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Kraft Heinz (KHC) Q2 Earnings Beat Estimates, Sales Down Y/Y

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The Kraft Heinz Company (KHC - Free Report) reported second-quarter 2021 results, with the top and the bottom line beating the Zacks Consensus Estimate. However, net sales and earnings declined on a year-over-year basis. 

Let’s Delve Deeper

Kraft Heinz posted adjusted earnings of 78 cents a share that beat Zacks Consensus Estimate of 73 cents. However, quarterly earnings declined 2.5% from 80 cents reported in the year-ago quarter mainly due to reduced adjusted EBITDA. Lower interest expenses as well as effective tax rate offered some respite.

The company generated net sales of $6,615 million that inched down 0.5% year over year. Net sales include an adverse impact of 0.7 percentage point from divestiture of nuts business (concluded in second-quarter 2021). Favorable currency rates impacted net sales by 2.3 percentage points. The metric came ahead of the Zacks Consensus Estimate of $6,607.5 million. When compared with second-quarter 2019 levels, net sales grew 3.2%.

Organic net sales fell 2.1% year over year, which includes adverse impacts from exiting the McCafé licensing agreement. When compared with second-quarter 2019, the metric rose 5%.

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


The company stated that pricing rose 1.5 percentage points year over year with growth in all reporting segment. The upside can be attributed to favorable trade expense timing in the United States along with increased inflation-justified pricing in the foodservice as well as retail channels. However, adverse impact stemming from restoring more normal promotional activities was a drag. Volume/mix fell 3.6 percentage points year over year owing to extraordinary pandemic-led retail demand in 2020. Also, adverse impact from exiting the McCafé licensing agreement to the tune of 1.1 percentage point was a downside. These were somewhat countered by partial recovery in foodservice channels and improved retail consumption trends when compared with 2019 levels.

Other Operating Highlights

Gross profit of $2,291 million decreased 6.6% year over year during the quarter under review.

Adjusted EBITDA fell 5.2% to $1,706 million. Excluding a positive 1.8 percentage point impact from currency, the metric was hurt by increased cost inflation, reduced shipments and an unfavorable mix when compared with the solid 2020 period. Improved pricing, gains from efficiency and year-over-year favorable overhead costs offered some respite.

Segment Discussion

United States: Net sales of $4,738 million declined 3.6% year over year. During the quarter, pricing moved up 1.3 percentage points but volume/mix fell 4.0 percentage points.

International: Net sales of $1,413 million were up 8.3% year over year. Markedly, pricing moved up 1.9 percentage points, but volume/mix declined 1.5 percentage points.

Canada: Net sales of $464 million rose 8.8% year over year. Notably, pricing moved up 1.9 percentage points but volume/mix declined 5.5 percentage points.

Other Financial Aspects

Kraft Heinz ended the quarter with cash and cash equivalents of $3,941 million, long-term debt of $23,545 million and total shareholders’ equity of $49,997 million. Net cash provided by operating activities was $2,029 million for six months ended Jun 26, 2021. The company generated free cash flow of $1,598 million during this time.

In a separate press release, Kraft Heinz declared quarterly dividend of 40 cents per share that is payable on Sep 24, 2021, to shareholders of record as of Sep 1.

Zacks Investment Research
Image Source: Zacks Investment Research


Taking into account to-date performance, Kraft Heinz continues to anticipate 2021 adjusted EBITDA to come ahead of its strategic plan. The company now envisions the metric to be ahead of 2019 level. Management highlighted that comparisons with 2019 period is a better fit, given the extraordinary pandemic-induced consumer demand in 2020 period.

Kraft Heinz expects a mid-single-digit percentage growth in organic net sales for the third quarter of 2021, when compared with 2019 period. Constant-currency adjusted EBITDA is likely to decline by low-single-digit percentage from 2019 levels.

When compared with the 2020 period, the outlook reflects a low-single-digit percentage decline in organic net sales and a low-teens percentage fall in constant-currency adjusted EBITDA.

The Zacks Rank #4 (Sell) stock has dropped 8.3% in the past three months compared with the industry’s decline of 4.9%.

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