Kraft Heinz (KHC) shares are plummeting on Friday morning after reporting a miss on earnings per share for the third quarter.
Shares of the Chicago-based food giant dropped over 9% after market on Thursday and remain down in pre-market on Friday.
The company reported earnings per share of $0.78 per share, below estimates of $0.81 per share.
Management described the miss as a "one off" stemming from factors unique to the quarter.
"Third quarter profitability was held back by several one-off factors, including commercial investments, the unfavorable impacts of bonus accrual versus 2017 and supply chain inflation -- as we expected," CEO Bernardo Hees said.
--Read chartist Bruce Kamich's evaluation of Kraft Heinz.
He explained during the earnings call on Thursday evening that one-off operating costs in the U.S. from delays on cost saving projects, buying more spot market freight during the quarter than usual, "disproportionate impact" from commercial investments and marketing and finally some unanticipated one-off supply chain costs in the Middle East were the key "one-off" culprits.
Analysts were not so sure the earnings miss will be an outlier.
"We think it is premature to assume that the profit miss is entirely transitory or that it no longer needs to make additional investments," Credit Suisse analyst Robert Moskow wrote on Friday morning. "The cost of growth in general is rising and this is a company that cut back way too far on marketing and product development infrastructure."
While he did express positivity about the revenue beat for the quarter, Moskow added that margins are likely to remain under pressure as a result of overall rising freight costs and more-stringent customer delivery demands.
"We think investors should expect further margin erosion from these factors," he concluded.
Moskow assigned an underperform rating for the stock based on his analysis.
Morgan Stanley analyst Dara Mohsenian warned that the macro environment could only worsen these factors and added that debt levels leave the stock overvalued.
"KHC's growth-challenged U.S. end markets, coupled with limited margin expansion potential post large deal synergy realization, creates downside risk to consensus," Mohsenian wrote on Friday. "We view EV/EBITDA valuation, which better adjusts for high debt leverage and pension income than P/E, as too high."
He set a price target of $49 for the stock on the basis of his analysis, with an underweight rating.
Shares of the world's third-largest food and beverage company have lost nearly 30% of their value year to date.
