Kraft Heinz Squeezes Out Savings to Boost Profit

16 Feb 2017 --- Kraft Heinz has reported its fourth quarter and full year 2016 financial results that show how its cost-savings have lead to significant gains with more savings expected by the year-end.

Following its merger in 2015, Kraft Heinz has been cutting back on expenses and on Wednesday it announced that it now expects to achieve US$1.7 billion in savings. General and administrative expenses fell back 21.3%, while during the fourth quarter the cost of products sold declined 6.8%.

The Company now expects its multi-year Integration Program to deliver US$1.7 billion in cumulative, pre-tax savings by the end of 2017, up from US$1.5 billion previously. The program is now forecast to result in US$2.0 billion of pre-tax costs, up from US$1.9 billion previously, and US$1.3 billion of capital expenditures, up from US$1.1 billion previously.

“We finished 2016 consistent with our expectations and with good momentum heading into 2017,” said Kraft Heinz CEO Bernardo Hees. “Looking forward, our objectives and opportunities are clear. But we need to sharpen our focus on profitable sales, and further improve our capabilities and execution to deliver another year of strong, sustainable growth in 2017.”

Net sales were US$6.9 billion, down 3.7 percent versus net sales for the year-ago period, including a negative 4.6 percentage point impact from a 53rd week of shipments in 2015 and an unfavorable 0.7 percentage point impact from currency.

Organic Net Sales increased 1.6 percent versus the year-ago period. Pricing decreased 0.1 percentage points as price increases to offset input cost inflation in Rest of World markets, primarily in Latin America, as well as gains in the United States were more than offset by the timing of promotional activities versus the prior year in Canada. 

Net income attributable to common shareholders increased to US$944 million and diluted EPS increased to US$0.77. Adjusted EBITDA increased 3.3% versus the year-ago period to US$1.9 billion, despite an approximate 4.5 percentage point negative impact from a 53rd week of shipments in 2015 and an unfavorable 1.5 percentage point impact from currency. 

Excluding these factors, gains from cost savings initiatives and favorable pricing in the US were partially offset by increased business investments, mainly in the Europe and rest of world segments

The company’s largest market is the US which posted a 3.1% retreat, while Europe fell 13.3% and Canada went down 2.4%, and the rest of the world declined 0.7%.

Overall, sales declined 3.7% to US$6.86 billion from US$7.12 billion.