The FINANCIAL — The Kraft Heinz Company on November 3 reported third quarter 2016 financial results that reflected a combination of significant gains from cost savings and the redemption of preferred stock, as well as lower taxes versus the prior year period.
“Overall, our third quarter results are a good representation of where we are as a company,” said Kraft Heinz CEO Bernardo Hees. “While our financial performance is respectable, we continue to have the opportunity to improve our offerings and retail execution in several key markets and take our brands to places they don’t currently compete. Our focus now is to finish 2016 strong and set the stage for another year of strong, profitable growth in 2017.”
Net sales were $6.3 billion, down 1.5 percent versus pro forma net sales for the year-ago period, including a negative 0.5 percentage point impact from currency. Organic Net Sales decreased 1.0 percent versus the year-ago period. Pricing decreased 0.7 percentage points driven by key commodity(3) deflation in the United States, primarily in meats and coffee, and coffee in Canada, as well as higher promotional expenses in Europe. Volume/mix decreased 0.3 percentage points primarily due to lower shipments across several categories, particularly cold cuts, foodservice and nuts in the United States. This was partially offset by growth driven by innovation in Lunchables and the macaroni and cheese portfolio, as well as gains in coffee in the United States and growth in condiments and sauces globally, according to the Kraft Heinz Company.
Net income attributable to common shareholders increased to $842 million and GAAP diluted EPS increased to $0.69. Adjusted EBITDA increased 21.7 percent versus the year-ago period to $1.8 billion, including a negative 0.8 percentage point impact from currency, driven by gains from cost savings initiatives(4) and favorable pricing net of key commodity costs. Adjusted EPS increased 88.6 percent versus the year-ago period to $0.83, mainly reflecting growth in Adjusted EBITDA, the refinancing of Series A Preferred Stock and lower taxes.
United States net sales were $4.4 billion, down 1.2 percent versus pro forma net sales for the year-ago period. Pricing decreased 0.7 percentage points driven by deflation in key commodities, primarily in meats and coffee. Volume/mix was 0.5 percentage points lower reflecting growth from innovation in Lunchables and the macaroni and cheese portfolio, as well as gains from coffee, that were more than offset by declines in cold cuts, foodservice and nuts.
United States Segment Adjusted EBITDA increased 30.6 percent versus the year-ago period to $1.3 billion. Gains from cost savings initiatives and, to a lesser extent, favorable pricing net of key commodity costs were partially offset by lower volume/mix.
Canada net sales and Organic Net Sales were $550 million, up 2.0 percent versus pro forma net sales for the year-ago period. Pricing decreased 1.4 percentage points primarily due to commodity-driven pricing actions in coffee. Volume/mix increased 3.4 percentage points driven by gains in foodservice as well as shipment timing in macaroni & cheese and coffee.
Canada Segment Adjusted EBITDA increased 34.5 percent versus the year-ago period to $148 million, including a 1.8 percentage point favorable impact from currency. Excluding currency, gains were driven by cost savings initiatives and volume/mix growth.
Europe
Europe net sales were $513 million, down 14.5 percent versus pro forma net sales for the year-ago period, including a negative 6.7 percentage point impact from currency. Organic Net Sales were 7.8 percent lower than the year-ago period. Pricing was down 2.9 percentage points primarily due to the timing of promotional expenses versus the prior year. Volume/mix decreased 4.9 percentage points reflecting a combination of shipment timing versus the prior year as well as ongoing consumption weakness across several categories, primarily in the UK and the Netherlands.
Europe Segment Adjusted EBITDA decreased 17.9 percent versus the year-ago period to $183 million, including a negative 8.5 percentage point impact from currency, as manufacturing savings were more than offset by a combination of unfavorable volume/mix, lower pricing and increased marketing investments.
Rest of World
Rest of World net sales were $809 million, up 4.4 percent versus pro forma net sales in the year-ago period, including a favorable currency impact of 0.8 percentage points. Organic Net Sales increased 3.6 percent versus the year-ago period. Pricing increased 1.9 percentage points as pricing actions to offset higher input costs in local currency, particularly in Latin America, were partially offset by higher promotional spending to support new product initiatives. Volume/mix increased 1.7 percentage points driven by strong growth in condiments and sauces across all regions.
Rest of World Segment Adjusted EBITDA decreased 1.3 percent versus the year-ago period to $150 million, despite a positive 2.6 percentage point impact from currency. Excluding the impact from currency, Segment Adjusted EBITDA declined as organic sales growth was more than offset by a combination of higher input costs in local currency and investments behind new product initiatives.
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