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Kraft Heinz (KHC) Q2 Earnings Surpass Estimates, Sales Up

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The Kraft Heinz Company (KHC - Free Report) reported robust second-quarter 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Moreover, sales and earnings increased year over year. Results gained from solid retail demand in all business segments.

The Kraft Heinz Company Price, Consensus and EPS Surprise

The Kraft Heinz Company Price, Consensus and EPS Surprise

The Kraft Heinz Company price-consensus-eps-surprise-chart | The Kraft Heinz Company Quote

Q2 in Detail

Adjusted earnings per share of 80 cents surpassed the consensus mark of 64 cents. Moreover, the bottom line increased 2.6% year over year on the back of higher adjusted EBITDA.

Net sales increased 3.8% year over year to $6,648 million. Also, the figure surpassed the Zacks Consensus Estimate of $6,521.7 million. Net sales growth included 1.5 and 2.1 percentage point impact from unfavorable impacts of currency and divestitures, respectively. Organic sales rose 7.4% on the back of solid consumer demand in the retail category stemming from to the coronavirus pandemic. However, reduced sales from foodservice channels were a deterrent.

Pricing was up 2.2 percentage points, driven by reduced promotional activities. Volume/mix increased 5.2 percentage points on the back of higher demand in the retail segment as well as improved retail inventory.

Operating Highlights

Gross profit of $2,452 million increased 17.8% year over year and gross margin came in at 36.9% in the reported quarter.

Adjusted EBITDA was up 12.4% to $1,799 million in the quarter. The upside can be attributed to robust organic net sales growth.

Segment Discussion

United States: Net sales of $4,917 million increased 8.5% year over year. During the quarter, pricing moved up 2.3 percentage points owing to lower promotional activities. Volume/mix increased 6.2 percentage points on growth in various retail categories as well as increase in retail inventory.

The segment’s adjusted EBITDA increased 17.6% to $1,478 million. The upside was caused by volume leverage along with favorable channel and product mix. Favorable pricing and reduced costs of packaging were also a reason.

Canada: Net sales of $426 million declined 23.9% year over year, which included unfavorable impact of divestitures to the tune of 23.1 percentage points and an unfavorable currency impact of 2.8 percentage points. Nevertheless, organic sales increased 2% year over year. Pricing increased 1.3 percentage points due to higher list price in several categories as well as reduced promotional activities. Volume/mix moved up slightly owing to higher consumption in the retail unit.

Segment adjusted EBITDA declined 23.2% to $110 million, due to unfavorable currency rates and adverse divestiture impacts.

International: Net sales of $1,305 million inched down 0.7% year over year, which included unfavorable currency impact of 6.2 percentage points. Organic sales rose 5.5% year on year. Pricing improved 2.6 percentage points owing to reduced promotional expenses and better prices in various markets. Volume/mix was up 2.9 percentage points on growth of consumption in condiments, sauces and meal-oriented categories. Also, improvement in retail inventory levels was a reason.

Adjusted EBITDA increased 3.2% to $275 million on higher organic net sales.

Financials

Kraft Heinz ended the quarter with cash and cash equivalents of $2,812 million, long-term debt of $28,097 million as well as total shareholders’ equity of $49,040 million. Further, the company generated $2,216 million as cash from operating activities for six months ended Jun 27, 2020.

In a separate press release, the company announced a quarterly dividend of 40 cents per share, which is payable on Sep 25 to shareholders of record as of Aug 28.

Price Performance

We note that the Zacks Rank #2 (Buy) stock has gained 14.4% year to date against the industry’s decline of 3.2%.

Top 3 Picks

Kellogg Company (K - Free Report) has a long-term earnings growth rate of 3.8% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1Rank (Strong Buy) stocks here.

Flowers Foods (FLO - Free Report) currently has an Earnings ESP of +9.41% and carries a Zacks Rank #2.

B&G Foods, Inc. (BGS - Free Report) currently has an Earnings ESP of +1.56% and carries a Zacks Rank #2.

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