The FINANCIAL — The Kraft Heinz Company on May 4 reported first quarter 2016 financial results that reflected improved net sales performance and significant cost savings amid the ongoing integration of Kraft and Heinz.
“We’ve had a solid start to the year. Our savings are coming in faster than anticipated and we’re performing better where it matters most, with our customers and consumers in the marketplace,” said Kraft Heinz CEO Bernardo Hees. “But we still have a lot of work ahead. Consumption trends in a number of our core categories remain challenging and we’re entering a critical phase in our North American supply chain integration. As we implement our plans, we will keep our focus on profitable growth while continuing to put our consumers first.”
Net sales were $6.6 billion, down 3.8 percent versus pro forma net sales for the year-ago period, due to a negative 4.5 percentage point impact from currency and a negative 0.4 percentage point impact from divestitures. Organic Net Sales increased 1.1 percent versus the year-ago period. Pricing increased 0.3 percentage points despite deflation in key commodities in the United States and Canada, primarily dairy and coffee. Volume/mix increased 0.8 percentage points due to strong growth in condiments and sauces globally, Lunchables and P3, and United States foodservice that was partially offset by lower shipments of ready-to-drink beverages in the United States, according to the Kraft Heinz Company.
Adjusted EBITDA increased 21.3 percent versus the year-ago period to $2.0 billion, despite a negative 6.0 percentage point impact from currency, primarily due to gains from cost savings initiatives and favorable pricing net of commodity costs. Adjusted EPS increased 37.7 percent versus the year-ago period to $0.73, primarily reflecting the growth in Adjusted EBITDA.
United States net sales were $4.7 billion, up 0.2 percent versus pro forma net sales for the year-ago period. Pricing increased 0.1 percentage points despite deflation in key commodities, primarily dairy and coffee. Volume/mix increased 0.1 percentage points, primarily reflecting gains from innovation in Lunchables and P3, whitespace expansion in foodservice and gains in coffee that were offset by lower shipments of ready-to-drink beverages, bacon and frozen nutritional meals.
United States Segment Adjusted EBITDA increased 32.9 percent versus the year-ago period to $1.5 billion, driven by gains from cost savings initiatives and favorable pricing net of commodity costs that were partially offset by volume declines in ready-to-drink beverages and frozen nutritional meals.
Canada net sales were $504 million, down 8.5 percent versus pro forma net sales for the year-ago period, primarily due to a negative 10.0 percentage point impact from currency. Organic Net Sales increased 1.5 percent versus the year-ago period. Pricing increased 3.7 percentage points, despite deflation in key commodities, due to significant pricing to offset higher input costs in local currency. Volume/mix decreased 2.2 percentage points as growth in condiments and sauces was more than offset by a decline in cheese due to reduced promotional activity versus the prior year as well as lower coffee and foodservice shipments.
Canada Segment Adjusted EBITDA increased 33.6 percent versus the year-ago period to $151 million, despite a negative 14.2 percentage point impact from currency. Adjusted EBITDA growth was driven by gains from cost savings initiatives and favorable pricing net of higher local input costs that were partially offset by unfavorable volume/mix.
Europe net sales were $553 million, down 11.7 percent versus pro forma net sales for the year-ago period, primarily due to a negative 4.1 percentage point impact from divestitures and a negative 3.9 percentage point impact from currency. Organic Net Sales decreased 3.7 percent versus the year-ago period. Pricing decreased 2.9 percentage points primarily driven by increased promotional activity in soup and beans in the UK versus the prior year. Volume/mix declined 0.8 percentage points primarily due to lower shipments in infant nutrition in the UK and Italy as well as soup in the UK, partially offset by growth in beans in the UK as well as condiments and sauces across Europe.
Europe Segment Adjusted EBITDA decreased 17.3 percent versus the year-ago period to $177 million, reflecting lower pricing, a negative 3.7 percentage point impact from currency and an increase in marketing investments.
Rest of World net sales were $798 million, down 15.6 percent versus pro forma net sales for the year-ago period, due to a negative 26.0 percentage point impact from currency, including a negative 17.0 percentage point impact from the devaluation of the Venezuelan bolivar in June 2015. Organic Net Sales increased 10.4 percent versus the year-ago period. Pricing increased 2.1 percentage points, primarily driven by pricing to offset higher input costs in local currency in Latin America. Volume/mix increased 8.3 percentage points due to strong growth in condiments and sauces across all regions as well as beverage gains in Indonesia.
Rest of World Segment Adjusted EBITDA decreased 12.1 percent versus the year-ago period to $167 million primarily due to a negative 38.2 percentage point impact from currency, including a negative 29.5 percentage point impact from the devaluation of the Venezuelan bolivar in June 2015. Excluding the impact from currency, Adjusted EBITDA growth was primarily driven by favorable volume/mix.
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