Kraft Heinz Reports Second Quarter 2016 Results

 

Q2 GAAP net sales increased 160% due to the merger of Kraft and Heinz; Organic Net Sales(1) declined 0.5%
Q2 GAAP operating income increased 268%; Adjusted EBITDA(1) increased 23.1% on a constant currency basis
Q2 GAAP diluted EPS was $0.63; Adjusted EPS(1) increased 39.3% to $0.85

 
The Kraft Heinz Company (KHC) (NASDAQ: KHC) (“Kraft Heinz” or the “Company”) today reported second quarter 2016 financial results that reflected significant gains from the ongoing integration of Kraft and Heinz, partially offset by currency translation and a higher tax rate versus the prior year period.

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“By implementing our integration program and improving our performance in the marketplace, we continued to drive results in the second quarter,” said Kraft Heinz CEO Bernardo Hees. “However, to sustain our momentum, we must remain focused on profitable growth, innovations to meet consumer needs in a challenging environment, and improving our operations. We’re off to a good start, but there is still much work to be done.”

Net sales were $6.8 billion, down 4.7 percent versus pro forma net sales for the year-ago period, due to a negative 4.0 percentage point impact from currency and a negative 0.2 percentage point impact from divestitures. Organic Net Sales decreased 0.5 percent versus the year-ago period. Pricing increased 1.6 percentage points driven by the United States, Rest of World and Canada, despite deflation in key commodities in the United States and Canada(3), primarily in dairy and coffee. Volume/mix decreased 2.1 percentage points primarily due to lower shipments in several categories, particularly meats and foodservice in the United States, that was partially offset by growth from innovation in Lunchables and P3 in the United States as well as gains in condiments and sauces globally.

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Adjusted EBITDA increased 17.7 percent versus the year-ago period to $2.1 billion, despite a negative 5.4 percentage point impact from currency, driven by gains from cost savings initiatives(4) and favorable pricing net of key commodity costs. Adjusted EPS increased 39.3 percent versus the year-ago period to $0.85, mainly reflecting growth in Adjusted EBITDA that was partially offset by a higher tax rate versus the prior year period.

United States net sales were $4.7 billion, down 1.9 percent versus pro forma net sales for the year-ago period. Pricing increased 1.2 percentage points despite deflation in key commodities, primarily in dairy and coffee. Volume/mix decreased 3.1 percentage points, primarily driven by gains from innovation in Lunchables and P3 as well as macaroni & cheese that were more than offset by lower shipments versus the prior year, particularly in foodservice, bacon and cold cuts.

United States Segment Adjusted EBITDA increased 25.7 percent versus the year-ago period to $1.5 billion. Gains from cost savings initiatives and favorable pricing net of key commodity costs were partially offset by volume/mix declines in meats and foodservice.

Canada net sales were $638 million, down 3.9 percent versus pro forma net sales for the year-ago period due to a negative 5.1 percentage point impact from currency. Organic Net Sales increased 1.2 percent versus the year-ago period. Pricing increased 3.1 percentage points largely due to significant pricing to offset higher input costs in local currency. Volume/mix decreased 1.9 percentage points driven by a decline in cheese due to reduced promotional activity versus the prior year, as well as lower shipments of coffee and ready-to-drink beverages.

Canada Segment Adjusted EBITDA increased 27.2 percent versus the year-ago period to $192 million, despite a negative 7.2 percentage point impact from currency, as gains from cost savings initiatives and favorable pricing net of higher input costs in local currency were partially offset by unfavorable volume/mix.

Europe net sales were $578 million, down 6.9 percent versus pro forma net sales for the year-ago period, primarily due to a negative 2.5 percentage point impact from divestitures and a negative 2.1 percentage point impact from currency. Organic Net Sales decreased 2.3 percent versus the year-ago period. Pricing decreased 2.4 percentage points primarily due to an increased level of promotional activity in UK condiments and sauces versus the prior year period. Positive volume/mix of 0.1 percentage points reflected gains from condiments and sauces in most countries offset by lower shipments in the UK across most categories versus the prior year.

Europe Segment Adjusted EBITDA decreased 5.8 percent versus the year-ago period to $212 million, reflecting manufacturing savings that were more than offset by a combination of lower pricing, a negative 3.1 percentage point impact from currency and increased marketing investments.

Rest of World net sales were $885 million, down 16.7 percent versus pro forma net sales for the year-ago period, due to a negative 23.8 percentage point impact from currency that included a negative 17.5 percentage point impact from the devaluation of the Venezuelan bolivar. Organic Net Sales increased 7.1 percent versus the year-ago period. Pricing increased 5.0 percentage points, primarily driven by pricing to offset higher input costs in local currency in Latin America. Volume/mix increased 2.1 percentage points due to strong growth in condiments and sauces across all regions.

Rest of World Segment Adjusted EBITDA decreased 8.8 percent versus the year-ago period to $208 million due to a negative 34.5 percentage point impact from currency that included a negative 27.5 percentage point impact from the devaluation of the Venezuelan bolivar. Excluding the impact from currency, Segment Adjusted EBITDA growth was primarily driven by organic sales growth.

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