Kraft Heinz Recovery Gains Momentum Kraft Heinz's turnaround gains momentum as the company reveals clear pricing power and widens margins. The dividend is getting safer by the quarter.

The Kraft Heinz (NASDAQ: KHC) story is about more than the strength of consumer staples companies across verticals. Not only is this a blue chip consumer staple brand with a healthy following and clear pricing power, but it is also a turnaround story within the industry gaining momentum. Kraft Heinz spent the last 3 years shedding dead weight, cleaning up the balance sheet, refocusing on growth drivers and preparing for a new era of growth.

Those plans bear fruit and drive value for shareholders in more ways than one. The company's Q1 results are good, but the guidance is better, leading this market higher. Add in the fact KHC stock is among the best value-to-yield combinations in the sector, and the outlook for share price increases is as robust as the yield.

Kraft Heinz trades about 15X its earnings, which is cheap for a consumer staples stock. Packaged food leaders like Campbell Soup Company (NYSE: CPB), The J.M. Smucker Company (NYSE: SJM) and General Mills (NYSE: GIS) trade for 18X to 21X their earnings while the highest valued stocks like Hormel (NYSE: HRL), PepsiCo (NASDAQ: PEP), and The Clorox Company (NYSE: CLX) trade at 23X to 38 their earnings without the same yield. KHC shares yield nearly 4.0% even with the post-release pop in share prices and a growing chance for a dividend increase.

A distribution increase is not something investors should hold their breath waiting for, but long-term holders may anticipate a distribution increase in the next few years. The sector is well-known for distribution increases, and KHC was included in that grouping until the fiasco that opened the door to today's opportunities. Bringing back distribution increases would complete the recovery story. As it is, the dividend is about 56% of the low-end of guidance and getting smaller by the quarter.

Kraft Heinz Moves Up On Results And Guidance

Kraft Heinz had a mixed quarter regarding volume and pricing, but investors' takeaways are bullish. While higher prices resulted in volume elasticity, pricing increases more than offset the decline, and the company is on a volume-growth trajectory. The $6.49 billion in revenue is up 7.3% compared to last year and beat the Marketbeat.com consensus estimate by 150 basis points due to a 14.7% increase in realized prices. The volume/mix declined by 5.3% but should be recovered as the company advances into international markets. Organically, revenue is up almost 9.5% but was offset by a 2.1% FX impairment. On a regional basis, North America, which is 75% of the business, grew by 6.7%, while International grew by 18.1%.

The margin is another area of strength. The company improved the GAAP and adjusted gross margins, and offset the impact of rising costs. The adjusted gross margin improved by 126 bps to drive a 10.3% increase in adjusted EBITDA and a 13.3% increase in adjusted EPS. The adjusted EPS is up $0.08 compared to last year, beating the consensus by $0.08 due to pricing power. The salient point is that EPS outpaced consensus by 1300 basis points compared to the top-line strength of 150 bps, and further improvement is expected.

Kraft's guidance is what investors wanted to see. The company is reiterating its outlook for revenue growth of 4% to 6%, or up 6% to 8% when adjusting for last year's extra week, but it raised the EPS guidance. EPS is expected to range between $2.83 to $2.91 compared to the $2.72 consensus, and this may be the first of multiple increases this year.

The Technical Outlook: KHC Could Break Out Of Its Range

Shares of KHC have been trapped in a range for nearly 2 years but may break out on this news. The market is up more than 3% and showing clear support at the midpoint of the range while guidance is improving. Assuming the market can move higher from here, the next hurdle is near $42.75, consistent with the analyst consensus. An improvement in the consensus is a catalyst for this market and might get the stock to the top of the range near $45.