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What: Shares of Kraft Heinz Co have jumped 21.3% in 2016, according to data provided by S&P Global Market Intelligence, as cost savings from the 2015 Kraft and Heinz merger start to materialize.
So what: Despite sales being down 3.8% in the first quarter to $6.57 billion, adjusted EBITDA was up 21.3% to $1.95 billion and earnings per share jumped 37.7% to $0.73. The ability to cut costs was a big justification for the merger in the first place and it's definitely starting to show.
While investors can't count on cost-cutting like this to last long, and the long-term concern is the decline in revenue, for now, the market is pleased with the progress on the bottom line.
Now what: As one of the biggest powerhouses in the food business, Kraft Heinz is built to last for a long time. Its many brands include Oscar Mayer, Jell-O, and Planters. But I would be concerned that slow growth in revenue will last long term and a consolidation in power in the food business will lead customers to search for local brands. If you're a dividend investor, the 2.7% yield should be attractive, but I don't see a lot of upside after this pop given the limits to cost-cutting measures long term.
The article Why Kraft Heinz Co's Shares Are Up 21% in 2016 originally appeared on Fool.com.
Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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