Kraft Heinz share price down as pre-merger sales at both companies drop

Kraft Heinz shares fell in after-hours trading on Monday after the recently formed packaged food company reported a drop in second-quarter sales at both its predecessors, underlining the growth issues it faces.

Revenue fell 4.9% at Kraft in the three months ended June 27th to $4.52 billion from $4.75 billion a year earlier, but net income rose 15% to $551 million, or 92 cents per share, thanks in part to ongoing cost-cutting efforts and unrealized gains from hedging activities.

Heinzs operating income grew to $923 million from $874 million a year earlier but it booked a net loss attributable to shareholders of $344 million, or 91 cents per share, from a $53-million loss, or 14 cents per share, a year earlier. Sales dropped 4% to $2.62 billion as the ketchup makers much bigger overseas operations, compared to Kraft, made it more susceptible to the strong US dollars negative effects.

Brazilian private equity firm 3G Capital Management bought Heinz in 2013 in partnership with Warren Buffetts Berkshire Hathaway and the duo led the $50-billion merger with Kraft that created North Americas third-biggest food company, also the the worlds fifth largest. The deal was finalized on July 2nd and left the two with a majority stake in the combined company, with Berkshire owning about 26.9% and 3G owning 24.2%. The second-quarter results are the first reported since the merger but reflect standalone performance as the two food companies were still separate entities during the reported quarter.

Despite the downbeat Q2 results, investors have high hopes about the combination as 3G has proven it can successfully streamline companies under its control. Kraft Heinz has said that its new management team, made up mostly of executives connected to 3G, will boost profit margins by achieving annual savings of about $1.5 billion by the end of 2017 and that it was confident it would achieve the rest of its goals for the merger.

“The company is focused on the difficult and challenging process of integrating our two businesses,” said Chief Executive Bernardo Hees. “We have a lot of hard work ahead of us as we continue to design our new organization, always putting our consumers first.”

Kraft Heinz Co settled 0.45% higher at $78.81 per share on the NASDAQ on Monday but fell 1.66% to $77.50 in after-hours trading. The company is valued at $95.56 billion. According to CNN Money, the 15 analysts offering 12-month price forecasts for Kraft Heinz Co have a median target of $80.00, with a high estimate of $99.00 and a low estimate of $68.00. The median estimate represents a +1.51% increase from the last price of $78.81.