BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F Annual Dividend Rate HOLD HOLD RATING SINCE 09/20/2017 BUSINESS DESCRIPTION The Kraft Heinz Company manufactures and markets food and beverage products in the United States, Canada, Europe, and internationally. Its products include condiments and sauces, cheese and dairy products, meals, meats, refreshment beverages, coffee, and other grocery products. Sector: Consumer Non-Discretionary Sub-Industry: Packaged Foods & Meats Source: S&P Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years 100 95 90 85 STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change -0.69-0.35 NA GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues 0.74-2.03 NA Net Income 12.11 18.21 NA EPS 11.59 40.78 NA RETURN ON EQUITY (%) Ind Avg S&P 500 Q3 2017 6.70 15.48 13.41 Q3 2016 4.84 15.68 11.79 Q3 2015 NA 12.67 12.91 Rating History HOLD BUY HOLD Volume in Millions 2016 2017 COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History 80 75 70 65 50 25 0 P/E COMPARISON RECOMMENDATION We rate () a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing nesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share and increase in net income. However, as a counter to these strengths, we also find nesses including a generally disappointing performance in the stock itself and operating cash flow. 25.35 27.77 Ind Avg 25.45 S&P 500 HIGHLIGHTS The revenue growth came in higher than the industry average of 12.6%. Since the same quarter one year prior, revenues slightly increased by 0.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share. EPS ANALYSIS¹ ($) Q3-0.27 Q4 0.23 Q1 0.73 Q2 0.63 Q3 0.69 Q4 0.77 Q1 0.73 Q2 0.94 Q3 0.77 has improved earnings per share by 11.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, turned its bottom line around by earning $2.82 versus -$0.04 in the prior year. This year, the market expects an improvement in earnings ($3.60 versus $2.82). The net income growth from the same quarter one year ago has exceeded that of the Food Products industry average, but is less than that of the S&P 500. The net income increased by 12.1% when compared to the same quarter one year prior, going from $842.00 million to $944.00 million. 2015 2016 NA = not available NM = not meaningful 2017 1 Compustat fiscal year convention is used for all fundamental data items. Net operating cash flow has significantly decreased to $194.00 million or 74.54% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower. In its most recent trading session, has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its earnings growth as well as other mixed factors. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock. PAGE 1
PEER GROUP ANALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) -10% 5% TSN UNFAVORABLE 10% HRL MKC EBITDA Margin (TTM) K MKC.V MDLZ GIS CAG CPB FAVORABLE HSY 32.5% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $13.4 Billion and. Companies with NA or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) MKC -10% 5% HSY UNFAVORABLE 3% K MKC.V MDLZ CAG Earnings Yield (TTM) HRL FAVORABLE GIS TSN CPB Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -9.1% and 4.2%. Companies with NA or NM values do not appear. 6% INDUSTRY ANALYSIS The US food products industry is dominated by a few multinational corporations like Mondelez International (MDLZ), General Mills (GIS), and Kellogg (K). The entire industry, from growing to processing, is extremely competitive and margins are typically so low that earning profit becomes a challenge. The worldwide processed food industry is facing low growth rates, high energy costs and continuously changing consumer preferences. Nonetheless, there are a few high growth segments, like health, frozen, and organic food. Globalization has led to the rise of massive multinational food processing companies, which sell their products under local names in local languages after producing them in regional factories. Taste, convenience and health continue to be the primary drivers of food choices. Growing popularity of ethnic food, including Greek, Latin, Asian, Korean, Cuban, and Japanese foods, is expected to drive demand. Increasing health concerns are impacting all sectors within the industry as obesity levels continue to rise to alarming rates. Various branches of the US government, including the Food and Drug Administration (FDA), along with a host of consumer groups are squaring off with food producers over nutrition and the responsibilities and ethical issues inherent in the production and marketing of food. The treatment of agricultural