Kraft Heinz profit boosted by cost cutting

Kraft Heinz profit boosted by cost cutting

Kraft Heinz profit boosted by cost cutting

The FINANCIAL -- The Kraft Heinz Company on February 15 reported fourth quarter and full year 2016 financial results that reflected significant gains from cost savings, the redemption of preferred stock and lower taxes versus the prior year period.

“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.”

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

Net sales were $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. Volume/mix increased 1.7 percentage points with positive contributions from all business segments, according to the Kraft Heinz Company.

Net income attributable to common shareholders increased to $944 million and diluted EPS increased to $0.77. Adjusted EBITDA increased 3.3 percent versus the year-ago period to $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(3) and favorable pricing in the United States were partially offset by increased business investments, mainly in the Europe and Rest of World segments. Adjusted EPS increased 46.8 percent versus the year-ago period to $0.91, despite an approximate 7.5 percentage point negative impact from a 53rd week of shipments in 2015. This increase reflects a combination of benefits from the refinancing of Series A Preferred Stock and lower taxes as well as growth in Adjusted EBITDA.

United States net sales were $4.8 billion, down 3.1 percent versus the year-ago period, including a negative 4.8 percentage point impact from a 53rd week of shipments in 2015. Organic Net Sales increased 1.7 percent driven by net pricing gains of 0.3 percentage points and an increase in volume/mix of 1.4 percentage points. Volume/mix gains reflected strong growth in coffee as well as innovation across the macaroni and cheese portfolio that were partially offset by lower shipments in foodservice and cold cuts.

United States Segment Adjusted EBITDA increased 13.3 percent versus the year-ago period to $1.5 billion, despite an approximate 4.5 percentage point negative impact from a 53rd week of shipments in 2015. Growth reflected gains from cost savings initiatives and positive net pricing that were partially offset by the timing of overhead expenses versus the prior year period.

Canada net sales were $617 million, down 2.4 percent versus net sales for the year-ago period, including a negative 4.4 percentage point impact from a 53rd week of shipments in 2015 and a favorable 0.8 percentage point impact from currency. Organic Net Sales increased 1.2 percent versus the year-ago period. Pricing decreased 3.1 percentage points due to the timing of promotional activities versus the prior year period. Volume/mix increased 4.3 percentage points driven by growth in coffee, whitespace gains in foodservice as well as growth in cheese.

Canada Segment Adjusted EBITDA decreased 9.6 percent versus the year-ago period to $151 million, including an approximate 3.5 percentage point negative impact from a 53rd week of shipments in 2015 and a favorable 0.6 percentage point impact from currency. Excluding these factors, Segment Adjusted EBITDA declined as volume/mix gains and incremental cost savings were more than offset by a combination of higher input costs in local currency and timing of promotional activities.

Europe

Europe net sales were $600 million, down 13.3 percent versus net sales for the year-ago period, including a negative 8.1 percentage point impact from currency and a negative 3.8 percentage point impact from a 53rd week of shipments in 2015. Organic Net Sales were 1.5 percent lower than the year-ago period. Pricing was down 2.5 percentage points, reflecting increased promotional support in the UK as well as stepped up investments behind innovation in infant food. Volume/mix increased 1.0 percentage points as growth in Russia was partially offset by lower shipments in the UK.

Europe Segment Adjusted EBITDA decreased 27.3 percent versus the year-ago period to $189 million, including an unfavorable 10.0 percentage point impact from currency and an approximate 3.0 percentage point negative impact from a 53rd week of shipments in 2015. Excluding these factors, Segment Adjusted EBITDA was lower as manufacturing savings were more than offset by a combination of lower Organic Net Sales and increased investments in overhead and marketing.

Rest of World net sales were $801 million, down 0.7 percent versus net sales in the year-ago period, including a negative 5.1 percentage point impact from a 53rd week of shipments in 2015 and an unfavorable currency impact of 0.1 percentage points. Organic Net Sales increased 4.5 percent versus the year-ago period. Pricing increased 2.8 percentage points, primarily driven by pricing to offset higher input costs in local currency, particularly in Latin America. Volume/mix increased 1.7 percentage points driven by continued growth in condiments and sauces in Latin America.

Rest of World Segment Adjusted EBITDA decreased 20.9 percent versus the year-ago period to $144 million, including an approximate 3.0 percentage point negative impact from a 53rd week of shipments in 2015 and an unfavorable 1.3 percentage point impact from currency. Excluding these impacts, Segment Adjusted EBITDA declined as Organic Net Sales growth was more than offset by higher input costs in local currency as well as investments in new product and whitespace initiatives.