JPMorgan upgrades Kraft Heinz credit to Overweight on deleveraging outlook

Investing.com -- JPMorgan upgraded its credit recommendation on Kraft Heinz to Overweight from Neutral, citing better-than-expected quarterly results, disciplined balance sheet management and greater confidence that the packaged food maker can fund higher investment in its brands while keeping leverage under control.

The brokerage said Kraft Heinz has demonstrated it can increase spending on brand investments while keeping leverage under control, raising planned investment by another $100 million to $700 million this year and lifting its free cash flow conversion guidance to 110% from 100%. Management expects net leverage to peak at about 3.3x before returning to its long-term target of around 3.0x within two years.

JPMorgan said the company’s debt remains attractively valued relative to similarly rated peers and identified three potential catalysts for tighter credit spreads: continued conservative leverage, the possibility that Moody’s removes its review for downgrade and restores a stable outlook, and potential portfolio divestitures that could further strengthen the balance sheet.

The analysts said second-quarter results were better than feared, with organic sales declining 1.3%, ahead of expectations for a steeper drop, while gross profit margin and EBITDA also exceeded forecasts. Net leverage remained at 3.0x despite higher investment spending.

Although third-quarter earnings guidance was softer due to heavier marketing and pricing investments, JPMorgan viewed the full-year outlook positively after Kraft Heinz raised its organic sales forecast, improved its free cash flow outlook and increased spending to support brand growth. The firm said early returns from higher investment—including stronger marketing, research and development, and product innovation—suggest the strategy is beginning to gain traction.

JPMorgan also noted management continues to prioritize debt reduction over shareholder returns, limiting share repurchases while maintaining its dividend and leaving room for potential asset sales as part of ongoing portfolio optimization.

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