Kraft Heinz sales finally grow but US demand weakens

02 Nov 2017 --- The Kraft Heinz Company has reported third-quarter 2017 financial results that reflected significant cost savings and improved net sales performance that were offset by a higher tax rate versus the prior year period.

“We continued to build top- and bottom-line momentum from operations during the third quarter, and expect to see the same in the fourth quarter,” says Kraft Heinz CEO Bernardo Hees. “There’s no question that the retail environment, particularly in the United States, will remain both dynamic and challenging. However, the investments we’ve been making in our brands, our innovation pipeline, our people and our capabilities make us well-positioned to continue delivering sustainable, profitable growth in both the near and long-term.”

Net sales were US$6.3 billion, up 0.7 percent versus the year-ago period, including a 0.4 percentage point benefit from currency. Organic Net Sales increased 0.3 percent versus the year-ago period. Pricing increased 0.5 percentage points, driven by pricing to offset local input costs in Rest of World markets and higher pricing in the United States that more than offset increased promotional activity versus the prior year period in Canada and Europe. Volume/mix decreased 0.2 percentage points, as growth in condiments and sauces globally was offset by overall shipments in the United States.

Net income attributable to common shareholders increased to US$0.9 billion and diluted EPS increased to US$0.77, reflecting gains from lower Integration Program and restructuring costs, higher net sales and favorable foreign currency that were partially offset by a higher effective tax rate. Adjusted EBITDA increased 7.0 percent versus the year-ago period to US$1.9 billion, primarily driven by gains from cost savings initiatives, lower overhead costs and favorable pricing that were partly offset by higher input costs. Adjusted EPS of US$0.83 was in line with the year-ago period, mainly reflecting growth in Adjusted EBITDA that was offset by a higher tax rate versus the prior year period.

United States net sales were US$4.4 billion, down 0.4 percent versus the year-ago period. Pricing increased 0.4 percentage points, primarily reflecting higher prices in cheese and desserts that were partially offset by the timing of promotional activity versus the prior year period in a number of categories. Volume/mix decreased 0.8 percentage points, primarily due to select distribution losses in nuts and cheese as well as lower shipments in meat and coffee. This was partially offset by consumption-led growth in Lunchables and P3, as well as gains in foodservice.

United States Segment Adjusted EBITDA increased 6.8 percent versus the year-ago period to US$1.4 billion, driven by gains from cost savings initiatives, lower overhead costs and favorable pricing that were partially offset by unfavorable key commodity costs, particularly in meats and cheese.

Canada net sales were US$559 million, up 1.6 percent versus the year-ago period, including a positive 4.0 percentage point impact from currency. Organic Net Sales decreased 2.4 percent versus the year-ago period. Pricing decreased 1.9 percentage points driven by increased promotional activity, primarily in cheese. Volume/mix decreased 0.5 percentage points, reflecting growth in condiments and sauces that was more than offset by lower shipments of macaroni and cheese products.

Canada Segment Adjusted EBITDA increased 9.0 percent versus the year-ago period to US$162 million, including a favorable 4.2 percentage point impact from currency. Excluding the impact of currency, Segment Adjusted EBITDA increased 4.8 percentage points as gains from cost savings initiatives, lower overhead costs and improved product mix more than offset the impact of lower pricing.

Europe net sales were US$599 million, up 7.3 percent versus the year-ago period, including a 3.9 percentage point benefit from currency. Organic Net Sales increased 3.4 percent versus the year-ago period. Pricing decreased 0.7 percentage points, primarily due to increased promotional activity in infant nutrition in Italy. Volume/mix increased 4.1 percentage points, reflecting strong growth in condiments and sauces across the region, gains in foodservice, and ongoing weakness in Italy.

Europe Segment Adjusted EBITDA increased 7.9 percent versus the year-ago period to US$206 million, including a positive 2.4 percentage point impact from currency. Excluding currency impacts, the increase in Segment Adjusted EBITDA reflected cost savings and volume/mix gains that were partially offset by higher input costs in local currency.

Rest of World net sales were US$776 million, increasing 1.6 percent versus the year-ago period, despite a negative 2.0 percentage point impact from currency. Organic Net Sales increased 3.6 percent versus the year-ago period. Pricing increased 3.8 percentage points, primarily driven by actions to offset higher input costs in local currency. Volume/mix was 0.2 percentage points lower, as strong growth in condiments and sauces was more than offset by the unfavorable impact of distributor network realignment in several markets and lower shipments in Brazil.

Rest of World Segment Adjusted EBITDA increased 2.7 percent versus the year-ago period to US$149 million, despite an unfavorable 3.7 percentage point impact from currency. Excluding the impact of currency, Segment Adjusted EBITDA increased 6.4 percentage points, primarily reflecting favorable pricing and lower overhead costs that were partially offset by higher input costs in local currency.

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