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Kraft Heinz (KHC) Q4 Earnings Top Estimates, Sales Decline Y/Y
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The Kraft Heinz Company (KHC - Free Report) posted soft fourth-quarter 2023 results, as both the top and bottom lines declined year over year, and the top line came below the Zacks Consensus Estimate.
The overall industry witnessed headwinds stemming from the ongoing consumer landscape during the fourth quarter. However, KHC expects these to subside going forward, especially due to the lapping of lower SNAP benefits.
Management remains impressed with its overall 2023 performance, wherein it delivered sales in each of its three key pillars — Global Foodservice, Emerging Markets and U.S. Retail GROW Platforms. Early action plans laid out in 2023 to enhance market share and volume yielded successful results.
Additionally, the efficient execution of the Agile@Scale methodology, including digital advancements, contributed significantly to KHC's performance. Management expects continued growth in 2024, backed by the company’s robust strategic execution.
Quarter in Detail
Kraft Heinz posted adjusted earnings of 78 cents per share, beating the Zacks Consensus Estimate of 77 cents. Quarterly earnings declined 8.2% year over year, mainly due to an adverse 6.9 percentage point impact from an additional week in the year-ago period. The year-over-year decline in the bottom line was also a result of an elevated tax rate in the current year period, partly offset by reduced interest expenses.
Kraft Heinz Company Price, Consensus and EPS Surprise
The company generated net sales of $6,860 million, down 7.1% year over year. Net sales included an unfavorable currency impact of 0.2 percentage points, an adverse impact of 0.1 percentage points from divestitures and buyouts and a 6.1 percentage point adverse impact from a 53rd week in the year-ago period. Net sales missed the Zacks Consensus Estimate of $6,971 million.
Organic net sales fell 0.7% year over year. Pricing rose 3.7 percentage points year over year, reflecting growth in both segments. The upside can be attributed to higher list prices to counter escalated input costs. However, the volume/mix fell 4.4 percentage points due to declines in both segments stemming from the elasticity effect of pricing actions and industry hurdles. Our model suggested pricing to be up 5.8% and volumes to decline 4.3% in the fourth quarter.
The adjusted gross profit of $2,384 million jumped 0.4% from the figure reported in the year-ago quarter. The adjusted gross margin expanded 260 basis points to 34.8%. We had expected an adjusted gross margin expansion of about 220 basis points to 34.4%.
Adjusted EBITDA declined 5.3% to $1,650 million, mainly due to the abovementioned 53rd-week impact, along with elevated supply-chain costs, an adverse volume/mix, higher commodity costs, currency headwinds and SG&A 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 $5,167 million declined 9.1% year over year. Organic sales fell 3%. During the quarter, pricing moved up 2.5 percentage points, but the volume/mix fell 5.5 percentage points.
International: Net sales of $1,693 million were down 0.2% year over year. Organic sales rose 7.1%, with pricing up 7.7 percentage points, but the volume/mix declined by 0.6 percentage points.
Other Financial Aspects
Kraft Heinz ended the quarter with cash and cash equivalents of $1,400 million, long-term debt of $19,394 million and total shareholders’ equity of $49,526 million. Net cash provided by operating activities was $3,976 million for the year ended Dec 30, 2023. Year to date, free cash flow was $3 billion.
During 2023, Kraft Heinz paid cash dividends worth $1,965 million and made share buybacks worth $455 million. As of Dec 30, 2023, the company had shares worth $2.7 billion remaining under its buyback plan.
In a separate press release, Kraft Heinz declared a quarterly dividend of 40 cents per share, payable on Mar 29, 2024, to shareholders of record as of Mar 8.
Guidance
For 2024, management expects organic net sales growth to come in the range of flat to increase 2%. Pricing is likely to have a positive impact on organic net sales throughout the year, while volumes are expected to be positive in the second half of the year.
Management expects a modest adjusted gross margin expansion in the 25-75 basis point band. Adjusted operating income is likely to increase 2-4% from the year-ago period.
The adjusted EPS for 2024 is envisioned in the band of $3.01-$3.07. The adjusted effective tax rate is anticipated to be 20-22%.
Shares of this Zacks Rank #3 (Hold) company have jumped 7.7% in the past three months compared with the industry’s growth of 6.6%.
3 Solid Consumer Staple Picks
Chewy (CHWY - Free Report) , a trusted destination for pet parents and partners everywhere, currently sports a Zacks Rank #1 (Strong Buy). CHWY has a trailing four-quarter earnings surprise of 234.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Chewy’s current financial-year sales and earnings indicates growth of 10.3% and 11.3%, respectively, from the year-ago reported numbers.
Post Holdings (POST - Free Report) , which operates as a consumer packaged goods holding company, sports a Zacks Rank #1. POST has a trailing four-quarter earnings surprise of 52.2%, on average.
The Zacks Consensus Estimate for Post Holdings’ current financial-year sales and earnings suggests growth of 15.2% and 3.4%, respectively, from the year-ago reported numbers.
Casey's General Stores (CASY - Free Report) , the third largest convenience retailer and fifth largest pizza chain in the United States, currently carries a Zacks Rank #2 (Buy). CASY has a trailing four-quarter earnings surprise of 17.8%, on average.
The Zacks Consensus Estimate for Casey's current financial-year sales and earnings suggests growth of around 0.3% and 9%, respectively, from the year-ago reported numbers.
