Kraft Heinz: Earnings Reset, Rebuild Ahead

We initiate on KHC at Hold with a $27 PT. Kraft Heinz is a manufacturer and marketer of iconic

packaged foods and beverages sold through the retail grocery, convenience, and foodservice channels in North America, Europe, and internationally. What makes this moment matter is the gap widening between market expectations and near-term earnings power in an industry we see structurally evolving slow as well-telegraphed cost/tax headwinds meet an industry structurally evolving slow. Where we view consensus expectations building further MSD% EPS growth, our decks suggest a material FY25 contraction underpinned by a 500bps reversion in tax rate and incremental COGS drag from tariffs. This sees EBIT/EPS re-point lower to $1.90/$1.95 in FY25/26 from current Street ests at $2.67. In other words, this sets up the “step down, then build” cadence, compounded by the necessity for a near-term dilutive investment phase to stabilize brand health through marketing intensification and renovation. With marketing spend at 4.8% of sales and margin recapture not until at least FY26, the backdrop is less-than-ideal for a fundamental re-rating to historical averages. However, the KHC’s discipline capital returns and balance sheet optionality (6% dividend yield and manageable leverage) support our 14.0x PE target, a modest premium to the current sub-peer valuation, not a full mean reversion. While we acknowledge a re-rate could happen given a strong comeback in either price or volume, we caution against the “cheap-for-a-reason” trap with topline/margin uncertainty persisting. In the interim, risk/reward remains finely balanced.

## Margins Buckling Underweight