Kraft Heinz cut at Piper Sandler on retail headwinds

Investing.com -- Piper Sandler downgraded Kraft Heinz (NASDAQ:KHC) to Neutral from Overweight on Tuesday, lowering the price target to $35 from $40, citing ongoing retail challenges that overshadow potential growth in its foodservice business.

The analysts highlighted that their original thesis, which relied on improving retail performance supported by foodservice growth, has not materialized and is unlikely to show meaningful progress for another two to three quarters.

Piper Sandler emphasized the importance of “visibility and confidence in better US retail momentum” before considering a more favorable outlook. However, they acknowledged that "with the stock at 52 week lows, our timing may prove wrong."

The firm adds that lunchables, a key brand in Kraft Heinz’s portfolio, has faced significant pressure. Since mid-April, U.S. measured retail sales for the brand have declined by an average of 15%.

They note that challenges include increased competition from Walmart’s private-label offerings and negative publicity from Consumer Reports, which highlighted concerns about lead and cadmium in some products.

Additionally, Piper Sandler says ingredient shortages for a major Lunchables SKU have created a further headwind, and the product’s removal from the National School Lunch Program due to soft demand has exacerbated the situation. Analysts do not anticipate a recovery for the brand until mid-2025.

Retail momentum for Kraft Heinz remains weak. Piper Sandler reported that U.S. measured retail volumes declined 3.6% in the latest four weeks, with retail sales down 3.7% in the fourth quarter to date through November 3.

While Kraft Heinz has made progress in foodservice with innovations such as custom sauce dispensers and front-of-house sauce taps, the firm says these efforts are not enough to offset the ongoing challenges in retail.