Kraft Heinz drop in sales lower than expected

04 Aug 2017 --- The Kraft Heinz Company has reported Q2 second quarter 2017 financial results that reflected significant gains from cost savings initiatives and benefits from the redemption of preferred stock in the prior year that were partially offset by the impact of lower net sales. Shares edged up in after-hours trading as the company said sales fell less than analysts expected in the second quarter.

“As expected, our second quarter results were sequentially better than our first quarter, and we expect this momentum to continue into the second half of the year,” said Kraft Heinz CEO Bernardo Hees. “Our plan from the start has been to drive strong cost savings to fuel investments in people, capabilities and brands that can lead to sustainable, profitable growth. That's what we see happening now, and expect to continue going forward.” 

Net sales from the US food giant were US$6.7 billion, down 1.7 percent versus the year-ago period, including an unfavorable 0.8 percentage point impact from currency. Organic net sales decreased 0.9 percent versus the year-ago period. Pricing was 0.4 percentage points lower as the timing of promotions in North America and Europe more than offset price increases in Rest of World markets, primarily Latin America. Volume decreased 0.5 percentage points as growth in condiments and sauces in all business segments was more than offset by lower shipments in cheese, meats and foodservice in the United States. 

Net income attributable to common shareholders increased to US$1.2 billion and diluted EPS increased to US$0.94, primarily driven by lower Integration Program and restructuring costs, benefits from the refinancing of Series A Preferred Stock and a lower effective tax rate. Adjusted EBITDA increased 0.7 percent versus the year-ago period to US$2.1 billion, despite a 1.2 percentage point impact from currency. Excluding the impact of currency, the increase in Adjusted EBITDA reflected incremental gains from cost savings initiatives that were partly offset by a combination of factors that included higher input costs, lower net sales as well as business investments in Rest of World markets. Adjusted EPS increased 15.3 percent versus the year-ago period to US$0.98, primarily due to benefits from the refinancing of Series A Preferred Stock and lower taxes. 

United States net sales were US$4.6 billion, down 1.2 percent versus the year-ago period. Pricing decreased 0.4 percentage points reflecting the timing of trade promotion recognition in the prior year that more than offset price increases in cheese. Volume/mix decreased 0.8 percentage points as the benefit from a shift in Easter-related sales as well as gains in frozen, macaroni and cheese, and condiments and sauces were more than offset by select distribution losses in cheese and meats as well as lower shipments in foodservice. 

United States Segment Adjusted EBITDA increased 3.2 percent versus the year-ago period to US$1.6 billion, driven by gains from cost savings initiatives that were partially offset by unfavorable key commodity costs, particularly in cheese and coffee, as well as lower net sales. 

Canada net sales were US$597 million, down 6.4 percent versus the year-ago period, including a negative 3.3 percentage point impact from currency. Organic Net Sales decreased 3.1 percent versus the year-ago period. Pricing decreased 3.7 percentage points primarily due to an increased level of promotional activity versus the prior year. Volume/mix increased 0.6 percentage points, reflecting growth in condiments and sauces that more than offset the discontinuation of select cheese products. 

Canada Segment Adjusted EBITDA decreased 1.2 percent versus the year-ago period to US$189 million, including an unfavorable 3.5 percentage point impact from currency. Excluding the impact of currency, Segment Adjusted EBITDA increased 2.3 percentage points as gains from cost savings more than offset the impact of lower pricing. 

Europe net sales were US$595 million, down 4.9 percent versus the year-ago period, including a negative 4.1 percentage point impact from currency. Organic net sales were 0.8 percent lower than the year-ago period. Pricing decreased 1.6 percentage points due to changes in promotional spending levels versus the prior year, primarily in the UK and Italy. Volume/mix increased 0.8 percentage points, driven by strong consumption gains in condiments and sauces and gains in foodservice that were partially offset by shipment timing versus the prior year period as well as ongoing consumption weakness in Italy. 

Europe Segment Adjusted EBITDA decreased 8.6 percent versus the year-ago period to US$202 million, including a negative 6.2 percentage point impact from currency. Excluding currency impacts, the decline in Segment Adjusted EBITDA reflected cost savings that were more than offset by higher input costs in local currency and lower pricing.