The FINANCIAL — The Kraft Heinz Company on May 2 reported first quarter 2017 financial results that primarily reflected lower consumption versus the prior-year period in North America, offset by significant gains from cost savings initiatives and benefits from the redemption of preferred stock in the prior year.
“Although our top line results in the first quarter reflect a slow start to the year, we remain on track with our key initiatives,” said Kraft Heinz CEO Bernardo Hees. “We are delivering product innovations, renovations and geographic expansion that positions Kraft Heinz to drive organic sales growth for the balance of 2017 and beyond. We also have good visibility on costs, savings and what we must do to deliver another year of profitable growth for The Kraft Heinz Company.”
Net sales were $6.4 billion, down 3.1 percent versus net sales for the year-ago period, including an unfavorable 0.4 percentage point impact from currency. Organic Net Sales decreased 2.7 percent versus the year-ago period. Pricing increased 1.0 percentage points as price increases in Rest of World markets, primarily Latin America, as well as the United States more than offset an unfavorable impact from promotional timing versus the prior-year period, particularly in Canada and Europe. Volume/mix decreased 3.7 percentage points as declines in North America more than offset growth in Rest of World markets and Europe, according to the Kraft Heinz Company.
Net income attributable to common shareholders decreased to $893 million and diluted EPS of $0.73 was flat to the prior-year period. Adjusted EBITDA decreased 3.4 percent versus the year-ago period to $1.9 billion, including an unfavorable 1.0 percentage point impact from currency. Excluding the impact of currency, Adjusted EBITDA declined primarily reflecting incremental gains from cost savings initiatives(2) that were more than offset by net sales declines in the United States and Canada versus the prior-year period and business investments in Rest of World markets. Adjusted EPS increased 15.1 percent versus the year-ago period to $0.84, primarily due to benefits from the refinancing of Series A Preferred Stock.
United States net sales were $4.6 billion, down 3.5 percent versus the year-ago period. Pricing increased 0.7 percentage points primarily due to price increases in cheese. Volume/mix decreased 4.2 percentage points from a combination of consumption weakness across categories, primarily driven by calendar shifts, as well as select distribution losses in the club channel. The categories most affected by these factors were foodservice, cheese, meats and nuts. These declines were partially offset by continued growth from Lunchables, and innovation-led growth in frozen meals and macaroni and cheese.
United States Segment Adjusted EBITDA decreased 1.4 percent versus the year-ago period to $1.5 billion, primarily reflecting gains from cost savings initiatives and pricing that were more than offset by the decline in volume/mix as well as unfavorable key commodity(3) costs, particularly coffee and meats.
Canada net sales were $443 million, down 12.2 percent versus the year-ago period, despite a favorable 2.7 percentage point impact from currency. Organic Net Sales decreased 14.9 percent versus the year-ago period primarily reflecting later implementation of go-to-market agreements with key retailers. Pricing was down 1.0 percentage points due to changes in promotional spending levels versus the prior year. Volume/mix decreased 13.9 percentage points driven by a combination of reduced in-store activity and discontinuation of certain products at retail. The categories most affected by these factors were cheese and coffee.
Canada Segment Adjusted EBITDA decreased 16.6 percent versus the year-ago period to $126 million, including a favorable 2.2 percentage point impact from currency, as incremental cost savings were more than offset by the impact of net sales declines versus the prior year.
Europe net sales were $543 million, down 6.8 percent versus the year-ago period, including a negative 6.6 percentage point impact from currency. Organic Net Sales were 0.2 percent lower than the year-ago period. Pricing decreased 0.6 percentage points, primarily reflecting promotional timing in the UK and Italy. Volume/mix increased 0.4 percentage points as growth of condiments and sauces in the UK was partially offset by ongoing consumption weakness in Italy and the Netherlands.
Europe Segment Adjusted EBITDA decreased 5.6 percent versus the year-ago period to $170 million, including an unfavorable 10.2 percentage point impact from currency. Excluding the impact of currency, Segment Adjusted EBITDA increased 4.6 percent versus the year-ago period as manufacturing savings were partially offset by higher input costs in local currency.
Rest of World net sales were $826 million, increasing 7.5 percent versus the year-ago period, despite an unfavorable currency impact of 0.6 percentage points. Organic Net Sales increased 8.1 percent versus the year-ago period. Pricing increased 5.1 percentage points, primarily driven by pricing to offset higher input costs in local currency, particularly in Latin America. Volume/mix increased 3.0 percentage points driven by favorable holiday-related shipment timing in Indonesia, ongoing growth in China, as well as continued growth in condiments and sauces in Latin America. This growth was partially offset by the impact of distributor network realignment in several markets.
Rest of World Segment Adjusted EBITDA decreased 11.8 percent versus the year-ago period to $146 million, including an unfavorable 2.7 percentage point impact from currency. Excluding currency impacts, Segment Adjusted EBITDA declined as Organic Net Sales growth was more than offset by business investments to support growth and higher input costs in local currency.
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