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Kraft Heinz (KHC) Q4 Earnings Top Estimates, Sales Decline Y/Y
The Kraft Heinz Company (KHC - Free Report) posted soft fourth-quarter 2023 results, as both the top and bottom lines declined year over year, and the top line came below the Zacks Consensus Estimate.
The overall industry witnessed headwinds stemming from the ongoing consumer landscape during the fourth quarter. However, KHC expects these to subside going forward, especially due to the lapping of lower SNAP benefits.
Management remains impressed with its overall 2023 performance, wherein it delivered sales in each of its three key pillars — Global Foodservice, Emerging Markets and U.S. Retail GROW Platforms. Early action plans laid out in 2023 to enhance market share and volume yielded successful results.
Additionally, the efficient execution of the Agile@Scale methodology, including digital advancements, contributed significantly to KHC's performance. Management expects continued growth in 2024, backed by the company’s robust strategic execution.
Quarter in Detail
Kraft Heinz posted adjusted earnings of 78 cents per share, beating the Zacks Consensus Estimate of 77 cents. Quarterly earnings declined 8.2% year over year, mainly due to an adverse 6.9 percentage point impact from an additional week in the year-ago period. The year-over-year decline in the bottom line was also a result of an elevated tax rate in the current year period, partly offset by reduced interest expenses.
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 $6,860 million, down 7.1% year over year. Net sales included an unfavorable currency impact of 0.2 percentage points, an adverse impact of 0.1 percentage points from divestitures and buyouts and a 6.1 percentage point adverse impact from a 53rd week in the year-ago period. Net sales missed the Zacks Consensus Estimate of $6,971 million.
Organic net sales fell 0.7% year over year. Pricing rose 3.7 percentage points year over year, reflecting growth in both segments. The upside can be attributed to higher list prices to counter escalated input costs. However, the volume/mix fell 4.4 percentage points due to declines in both segments stemming from the elasticity effect of pricing actions and industry hurdles. Our model suggested pricing to be up 5.8% and volumes to decline 4.3% in the fourth quarter.
The adjusted gross profit of $2,384 million jumped 0.4% from the figure reported in the year-ago quarter. The adjusted gross margin expanded 260 basis points to 34.8%. We had expected an adjusted gross margin expansion of about 220 basis points to 34.4%.
Adjusted EBITDA declined 5.3% to $1,650 million, mainly due to the abovementioned 53rd-week impact, along with elevated supply-chain costs, an adverse volume/mix, higher commodity costs, currency headwinds and SG&A 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 $5,167 million declined 9.1% year over year. Organic sales fell 3%. During the quarter, pricing moved up 2.5 percentage points, but the volume/mix fell 5.5 percentage points.
International: Net sales of $1,693 million were down 0.2% year over year. Organic sales rose 7.1%, with pricing up 7.7 percentage points, but the volume/mix declined by 0.6 percentage points.
Other Financial Aspects
Kraft Heinz ended the quarter with cash and cash equivalents of $1,400 million, long-term debt of $19,394 million and total shareholders’ equity of $49,526 million. Net cash provided by operating activities was $3,976 million for the year ended Dec 30, 2023. Year to date, free cash flow was $3 billion.
During 2023, Kraft Heinz paid cash dividends worth $1,965 million and made share buybacks worth $455 million. As of Dec 30, 2023, the company had shares worth $2.7 billion remaining under its buyback plan.
In a separate press release, Kraft Heinz declared a quarterly dividend of 40 cents per share, payable on Mar 29, 2024, to shareholders of record as of Mar 8.
Guidance
For 2024, management expects organic net sales growth to come in the range of flat to increase 2%. Pricing is likely to have a positive impact on organic net sales throughout the year, while volumes are expected to be positive in the second half of the year.
Management expects a modest adjusted gross margin expansion in the 25-75 basis point band. Adjusted operating income is likely to increase 2-4% from the year-ago period.
The adjusted EPS for 2024 is envisioned in the band of $3.01-$3.07. The adjusted effective tax rate is anticipated to be 20-22%.
Shares of this Zacks Rank #3 (Hold) company have jumped 7.7% in the past three months compared with the industry’s growth of 6.6%.
3 Solid Consumer Staple Picks
Chewy (CHWY - Free Report) , a trusted destination for pet parents and partners everywhere, currently sports a Zacks Rank #1 (Strong Buy). CHWY has a trailing four-quarter earnings surprise of 234.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Chewy’s current financial-year sales and earnings indicates growth of 10.3% and 11.3%, respectively, from the year-ago reported numbers.
Post Holdings (POST - Free Report) , which operates as a consumer packaged goods holding company, sports a Zacks Rank #1. POST has a trailing four-quarter earnings surprise of 52.2%, on average.
The Zacks Consensus Estimate for Post Holdings’ current financial-year sales and earnings suggests growth of 15.2% and 3.4%, respectively, from the year-ago reported numbers.
Casey's General Stores (CASY - Free Report) , the third largest convenience retailer and fifth largest pizza chain in the United States, currently carries a Zacks Rank #2 (Buy). CASY has a trailing four-quarter earnings surprise of 17.8%, on average.
The Zacks Consensus Estimate for Casey's current financial-year sales and earnings suggests growth of around 0.3% and 9%, respectively, from the year-ago reported numbers.