesday, lowering the price target to $35 from $40. The downgrade was prompted by ongoing retail challenges that overshadow potential growth in the company's foodservice business.

The analysts indicated that their initial expectation, which depended on improved retail performance alongside foodservice growth, has not come to fruition and is unlikely to show significant progress for another two to three quarters.

Piper Sandler stressed the need for “visibility and confidence in better US retail momentum” before considering a more optimistic forecast. They also noted that, “with the stock at 52-week lows, our timing may prove wrong.”

Furthermore, they pointed out that Lunchables, a significant brand in Kraft Heinz's portfolio, has been under considerable pressure. U.S. measured retail sales for Lunchables have dropped by an average of 15% since mid-April.

The challenges cited include increased competition from Walmart’s private-label products and negative media coverage from Consumer Reports, which raised concerns over lead and cadmium in some offerings.

Moreover, they mentioned ingredient shortages affecting a major Lunchables SKU and the product's recent removal from the National School Lunch Program due to declining demand, which compounds the issues. Analysts do not expect a recovery for the brand until mid-2025.

Overall, retail performance for Kraft Heinz continues to be weak, with Piper Sandler reporting a 3.6% decline in U.S. measured retail volumes over the latest four weeks and a 3.7% decrease in retail sales in the fourth quarter to date through November 3.

While Kraft Heinz has made some advancements in the foodservice sector through innovations like custom sauce dispensers and front-of-house sauce taps, the firm believes that these initiatives are insufficient to counteract the persistent retail challenges.