Kraft Heinz (KHC) Q3 Earnings Meet Estimates, Revenues Lag

The Kraft Heinz Company (NYSE:K) posted third-quarter 2017 results, wherein earnings met the Zacks Consensus Estimate but missed on revenues. Notably, the company’s shares decreased 1.5% in after-hours trading on Nov 1, in response to weaker sales results.

Earnings

Adjusted earnings per share of 83 cents were on par with the Zacks Consensus Estimate as well as the year-ago figure. Higher cost savings and improved net sales performance were offset by a higher tax rate.

Sales

Reported sales of $6.31 billion fell marginally shy of the Zacks Consensus Estimate of $6.32 billion by 0.1%. However, it increased just 0.7% year over year due to soft consumer demand in North America and Canada. That said, Kraft Heinz’s sales witnessed a marginal increase after declining in five of the last six quarters. The reported figure includes a favorable 0.4% impact from currency.

Organically (excluding currency), sales grew 0.3%.

Volume/mix declined 0.2% in the quarter compared with a decrease of 0.5% in the previous quarter. The narrower gap was due to growth in condiments and sauces globally. However, these were partly offset by overall lower shipments in the United States.

Pricing increased 0.5% in the quarter against a decrease of 0.4% in the preceding quarter.

Operating Highlights

Gross profit of $2.3 billion increased 4.3% year over year.

Adjusted EBITDA was up 7% to $1.9 billion in the third quarter owing to cost initiatives. Adjusted EBITDA margin expanded 180 basis points year over year in the quarter.

Quarterly Segment Discussion

U.S.: Net sales of $4.4 billion declined 0.4% year over year. Organic sales fell 0.4% on lower volumes. Volume/mix decreased 0.8% in the quarter due to some distribution losses in nuts and cheese along with lower shipments in meat and coffee. However, higher demand in Lunchables and P3, as well as gains in foodservice partly offset the negatives. Pricing was up 0.4% owing to higher prices in cheese and desserts.

Canada: Net sales of $559 million grew 1.6% year over year with a 4% favorable impact from currency. Organically, sales declined 2.4%. Volume/mix was down 0.5% as growth in condiments and sauces more than offset the lower shipments of macaroni and cheese products. Pricing decreased 1.9% due to higher promotional activity, mainly in cheese.

Europe: Net sales of $599 million climbed 7.3% year over year with a 3.9% favorable currency impact. Organically, sales improved 3.4%. Volume/mix was up 4.1% on robust consumption gains in condiments and sauces and in foodservice. Pricing declined 0.7% due to higher promotional activity in infant nutrition in Italy.

Rest of World: Net sales of $776 million increased 1.6% year over year despite a 2% currency headwind. Organically, sales grew 3.6% on higher pricing. While pricing increased 3.8%, volume/mix fell 0.2%.

Cost-Saving Plans

The company expects between $1.7 billion and $1.8 billion of cumulative Integration Program savings by the end of 2017, or $500 million to $600 million of net incremental savings.

Zacks Rank

Kraft Heinz currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2017 Views

The company revealed that the business momentum is picking up as it is witnessing better organic sales growth sequentially in the areas where Kraft Heinz has been investing more that will likely help in giving its EBITDA a boost.

The company continues to expect a more favorable balance between pricing and input costs in the fourth quarter.

Peer Releases

Kellogg Company (NYSE:K) posted better-than-expected third-quarter 2017 results. Cost-saving initiatives as well as higher demand for its frozen foods and Kashi snacks helped the company offset the industry-wide soft consumption trends for packaged food items.

B&G Foods, Inc.’s (NYSE:BGS) adjusted earnings per share of 55 cents beat the Zacks Consensus Estimate of 48 cents by 14.6%. Earnings however declined 1.8% from the year-ago quarter.

Pinnacle Foods Inc. (NYSE:PF) posted third-quarter 2017 results, wherein both the top and the bottom line outpaced the Zacks Consensus Estimate. Earnings also grew year over year.

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