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Kraft Heinz (KHC) Raises Profit Guidance on Q3 Earnings Beat
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The Kraft Heinz Company (KHC - Free Report) posted solid third-quarter 2023 results, wherein the top and bottom lines increased year over year, and earnings came ahead of the Zacks Consensus Estimate. Results continued to gain from sales growth in the company’s three key pillars — foodservice, emerging markets and U.S. Retail Grow platforms.
Encouragingly, management raised its adjusted earnings per share (EPS) and adjusted EBITDA guidance for 2023.
Kraft Heinz has been focused on enhancing productivity throughout its value chain and channeling operational efficiencies back into crucial areas such as marketing, technology, and research & development. These investments remain pivotal to KHC’s strategic framework. The company struck a milestone on its transformation path in the third quarter by reaching its target net leverage of roughly 3.0X.
Quarter in Detail
Kraft Heinz posted adjusted earnings of 72 cents per share, beating the Zacks Consensus Estimate of 66 cents. Quarterly earnings jumped 14.3% year over year, mainly due to increased adjusted EBITDA and positive changes in other expenses/(income), somewhat negated by elevated taxes.
Kraft Heinz Company Price, Consensus and EPS Surprise
The company generated net sales of $6,570 million, up 1% year over year. Net sales included an unfavorable currency impact of 0.5 percentage points and an adverse impact of 0.2 percentage points from divestitures. Net sales missed the Zacks Consensus Estimate of $6,700 million.
Organic net sales increased 1.7% year over year. Pricing rose 7.1 percentage points year over year, reflecting growth in both segments. The upside can be attributed to higher list prices to counter escalated input costs. The volume/mix fell 5.4 percentage points due to the elasticity effect of pricing actions in both units. Our model suggested pricing to be up 8.5% and volumes to decline 5.9% in the third quarter.
The adjusted gross profit of $2,231 million jumped 14.3% from the figure reported in the year-ago quarter. The adjusted gross margin expanded 396 basis points to 34%. We had expected an adjusted gross margin expansion of about 240 basis points.
Adjusted EBITDA advanced 11.9% to $1,565 million due to elevated pricing and efficiency gains. These were somewhat negated by elevated supply-chain costs, an adverse volume/mix, currency headwinds and investments related to marketing, technology and research & development. Supply-chain costs included inflation across procurement and manufacturing costs.
Segment Discussion
North America: Net sales of $4,995 million declined 0.4% year over year. Organic sales fell 0.1%. During the quarter, pricing moved up 5.8 percentage points, but the volume/mix fell 5.9 percentage points.
International: Net sales of $1,575 million were up 5.7% year over year. Organic sales rose 8%, with pricing up 11.6 percentage points, but the volume/mix down 3.6 percentage points.
Other Financial Aspects
Kraft Heinz ended the quarter with cash and cash equivalents of $1,052 million, long-term debt of $19,270 million and total shareholders’ equity of $49,434 million. Net cash provided by operating activities was $2,620 million for the first nine months of 2023. The company has generated free cash flow of $1,841 million year to date.
In a separate press release, Kraft Heinz declared a quarterly dividend of 40 cents per share, payable on Dec 29, 2023, to shareholders of record as of Dec 1.
Guidance
For 2023, management expects organic net sales growth to be at the lower end of its previously guided range of 4-6%.
Adjusted EBITDA is expected to increase 5-7% at constant currency or cc compared with the 4-6% growth projected earlier. Excluding the impacts of the 53rd week in 2022, the adjusted EBITDA is now likely to rise 7-9% compared with the earlier view of 6-8%.
Management expects an adjusted gross margin expansion, driven by pricing and efficiencies. However, it expects mid-single-digit inflation in 2023. The adjusted gross profit margin is likely to increase 200-250 basis points in 2023 compared with the expansion of 150-200 basis points expected earlier.
The adjusted EPS for the year is now envisioned in the band of $2.91-$2.99, higher than the prior view of $2.83-$2.91. The latest guidance includes a nearly 3-cent expected impact of adverse changes in non-cash pension and post-retirement benefits and a roughly 4-cent adverse impact of currency woes. The bottom-line view also includes an adverse 6-cent impact from lapping the 53rd week in 2022.
Shares of this Zacks Rank #3 (Hold) company have decreased 12.3% in the past three months compared with the industry’s decline of 14.8%.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggests growth of 28.3% and 24.8%, respectively, from the year-ago reported numbers.
TreeHouse Foods (THS - Free Report) , a private-label food and beverage company, currently sports a Zacks Rank #1. THS has a trailing four-quarter earnings surprise of 31.4%, on average.
The Zacks Consensus Estimate for TreeHouse Foods’ current fiscal-year earnings suggests growth of almost 112% from the corresponding year-ago reported figure.
Celsius Holdings (CELH - Free Report) , a functional drink and liquid supplement company, currently carries a Zacks Rank #2 (Buy). CELH delivered a positive earnings surprise in the preceding three quarters.
The Zacks Consensus Estimate for Celsius Holdings’ current fiscal-year sales suggests growth of 89.9% from the corresponding year-ago reported figure.