animals is rapidly gaining consumer awareness and has forced a realignment of research methods. The industry is being squeezed from all sides. Prices for milk, eggs, corn, wheat, oils and almost all other edible commodities continue to surge. The prices of electricity and fuel are also increasing, making processing and distribution more expensive. With high international unemployment, modest inflation and slow economic growth, passing on the entire price hike to consumers is not an option with apprehensions of substantially reducing overall demand. Brand value is gaining prominence among producers as demand is declining. Factors contributing to the rise in prices include high feed prices caused by ethanol demand, less inventory with heifer calves being retained and a possible increase in demand for exports due to a depreciating dollar. Multinational companies with diversified customer bases are best positioned to overcome this high-price/low-demand trend. NestlÃ, the world's biggest food firm, and Kraft, one of America's biggest food firms, fit this description. We expect higher input costs to negatively impact margins, leading manufacturers to seek greater production and supply-chain efficiencies. Increased awareness and acceptance of rising food prices should lead to greater home-dining trends, stimulating brand building and niche market initiatives at major food processors. These issues, among others, will drive industry trends and M&A activity going forward. PEER GROUP: Food Products Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) 81.37 99,147 25.35 26,212.00 3,940.00 MDLZ MONDELEZ INTERNATIONAL INC 42.94 64,169 29.82 25,700.00 2,213.00 GIS GENERAL MILLS INC 56.56 32,145 20.27 15,481.10 1,653.20 TSN TYSON FOODS INC 82.25 24,477 17.17 38,260.00 1,774.00 K KELLOGG CO 66.16 22,856 29.54 12,807.00 788.00 HRL HORMEL FOODS CORP 36.45 19,239 23.07 9,167.52 846.74 HSY HERSHEY CO 110.93 16,648 33.01 7,546.03 718.70 CAG CONAGRA BRANDS INC 37.33 15,249 26.86 7,735.50 605.60 CPB CAMPBELL SOUP CO 49.30 14,816 17.24 7,849.00 870.00 MKC.V MCCORMICK & CO INC 102.21 13,386 28.23 4,570.20 459.10 MKC MCCORMICK & CO INC 102.18 13,386 28.23 4,570.20 459.10 The peer group comparison is based on Major Packaged Foods & Meats companies of comparable size. PAGE 2
Annual Dividend Rate COMPANY DESCRIPTION The Kraft Heinz Company manufactures and markets food and beverage products in the United States, Canada, Europe, and internationally. Its products include condiments and sauces, cheese and dairy products, meals, meats, refreshment beverages, coffee, and other grocery products. The company offers its products under the Kraft, Oscar Mayer, Heinz, Planters, Velveeta, Philadelphia, Lunchables, Maxwell House, Capri Sun, Ore-Ida, Kool-Aid, Jell-O, Cracker Barrel, P'Tit Cheese, Tassimo, Plasmon, Pudliszki, Honig, HP, Benedicta, Weight Watchers, ABC, Master, Quero, Golden Circle, Wattie's, Complan, and Glucon D names. The Kraft Heinz Company sells its products through independent brokers, agents, and distributors to chain, wholesale, cooperative, and independent grocery accounts, convenience stores, drug stores, value stores, bakeries, pharmacies, mass merchants, and club stores; and to foodservice distributors and institutions, including hotels, restaurants, hospitals, health care facilities, and certain government agencies, as well as through its own sales organizations. The company was formerly known as H.J. Heinz Holding Corporation and changed its name to The Kraft Heinz Company in July 2015. The Kraft Heinz Company was incorporated in 2013 and is headquartered in Pittsburgh, Pennsylvania. One PPG Place Pittsburgh, PA 15222 USA Phone: 412-456-5700 http://www.kraftheinzcompany.com STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 3.5 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 60% of the stocks we rate. Total Return 1.5 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 20% of the companies we cover. Efficiency 2.5 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 40% of the companies we review. Price volatility 2.0 out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 30% of the stocks we monitor. Solvency 5.0 out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 90% of the companies we analyze. Income 4.5 out of 5 stars Measures dividend yield and payouts to shareholders. The company's dividend is higher than 80% of the companies we track. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. PAGE 3
Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial FINANCIAL ANALYSIS 's gross profit margin for the third quarter of its fiscal year 2017 is essentially unchanged when compared to the same period a year ago. The company managed to grow both sales and net income at a faster pace than the average competitor in its industry this quarter as compared to the same quarter a year ago. has very liquidity. Currently, the Quick Ratio is 0.30 which clearly shows a lack of ability to cover short-term cash needs. The liquidity decreased from the same period a year ago, despite already having liquidity to begin with. This would indicate deteriorating cash flow. 0.95 Q4 FY17 3.60 E 2017(E) 3.90 E 2018(E) At the same time, stockholders' equity ("net worth") has remained virtually unchanged only increasing by 1.93% from the same quarter last year. The key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the near future. INCOME STATEMENT Net Sales ($mil) 6,314.00 6,267.00 EBITDA ($mil) 2,029.00 1,945.00 EBIT ($mil) 1,756.00 1,655.00 Net Income ($mil) 944.00 842.00 STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.thestreetratings.com. BALANCE SHEET Cash & Equiv. ($mil) 1,441.00 3,920.00 Total Assets ($mil) 120,051.00 121,080.00 Total Debt ($mil) 31,509.00 32,680.00 Equity ($mil) 58,759.00 57,642.00 PROFITABILITY Gross Profit Margin 42.24% 42.48% EBITDA Margin 32.13% 31.03% Operating Margin 27.81% 26.41% Sales Turnover 0.22 0.22 Return on Assets 3.28% 2.75% Return on Equity 6.70% 4.84% DEBT Current Ratio 0.77 0.95 Debt/Capital 0.35 0.36 Interest Expense 306.00 311.00 Interest Coverage 5.74 5.32 SHARE DATA Shares outstanding (mil) 1,218 1,218 Div / share 0.63 0.60 EPS 0.77 0.69 Book value / share 48.24 47.34 Institutional Own % NA NA Avg Daily Volume 3,557,053 3,024,703 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. PAGE 4
RATINGS HISTORY Our rating for was recently downgraded from Buy to Hold on 9/20/2017. As of 11/30/2017, the stock was trading at a price of which is 16.8% below its 52-week high of $97.77 and 8.2% above its 52-week low of $75.21. 2 Year Chart 2016 HOLD: $84.05 BUY: $86.66 HOLD: $79.87 $100 $90 $80 $70 MOST RECENT RATINGS CHANGES Date Price Action From To 9/20/17 $79.87 Downgrade Buy Hold 8/4/17 $86.66 Upgrade Hold Buy 11/4/16 $84.05 Initiated -- Hold Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS (as of 11/30/2017) 44.19% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 30.85% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 24.96% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com Research Contact: 212-321-5381 Sales Contact: 866-321-8726 VALUATION HOLD. 's P/E ratio indicates a discount compared to an average of 27.77 for the Food Products industry and a value on par with the S&P 500 average of 25.45. For additional comparison, its price-to-book ratio of 1.69 indicates a significant discount versus the S&P 500 average of 3.24 and a significant discount versus the industry average of 4.66. The price-to-sales ratio is well above both the S&P 500 average and the industry average, indicating a premium. Upon assessment of these and other key valuation criteria, proves to trade at a discount to investment alternatives within the industry. Price/Earnings 25.35 Peers 27.77 Average. An average P/E ratio can signify an industry neutral price for a stock and an average growth expectation. is trading at a valuation on par with its peers. Price/Projected Earnings 20.86 Peers 20.52 Premium. A higher price-to-projected earnings ratio than its peers can signify a more expensive stock or higher future growth expectations. is trading at a premium to its peers. Price/Book 1.69 Peers 4.66 Discount. A lower price-to-book ratio makes a stock more attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a significant discount to its peers. Price/Sales 3.78 Peers 2.19 Premium. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a significant premium to its industry. DISCLAIMER: Price/CashFlow 41.41 Peers 23.85 Premium. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a significant premium to its peers. Price to Earnings/Growth 0.90 Peers 1.25 Discount. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. trades at a significant discount to its peers. Earnings Growth lower higher 40.78 Peers 37.39 Average. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. is expected to keep pace with its peers on the basis of earnings growth. Sales Growth lower higher -2.03 Peers 0.33 Lower. A sales growth rate that trails the industry implies that a company is losing market share. significantly trails its peers on the basis of sales growth The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. PAGE 5