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Kraft Heinz (KHC) Raises Profit Guidance on Q3 Earnings Beat
The Kraft Heinz Company (KHC - Free Report) posted solid third-quarter 2023 results, wherein the top and bottom lines increased year over year, and earnings came ahead of the Zacks Consensus Estimate. Results continued to gain from sales growth in the company’s three key pillars — foodservice, emerging markets and U.S. Retail Grow platforms.
Encouragingly, management raised its adjusted earnings per share (EPS) and adjusted EBITDA guidance for 2023.
Kraft Heinz has been focused on enhancing productivity throughout its value chain and channeling operational efficiencies back into crucial areas such as marketing, technology, and research & development. These investments remain pivotal to KHC’s strategic framework. The company struck a milestone on its transformation path in the third quarter by reaching its target net leverage of roughly 3.0X.
Quarter in Detail
Kraft Heinz posted adjusted earnings of 72 cents per share, beating the Zacks Consensus Estimate of 66 cents. Quarterly earnings jumped 14.3% year over year, mainly due to increased adjusted EBITDA and positive changes in other expenses/(income), somewhat negated by elevated taxes.
Kraft Heinz Company Price, Consensus and EPS Surprise
Kraft Heinz Company price-consensus-eps-surprise-chart | Kraft Heinz Company Quote
The company generated net sales of $6,570 million, up 1% year over year. Net sales included an unfavorable currency impact of 0.5 percentage points and an adverse impact of 0.2 percentage points from divestitures. Net sales missed the Zacks Consensus Estimate of $6,700 million.
Organic net sales increased 1.7% year over year. Pricing rose 7.1 percentage points year over year, reflecting growth in both segments. The upside can be attributed to higher list prices to counter escalated input costs. The volume/mix fell 5.4 percentage points due to the elasticity effect of pricing actions in both units. Our model suggested pricing to be up 8.5% and volumes to decline 5.9% in the third quarter.
The adjusted gross profit of $2,231 million jumped 14.3% from the figure reported in the year-ago quarter. The adjusted gross margin expanded 396 basis points to 34%. We had expected an adjusted gross margin expansion of about 240 basis points.
Adjusted EBITDA advanced 11.9% to $1,565 million due to elevated pricing and efficiency gains. These were somewhat negated by elevated supply-chain costs, an adverse volume/mix, currency headwinds and investments related to marketing, technology and research & development. Supply-chain costs included inflation across procurement and manufacturing costs.
Segment Discussion
North America: Net sales of $4,995 million declined 0.4% year over year. Organic sales fell 0.1%. During the quarter, pricing moved up 5.8 percentage points, but the volume/mix fell 5.9 percentage points.
International: Net sales of $1,575 million were up 5.7% year over year. Organic sales rose 8%, with pricing up 11.6 percentage points, but the volume/mix down 3.6 percentage points.
Other Financial Aspects
Kraft Heinz ended the quarter with cash and cash equivalents of $1,052 million, long-term debt of $19,270 million and total shareholders’ equity of $49,434 million. Net cash provided by operating activities was $2,620 million for the first nine months of 2023. The company has generated free cash flow of $1,841 million year to date.
In a separate press release, Kraft Heinz declared a quarterly dividend of 40 cents per share, payable on Dec 29, 2023, to shareholders of record as of Dec 1.
Guidance
For 2023, management expects organic net sales growth to be at the lower end of its previously guided range of 4-6%.
Adjusted EBITDA is expected to increase 5-7% at constant currency or cc compared with the 4-6% growth projected earlier. Excluding the impacts of the 53rd week in 2022, the adjusted EBITDA is now likely to rise 7-9% compared with the earlier view of 6-8%.
Management expects an adjusted gross margin expansion, driven by pricing and efficiencies. However, it expects mid-single-digit inflation in 2023. The adjusted gross profit margin is likely to increase 200-250 basis points in 2023 compared with the expansion of 150-200 basis points expected earlier.
The adjusted EPS for the year is now envisioned in the band of $2.91-$2.99, higher than the prior view of $2.83-$2.91. The latest guidance includes a nearly 3-cent expected impact of adverse changes in non-cash pension and post-retirement benefits and a roughly 4-cent adverse impact of currency woes. The bottom-line view also includes an adverse 6-cent impact from lapping the 53rd week in 2022.
Shares of this Zacks Rank #3 (Hold) company have decreased 12.3% in the past three months compared with the industry’s decline of 14.8%.
3 Solid Consumer Staple Picks
Lamb Weston (LW - Free Report) , which offers frozen potato products, currently sports a Zacks Rank #1 (Strong Buy). LW delivered an earnings surprise of 46.2% in the last reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggests growth of 28.3% and 24.8%, respectively, from the year-ago reported numbers.
TreeHouse Foods (THS - Free Report) , a private-label food and beverage company, currently sports a Zacks Rank #1. THS has a trailing four-quarter earnings surprise of 31.4%, on average.
The Zacks Consensus Estimate for TreeHouse Foods’ current fiscal-year earnings suggests growth of almost 112% from the corresponding year-ago reported figure.
Celsius Holdings (CELH - Free Report) , a functional drink and liquid supplement company, currently carries a Zacks Rank #2 (Buy). CELH delivered a positive earnings surprise in the preceding three quarters.
The Zacks Consensus Estimate for Celsius Holdings’ current fiscal-year sales suggests growth of 89.9% from the corresponding year-ago reported figure.